Economist's Commentary: October 9, 2008

Multi-Family Market Trends

By George Ratiu, Research Economist

While the residential market is still dealing with delinquent mortgages and foreclosures, the multi-family sector is feeling some positive side-effects. A good number of potential first-time home buyers are waiting out the current economic and housing conditions, and choosing to rent. In addition, in markets with significant foreclosures, displaced homeowners choose multi-family buildings to rent.

As a result, the multi-family market is likely to be the least impacted of the commercial property types. Nationally, the vacancy rate is at 5.4 percent for the third quarter of 2008, unchanged from the previous quarter.

There are several markets, however, where the availability is significantly lower, making for a "landlord's market." Newark, NJ and Pittsburgh, PA both share the same lowest vacancy rate for the third quarter, at 2.2 percent. The other markets with low vacancy rates are Minneapolis, MN and Philadelphia, PA, each at 2.8 percent. San Diego, CA rounds out the list, with a vacancy rate of 3.0 percent for the quarter. Markets where vacancy rates are higher than the national average include Jacksonville, FL at 8.5 percent, Phoenix, AZ at 8.1 percent, as well as Houston and Fort Worth, TX at 7.7 percent and 7.2 percent, respectively.

The number of multifamily completions remains relatively high, despite a slight drop in the third quarter of 2008. A major factor in completions continues to be the conversion of condominium projects into multi-family rental units. This is a particularly notable trend in markets that experienced increases in condominium construction over the past five years, like Washington D.C and Miami.

The pace of completions is matched, however, by positive net absorption. In turn, rent growth in the multi-family sector continues on a moderate, but steady pace. For the third quarter of 2008, rents are up 1.1 percent.

In the short run, multi-family is slated to remain stable. By the end of 2008, the vacancy rate is expected to be 5.5 percent, only slightly higher than the 5.4 percent during 2007.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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