Apartment/Multifamily Outlook

In the apartment rental market – multifamily housing – vacancy rates are forecast at an average of 5.9 percent at the end of this year, which would be unchanged from the fourth quarter of 2006. Average rent is likely to rise 2.8 percent in 2007, following a 4.1 percent increase last year. This is according to a recent study done by the National Association of Realtors.

With the condo conversion craze coming to an end in most markets, multifamily investment is normalizing. Condo converters accounted for $30 billion out of $88 billion in multifamily transactions in 2005, but were down to $9 billion out of $87.4 billion in 2006. Some converted projects are returning to the rental market, and investors are now focused on income appreciation and improving fundamentals.

Multifamily net absorption should total 223,900 units in 59 tracked metro areas in 2007, up from 221,900 last year. The areas with the lowest apartment vacancies include Northern New Jersey; San Jose; Salt Lake City; Los Angeles; Miami; Washington, D.C., and Norfolk, Va., all with vacancy rates of 3.1 percent or less.