Construction in Cleveland’s 112,685-unit market remains muted and vacancy remains low, although construction has picked up a bit. The second quarter 2012 vacancy rate of 4.1% is unchanged from the prior quarter, but down a full 100 basis points from 12 months earlier. The August rate is down 10 basis points more. A vacancy rate at or below 5.0% is generally considered to indicate an essentially full market. The Class A rate is low at 3.2%, down 20 basis points from the prior quarter, and the Class B/C rate is 4.4%, down 10 basis points over the quarter. Given the prevailing low vacancies across the classes, it is not surprising that multifamily demand is strong. (The conversion of condominiums to apartments has not been a factor here several years). From 2002 to 2011, construction added 3,784 units while net absorption totaled 3,791, with demand gaining ground towards the end of that time span. This set up the landlord-friendly vacancy levels of the past year or so. Reis’s latest construction data list 114 units completed so far in 2012. Second quarter net absorption is a few units higher.
Rents remain low. Reis reports second quarter average asking and effective rents of $756 and $724 per month, up 1.0% and 1.2% for the quarter and up 2.3% and 3.0% over 12 months. The second quarter marks another strong one for rents here, and August data indicate slight asking and effective rent gains as well. Class A asking rents finished the quarter at $949 per month, up 1.5%, and Class B/C rents were up 0.7% to $677 per month. Gains of 2.5% asking and 3.5% effective, revised downward from previous estimates, are forecast for 2012. These are still solid annual gains and even larger increases, of around 4.0%, are forecast for 2014.
In their third quarter 2012 report, Marcus & Millichap states that “improvements in the local economy will support the creation of new renter households in the coming months, tightening vacancy below 4.0%. Payrolls will grow at the fastest pace in more than a decade this year as most private sectors add jobs.” If the natural gas boom takes hold, new worker could fuel even greater apartment demand.