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Reis: Excess supply pressures US apartment market in Q4

As 2017 comes to close, the U.S. apartment market continues to face pressure from excess supply added in the fourth quarter, according to the latest data from Reis Inc.

During the quarter, the national apartment vacancy rate rose to 4.5% from 4.4% in the third quarter, while asking rents increased 0.4%, and effective rents grew 0.3%. The average quarterly growth rates for asking and effective rents are 0.9% and 0.8%, respectively.

Asking rents rose 3.9% while effective rents increased by 3.3% in the full year 2017, representing a deceleration in apartment market fundamentals, Reis said, noting that 43,769 units came online in the fourth quarter, bringing the full-year total to 213,802 units. The U.S. had not seen the construction of over 200,000 apartment units in a single year since 1986.

Despite the national apartment market showing a "distinct pullback," especially compared to 2015, the gap between asking rent growth and effective rent growth remained within a 10-basis-point range, suggesting that landlords were less aggressive in offering concessions and that tenant demand was still relatively robust.

Of the 79 metro areas tracked by Reis, 50 saw vacancies increase, with Greenville, S.C.; Lexington, Ky.; Colorado Springs, Colo.; and Omaha, Neb., leading the way. Birmingham, Ala.; Charleston, S.C; Houston; Las Vegas; and Jacksonville, Fla., saw the greatest decreases in vacancy.

Effective rent growth was strongest in Milwaukee; Houston; Raleigh-Durham, N.C.; Phoenix; and Fairfax County, Va., all of which saw growth rates greater than 1%, while Colombia, S.C.; suburban Virginia; Boston; and San Jose, Calif., experienced the greatest decreases in effective rent.

For the fourth quarter, San Francisco's effective rent growth was 0.9%, while the New York City effective rent growth rate was -0.4%. New York City's effective rent growth decline was due to higher landlord concessions, according to Reis.

New York City set a record with a vacancy rate of 5.1% at the close of 2017, breaking its previous record set in 2016. New York City saw 13,284 new apartment units come online in 2017, breaking the previous record of 8,971 in 1986. Reis expects New York City's vacancy rate to continue to rise in 2018 with more apartment units coming online, some of which are from projects that were delayed in 2017.

Washington, D.C., also set a record with a 6.6% apartment vacancy rate in 2017. The metro Washington, D.C., apartment market saw 4,884 units come online in 2017. Along with New York City and Washington, D.C., Los Angeles, Dallas and Chicago are expected to see continued apartment construction in 2018, with inventory growth starting to decline in 2019.