They are running out of apartments to absorb in the 16,325-unit Providence apartment market, with no new supply coming in the near term. The 3.5% vacancy rate for the second quarter, as reported by Reis, was down 10 basis points from the quarter before and 170 from a year earlier. The rate had been 10.3% at year-end 2006. Just 23 units have completed construction in the past two years, and no market rate apartments are under construction. Net absorption has slowed after having been strong through the first quarter of 2012, as apartments have become scarce.
Preliminary third quarter data show no change in the overall vacancy rate, but Reis predicts it will fall to just 3.2% by year-end 2012. The multifamily under construction and recently completed list consists entirely of senior housing, subsidized housing, and condominiums. In April, 34 units of senior citizen housing completed construction in Warwick, while in August, an 80-unit condominium, The Lofts 125 phase 1, completed construction in Pawtucket. As noted in the Special Real Estate Factors, a recent state court decision might reduce financing available for subsequent phases. Reis does expect the national apartment construction boom to make it to Providence, but just barely. The 478 units forecast to complete construction over four years from 2013 to 2016 are less than in either 2006 or 2007 by itself. The vacancy rate is expected to remain between 3.0% and 3.5%.
Scarcity is causing rents to rise. In the second quarter the average asking rent rose 0.5% to $1,241 per month and the average effective rent increased 0.7% to $1,198 per month, bringing the year-over-year gains to 2.4% and 3.4%, respectively. The asking average increased a further 0.5% in the third quarter according to preliminary data, while the effective average had risen 0.4% in July and August alone. Respective gains of 2.8% and 3.6% are forecast for all of 2012, followed by stronger gains generally around 4.0% in each of the following four years.