The 213,800-unit Detroit-area apartment market is at pre-recession level prosperity, but without competition from new supply. The second quarter of 2012 saw a vacancy rate of 4.8%, down 30 basis points for the period on 521 units of net absorption. The Class A and B/C rates were 4.2% and 5.2% during the quarter. The rate was unchanged in July, but Reis predicts a decrease to 4.3% by year-end 2012. Although 610 units are under construction, many have broken ground only recently, and just 94 are expected to complete in 2012 as net absorption is forecast at 2,440.
New supply has been limited since the vacancy rate soared in the 2000s, due first to a shift to owner occupancy during the housing bubble and then to economic collapse. Net absorption was negative for much of the decade. Reis, however, predicts about 1,000 units per year will complete construction from 2013 to 2016, encouraged by improved demand. The vacancy rate is forecast to fall below 4.0% in 2013 and stay there, in a period of low vacancy similar to the 1990s.
Rent gains are becoming strong. In the second quarter the average asking rent rose 1.0% to $855 per month and the average effective rent increased 1.3% to $796 per month. The respective Class A and B/C asking averages for the second quarter were $1,058 and $736 per month, up 1.1% and 1.0% for the quarter. Reis reports gains of 0.2% asking and 0.3% effective in July, and predicts respective gains of 3.0% and 3.9% for all of 2012, the highest effective rent gain since 2000. Subsequent annual gains are expected to be even larger, at around 4.0% asking and 4.5% effective each year from 2014 to 2016.
“Apartment operations have strengthened, reigniting construction plans,” according to Marcus & Millichap. This source predicts a vacancy rate of 4.5% and an asking rent of $847 per month at the end of the year.