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Reis: Apartment demand trails new construction, but by smaller margin

New construction continued to outpace the net absorption ofapartments in the U.S. during the third quarter, albeit by a smaller marginthan anticipated, according to Reis Inc.

The third quarter saw 37,744 completed units compared with37,693 absorbed units, continuing the trend of higher construction versus netabsorption for the sixth consecutive quarter.

The national apartment vacancy rate, meanwhile, remainedunchanged from the second quarter at 4.4%. Reis economist Barbara Denham saidin a news release that the unchanged vacancy rate was a positive sign thatdevelopers are reacting to the high volume of construction, though the vacancyrate for the third quarter could still increase once the data is finalized.

Asking and effective rent growth both increased by 0.9% inthe third quarter, slightly trailing the second quarter's 1.1% growth. Thethird quarter's rental growth was far short of the 1.7% quarterly growth raterecorded in the third quarter of 2015. The fact that the gap between asking andeffective rents has not widened reflects landlord's favorable outlook forfuture improvements spurred by stronger job growth.

New York City and San Francisco saw the highest effectiverents during the quarter, yet saw rental declines of 0.1% and 0.8%respectively. The decline was attributed to landlords backtracking from earlierrental increases in the wake of subdued leasing in newer developments.

The total number of units completed over the last 12 monthsstood at 193,660, down from the previous quarter's significant 12-month figureof 198,232 units. The decline in completed units reflects developers' cautiousattitude, along with a slowdown in multifamily housing starts.

Reis expects net absorption to improve in forthcomingquarters, following reduced leasing activity due to the U.S. presidentialelection, however new construction still remains likely to outpace netabsorption.