Apartment Vacancy Rate Hits Three-Year High

New York, NY, Oct. 6, 2008--The apartment vacancy rate in the third quarter increased to its highest level in more than three years, as the economy weakened and diluted the greatest source of apartment demand -- job growth.

Job losses outweighed the increase in demand for apartments from former or would-be home owners, said Sam Chandan, chief economist of real estate research firm Reis.

According to Reis' results for July-September, the U.S. apartment vacancy rate rose 0.1 percentage points to 6.1 percent, the highest vacancy level since the second quarter 2005, when the U.S. housing market reached its peak and would-be renters were borrowing big to buy homes.

"Whenever the economy is slowing, when the job market is weak, particularly for young people, it undercuts the rate of household formation and the demand for apartments," Chandan said, adding that the third quarter is usually the strongest of the year.

However, the U.S. economy lost 299,000 jobs in the third quarter, according to the most recent Labor Department statistics. Job loss typically impacts new entries into the labor market hard, and about 70 percent of young adults 20 to 30 years old typically are apartment dwellers.

"This is a real key demographic for rental demand for apartments," Chandan said. When they can't get a job, they usually remain in their parents' home or double up with roommates, he said.

The average U.S. monthly rent, including free-months rent and other perks designed to lure tenants, reached $999 up just 0.5 percent, its weakest increase since the second quarter 2005, Reis said in its report released on Monday.

Of the 79 metropolitan areas Reis follows, New York had the lowest vacancy rate at 2 percent, followed by Long Island at 2.8 percent and Central New Jersey at 2.9 percent.