BUSINESS
01/05/2012 12:00 am ET Updated Mar 05, 2012

U.S. Apartment Vacancies Fourth Quarter 2011: Apartment Vacancies Hit 10-Year Low

* Vacancies at lowest level since late '01

* Effective rents on the rise

* Rate expected to fall further this year

Jan 5 (Reuters) - U.S. apartment vacancies fell to a 10-year low in the fourth quarter and rents continued to rise as the economy showed signs of growth. real estate research firm Reis Inc said on Thursday.

Those trends should continue this year, the firm added, with rents increasing sharply as vacancies decline.

Reis said the nationwide vacancy rate fell to 5.2 percent, a level last seen in late 2001. It is also lower than the lowest vacancy rate seen during the last cycle, in 2006, before vacancies started to soar because of the financial crisis.

Asking rents rose 0.4 percent in the quarter, while effective rents -- what the tenant actually pays on an annual basis after discounts -- rose 0.5 percent. Nearly 90 percent of the markets surveyed reported higher effective rents, the firm said.

"The fourth quarter tends to be a weaker leasing period given that most households make moving decisions in the second and third quarters, but the apartment sector exceeded expectations once again, ostensibly due to heightened economic activity in the last three months," Reis's research head, Victor Calanog, said in a commentary.

Apartment supply was tightest in the college town of New Haven, Connecticut, with a vacancy rate of 2.1 percent, followed closely by New York City at 2.4 percent.

Rent growth was highest in San Francisco, where effective rents grew 1.7 percent in the fourth quarter to $1,865.

Over the course of the year, the biggest decline in the vacancy rate was in the cities of Charleston, South Carolina, and Greensboro, North Carolina.

One of the key factors driving the tightening market, Reis said, was a lack of supply. Some 37,678 new apartment units came to market in 2011, the firm said, the lowest total in 31 years of data and nearly 25 percent less than the prior low.

That should change, though, as developers are drawn to what has been the best-performing real estate sector of late.

"By 2013 the influx of new units may begin eroding any benefit the sector derives from tight supply conditions," Calanog said. (Reporting By Ben Berkowitz in Boston; Editing by Steve Orlofsky)

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