Apartment landlords appear to be among the only commercial property owners able to sign new tenants amid the sluggish economy.
But the strength of the multifamily sector is itself related to the troubled economy. There has been an “abnormal slowdown in household formation in recent years,” Lawrence Yun, chief economist for the National Association of Realtors, says in a new report. “Many young people, who normally would have struck out on their own from 2008 to 2010, had been doubling up with roommates or moving back into their parents’ homes.”
NAR, using U.S. Census data, says that household formation was only 357,000 last year, compared with 398,000 in 2009. That’s way below 1.6 million in 2007. But Mr. Yun said young people have been entering the rental market as new households in stronger numbers this year.
NAR expects vacancy rates in multifamily housing will drop from 5.5% to 4.6% in the third quarter of 2012. Vacancies below 5% generally are considered a landlord’s market, the trade group noted.
But conditions aren’t as rosy in the rest of the commercial property market with the tepid economy poised to slow demand for space, according to the report.
For the office market, the vacancy rate is forecasted to fall from 16.6% in the third quarter of this year to 16.3% in the third quarter of 2012. The markets with the lowest office vacancy rates include Washington, D.C. at 8.6%, New York City at 10.1% and Long Island, N.Y at 13%.
Retail vacancy rates are projected to decline from 12.9% in the third quarter this year to 12.2% in the third quarter of 2012. San Francisco led with the lowest vacancy rate of 3.8% followed by Northern New Jersey at 6.1%. Los Angeles; Long Island, N.Y.; and San Jose, Calif tied for third place at 6.4% each.