Apartment Rental Occupancy Rates
Multifamily investors and property managers must manage well to avoid vacant units. The hit to profitability is high.
As our property management expert says about the matter of occupancy: “1 month of vacancy is 8.3 percent vacancy rate….most deals are underwritten and analysed at far less than this…5% or even 3%…it is easy to fall short of your investment model with a single month of vacancy, let alone 2. ”
Rental occupancy rates are a key part of multifamily investors calculations. The vacancy charts below for the top 75 cities in the US housing market reflect the wild disparity in national occupancy rates. Vacancy rate is the inverse of occupancy rate.
Occupancy rates have been rising since 2011 (for most cities), and with a strong US economy, the forecast might be for even higher apartment rental and home rental occupancy rates for 2020. That’s good news for investors and property managers.
What Drives Occupancy Rates?
It’s a question of supply and demand. The stronger the desirability of an apartment building or multifamily complex, the higher the occupancy rate. However, luxury apartments are seeing lower occupancy rates of recent, so we know price is key factor.
- millennials and employment trends
- housing supply and new construction growth
- immigration
- rent prices
- desirability/location of apartment building
- condition of apartment building
There’s a lot going on today that can alter vacancy rates from rent prices to regional economic trends. It’s important to forecast years ahead because losses from vacancies will lower future cash flow, net operating income, and property rental yields.
Although good property management can lower vacancy rates, it’s the city and neighbourhood occupancy rates that investors key on for better rental property ROI.
How Is Occupancy Rate Calculated?
The vacancy rate is calculated by multiplying the number of vacant units by 100 and then dividing that by the total number of units in the building. A rate below 4% is considered low. Currently the national average vacancy rate is 7% yet this statistic reflects available units in regions and cities that workers are leaving. It’s the vacancy rate in each growing city that draws the attention of real estate investors.
The chart below shows rental rate vary greatly by city. In the Denver Housing market for instance, the occupancy rate last quarter stood at 3.2%. That low rate reflects the big demand in Colorado, yet new multifamily construction has been brisk in the mile high city. Aborption is strong but many are offering concessions.
Employment and in-migration are strong too, and rents are rising. Yet multifamily property prices are moderate compared to Los Angeles, San Francisco, and San Jose. Denver’s multifamily market and new multifamily construction in Denver are hot. Contrast those with vacancy rates in Toledo, OH, and Syracuse New York, and you see the regional disparities.
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What Do Rental Vacancy Rates Mean?
High rates are considered negative implying a less desirable neighborhood, building, or city with poorer employment and economic conditions. Low occupancy rates can happen in new construction releases where rent prices are high. Owners may have to offer renter concessions to get them rented sooner.
A low vacancy rate reveals tight supply conditions, demand by renters, healthy local economy, good renter demographics, desirable neighborhoods or geolocation, and a desirable property type.
Vacancy rates for 3 bedroom apartment rentals or houses for instance might be higher than for in-demand one bedroom units.
