Demand for Rental Housing Poised for Improvements in 2005 - 2/14/2005 - Multifamily Landlord Tenant Commercial Buildings

Demand for Rental Housing Poised for Improvements in 2005

Condominiums, which surged last year and bolstered multifamily production during a period when rental vacancy rates were near record highs and rent concessions were commonplace, are expected to continue to gain ground, heading to almost one-third of the market.

“This year will show good economic and job growth, which is good news for rentals,” said NAHB Chief Economist David Seiders. “Vacancy rates will fall, and absorption rates will rise.”

Seiders said that demand for multifamily rentals will receive a bit of a boost from slowly rising interest rates that will push up monthly mortgage payments enough to slow the recent flow of renters into homeownership.

While multifamily production has remained remarkably steady and healthy for the past several years, vacancy rates last year rose to their highest levels since the early 1990s, when the industry was in recession. For buildings with five or more units, they reached a peak of 12% in the second quarter, according to the Census Bureau. Vacancies in these buildings shifted down in the second half of 2004, but remained at a relatively high 11.5%.

Among the nation’s 75 largest metropolitan areas, those with the worst overall vacancy rates for all multifamily units in 2004 included: Columbus, Ohio, 18.8%; Atlanta, 18.5%; Raleigh-Durham-Chapel Hill, N.C., 18.1%; Akron, Ohio, 17.5%; Oklahoma City, 15.8%; Houston, 15.7%; Chicago, 15.4%; Norfolk-Virginia Beach-Newport News, Va., 14.8%; Dayton-Springfield, Ohio, 14.8%; Denver, 14.5%; and San Antonio, 14.5%.

Lowest vacancies were in: Orange County, Calif., 3.6%; Ventura County, Calif., 3.7%; Bergen-Passaic, N.J., 3.8%; Los Angeles-Long Beach, 3.8%; New York, 5.2%; Sacramento, Calif., 5.7%; Middlesex-Somerset-Hunterson, N.J., 5.8%; Honolulu, 5.8%; Riverside-San Bernardino, Calif., 6.0%; Fresno, Calif., 6.0%; and Boston, 6.0%.

Ron Witten, of Witten Advisors in Dallas, is bullish about prospects for the multifamily industry in the year ahead. Demand for rental units has started growing faster than the pace at which they are being produced for the first time in years, he said, and that should push overall increases in rents into the 3%-4% range this year.

The for-sale share of the multifamily market, now 30%, is at an all-time high, he said.