The steady St. Louis apartment market continued to improve in the second quarter. No new buildings completed, leaving 587 market rate units under construction, and net absorption totaled 191. The vacancy rate fell another 10 basis points to 6.2%, and is down 70 from a year earlier. The Class A vacancy rate of 5.5% is up slightly since the start of 2012, due to 205 units of new supply during the first quarter, but the Class B/C rate of 6.5% is down 50 basis points. Another 48 units completed in July, but the vacancy rate fell another 10 basis points during the month.
Reis predicts a net absorption total of 1,300 for all of 2012, the third strong year for demand in a row, along with 330 units of new supply, dropping the vacancy rate to 5.7%. A virtual repeat for supply and demand in 2013 is expected to bring the rate to 4.9% at year-end 2013, and it is expected to level off at 4.6% in 2014 as construction picks up. “Many renters will be hesitant to purchase until at least 2013, providing several more quarters of healthy operational improvement for apartment owners,” according to Heartland Real Estate Business.
Rent gains accelerated again in the second quarter, as the average asking rent rose 0.9% to $752 per month and the average effective rent increased 1.2% to $712 per month. The respective Class A and B/C asking averages were $954 and $652 per month during the second quarter, up 1.1% and 0.8% for the period. The overall July increase was 0.1% asking and 0.2% effective, and Reis predicts strong gains of 3.7% and 4.9% for all of 2012. If achieved, that would be the largest effective rent increase since 1996, and increases about as strong are forecast for each of the subsequent four years.
“Employment growth amid a limited construction pipeline will improve apartment operations in the metro this year,” Marcus & Millichap predicts for 2012. This source forecasts a vacancy rate of 5.8% and an average asking rent of $741 per month for year-end.