U.S. Apartment Market May Have Already Reached its Full Potential

Three research companies found that the six year apartment market boom is cooling down at a rapid rate. For the first quarter of this year a study by Reis Inc. showed that the NVR (national vacancy rating) had risen to a four year high at 4.5% while average rents increased to 4.1% in the first quarter, compared to 2015’s 5% increase. Another study from MPF research shows that demand for new apartments in the first quarter is half of what it was in the 2015 first quarter. What does this all mean? That the apartment market, which has been a bull market since 2010 is starting to show signs of losing steam.

This data does not come as a surprise, however. The apartment market has seen a rapid increase in construction over the past six years and even more complexes will be built this year. Rent growth is coming down from a 15 year high while vacancy rates rise. Developers and analysts alike predict that the apartment market will become a normal market in 2016. 

Many of the countries largest apartment markets are already feeling the effects of the cooling process. Large cities such as Denver, San Francisco, New York, and Houston are all showing signs of stagnation due to an influx of new construction and renters being put-off by high rental prices which have risen substantially in the past few years. Downtown vacancy ratings have already started rising in cities such as Houston. It does not come as a surprise that a market is showing signs of weakness after being very successful for a period of time; developers everywhere can only hope that this slight downward trend does not develop further. 

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Written by Front Street Intern Nick DeMasi.