BOSTON: The apartment market in the US will improve as vacancy rates decline, according to a report from CB Richard Ellis Group Inc’s Econometric Advisors (CBRE-EA, formerly CBRE Torto Wheaton).

Vacancy rates will drop to a 6.8% average this year, compared with 7.4% in 2009, constituting a 60 basis points (bps) improvement, CBRE-EA said in a statement released on March 11.

CBRE-EA also said that its analysis foresees less declines in effective rent this year as discounts and concessions become less wide spread.

“We are seeing increased demand in many markets amid indications that the apartment market, while still seeing higher than normal vacancies, is stabilising,” said CBRE-EA economist Gleb Nechayev.

“2010 will be a year of differentiation, where the best income-producing properties -- those distinguished by superior quality of construction and the right location -- will be increasingly attractive to both occupiers and investors.”

The 6.8% vacancy rate projected by CBRE-EA is still 40 bps higher than the previous peak in 2003 when vacancy rate averaged 6.4% and 150 bps higher than the long-term average vacancy rate of 5.3%.

“CBRE-EA analysis shows that in 4Q2009, average effective rents declined by 4.7% compared to 3Q2008. The new forecast projects that in 4Q2010, average effective rents will decline only 0.8% as compared to 4Q2009,” said the report.

For 2010 as a whole (i.e., rent averaged of four quarters of 2010 compared with the same for 2009), rents will decline by 2.3% compared with 2.9% in 2009 over 2008. 
Larger markets where CBRE-EA forecasted positive growth in effective rents in 2010 include Boston, Denver, Seattle and Washington DC.

“Starting this year, we are likely to see more differentiation in property performance and pricing — not just across sectors and markets but across individual assets based on their quality and specific location.

“Liquidity shock and subsequent pricing correction affected all properties, including those with the strongest operating performance records and, in the case of new developments, those with the potential for such performance,” Nechayev said.

He said the relative attractiveness of such buildings to occupiers and investors should allow them to stay ahead of the rest even in the challenging years ahead.

“Their values have probably bottomed out already, even as the broader market continues to adjust. Anecdotal evidence suggests that cap rates on the most highly sought-after assets have already come down in recent months,” he said.