Good Luck Finding a Vacant Apartment in These Cities

Vacancy rates can serve as one of the most easily identifiable key performance indicators when assessing the health of apartment markets.

In multifamily real estate, rising vacancies are often the result of an increase in supply rather than any underlying weakness in a given market or submarket. The prospect of rising vacancies in stabilized properties, or those that are 90% leased, is usually a sign that renters of existing properties are migrating to new buildings, enticed by amenities, location or rent concessions.

Rising vacancies in stabilized properties is an ominous sign for any apartment market. It means that even well-leased apartment buildings have had to compete for a shrinking pool of potential renters. That often leads to weak or negative rent growth or elevated concessions and renewal incentives.

CoStar analyzed stabilized vacancy trends in the 40 largest metropolitan areas by asset value to see which markets have had existing buildings struggle during the pandemic, and which regions have been able to withstand, or even improve, during the crisis. We analyzed data from CoStar’s stabilized vacancy series, which includes properties that are older than 18 months, as well as assets that have delivered within the past 18 months and have reached 90% occupancy. These assets have generally completed the lease-up phase, which leads to lower average vacancies.

For prospective renters in Long Island, finding an apartment remains an uphill battle. Long Island leads the list for lowest stabilized vacancies, coming in at just over 3% as of the middle of the fourth quarter. The region’s high-quality schools, limited new supply and proximity to New York City help keep Long Island vacancies low, but the market has actually seen stabilized vacancies expand during the crisis. Renters in the area are more likely to either purchase homes with mortgage rates so low, or move to cheaper locations outside of the New York-New Jersey-Connecticut tri-state area.

The Inland Empire, or the Riverside–San Bernardino–Ontario metropolitan area, was considered one of the most oversupplied housing markets in the country during the housing bust of the mid-2000s. Now, the California market faces an acute housing shortage. The region continues to draw new residents from nearby Los Angeles, Orange County and San Diego as renters opt for cheaper housing. But people have also relocated to the market, owing to the booming industrial sector. Stabilized vacancies are near 3%, second-lowest in the country among large metropolitan areas.

Unsurprisingly, the Inland Empire’s annual rent growth of about 7% is leading the nation among large markets. And with only about 1,500 units under construction, it could be some time before residents receive any reprieve from rent hikes, especially with stabilized vacancies compressing 1.4% since the first quarter.

With similar drivers, it’s hard to ignore the performance of Las Vegas as well. Though crushed initially by the slowdown in tourism, its proximity to expensive West Coast cities continues to help Sin City attract plenty of new residents, keeping housing demand and rent growth afloat. In fact, the market has had the fourth-fastest compression in stabilized vacancies since the pandemic began in mid-March.

Looking at the cities with the lowest stabilized vacancies gives us a good picture of the overall strength of a given region’s housing market. But additionally, it’s important to consider the change in vacancies over time to see which areas are gaining momentum, and which are losing it during the pandemic.

After seeing strong net absorption in the third quarter, government-dependent markets Norfolk, Virginia, and San Antonio, Texas, now have seen some of the steepest declines in stabilized vacancy.

Atlanta, which had the second-most nominal absorption of any market in the country, also tops the list of top stabilized vacancy improvements since the start of the pandemic.

Unlike Norfolk and San Antonio, Atlanta’s improvement came during a supply wave. Stabilized vacancies dropped nearly one percentage point despite the influx of 10,000 units in the second and third quarters of 2020. Rent growth has also improved significantly in that time, a sign that new properties were benefiting from new household formation rather than “borrowed” demand from existing properties.

Not shown on the chart are the markets with the largest increases. Unsurprisingly, topping the list are San Francisco, San Jose and the East Bay. These three markets have seen stabilized vacancies increase by 4.4%, 2% and 1.6% respectively, followed closely by Chicago at 1.5%.

Jesse Gundersheim, CoStar’s director of analytics for the Bay Area, noted that in addition to the larger tech firms not requiring workers back in offices until next summer at the earliest, developers have offered steep lease concessions to entice prospective tenants. “We’ve heard anecdotally from long-term renters in older units that the pandemic has fostered new rental opportunities that haven’t existed in ages, enticing them to move up in apartment quality,” he said.