| Metropolitan Statistical Area | 1st Quarter 2017 | 1st Quarter 2018 | 1st Quarter 2019 |
| (data from census.gov) | Vacancy Rate % | Vacancy Rate % | Vacancy Rate % |
| Akron, OH | 7.9 | 2.3 | 2 |
| Albany-Schenectady-Troy, NY | 9.8 | 9 | 7.9 |
| Albuquerque, NM | 9.7 | 10.7 | 7.1 |
| Allentown-Bethlehem-Easton, PA-NJ | 3 | 7.4 | 7.7 |
| Atlanta-Sandy Springs-Roswell, GA1 | 4.6 | 8.3 | 7.8 |
| Austin-Round Rock, TX | 6.6 | 8.7 | 12.3 |
| Baltimore-Columbia-Towson, MD2 | 9.4 | 6.8 | 7.7 |
| Baton Rouge, LA | 4.3 | 7.5 | 8.2 |
| Birmingham-Hoover, AL | 11.7 | 11.9 | 11.5 |
| Boston-Cambridge-Newton, MA-NH3 | 5.5 | 5.2 | 1.7 |
| Bridgeport-Stamford-Norwalk, CT | 10.4 | 14.5 | 3.5 |
| Buffalo-Cheektowaga-Niagara Falls, NY4 | 7.1 | 10.1 | 5.2 |
| Cape Coral-Fort Myers, FL | 1.8 | 10.7 | 2.4 |
| Charleston-North Charleston-Summerville, SC | 18.8 | 18.8 | 13.6 |
| Charlotte-Concord-Gastonia, NC-SC5 | 3.1 | 4 | 5.5 |
| Chicago-Naperville-Elgin, IL-IN-WI6 | 6.7 | 9 | 5.7 |
| Cincinnati, OH-KY-IN7 | 6.9 | 3.4 | 11.5 |
| Cleveland-Elyria, OH8 | 12.3 | 4.9 | 3.3 |
| Columbia, SC | 6.4 | 7.9 | 10.9 |
| Columbus, OH. | 8.3 | 9.8 | 4.9 |
| Dallas-Ft. Worth-Arlington, TX | 6.4 | 5.8 | 6.7 |
| Dayton, OH | 5.7 | 11.3 | 5.7 |
| Denver-Aurora-Lakewood, CO9 | 4.5 | 4.8 | 3.2 |
| Detroit-Warren-Dearborn, MI10 | 8 | 7.9 | 4.7 |
| Fresno, CA | 5.5 | 1.6 | 9.3 |
| Grand Rapids-Wyoming, MI | 3.9 | 3.9 | 4.9 |
| Greensboro-High Point, NC. . | 15.3 | 10.9 | 9.8 |
| Hartford-West Hartford-East Hartford, CT | 4.8 | 5 | 3.1 |
| Houston-The Woodlands-Sugar Land, TX11 | 11.3 | 8.2 | 10.6 |
| Indianapolis-Carmel-Anderson, IN12 | 9.8 | 9.4 | 5.7 |
| Jacksonville, FL. | 8 | 6.9 | 4.7 |
| Kansas City, MO-KS | 14 | 11.7 | 13.1 |
| Knoxville, TN | 10.7 | 9.8 | 3.6 |
| Las Vegas-Henderson-Paradise, NV13 | 7.8 | 9.6 | 6.4 |
| Little Rock-North Little Rock-Conway, AR | 8.3 | 13.1 | 13.2 |
| Los Angeles-Long Beach-Anaheim, CA14 | 3.6 | 4.2 | 3.6 |
| Louisville/Jefferson County, KY-IN15 | 9.4 | 4 | 11.9 |
| Memphis, TN-AR-MS | 8.9 | 8.7 | 13 |
| Miami-Fort Lauderdale-West Palm Beach, | 6.1 | 6.9 | 7.8 |
| Milwaukee-Waukesha-West Allis, WI | 7.5 | 6 | 7.3 |
| Minneapolis-St. Paul-Bloomington, MN-WI | 4.5 | 3.5 | 5.1 |
| Nashville-Davidson-Murfreesboro-Franklin, | 8.4 | 9.1 | 9.7 |
| New Haven-Milford, CT | 9.9 | 5.5 | 1.8 |
| New Orleans-Metairie, LA.18 | 9.8 | 11.1 | 11.3 |
| New York-Newark-Jersey City, NY-NJ-PA19 | 4.8 | 4 | 4 |
| North Port-Bradenton-Sarasota, FL | 6.8 | 5.3 | 5.2 |
| Oklahoma City, OK | 10.7 | 12.2 | 11.7 |
| Omaha-Council Bluffs, NE-IA | 4 | 4.8 | 6.9 |
| Orlando-Kissimmee-Sanford, FL20 | 6.1 | 6.3 | 6.9 |
| Philadelphia-Camden-Wilmington, PA-NJ | 7.9 | 5.8 | 8.4 |
| Phoenix-Mesa-Scottsdale, AZ | 4.7 | 4.6 | 4 |
| Pittsburgh, PA | 6.8 | 7.8 | 5.3 |
| Portland-Vancouver-Hillsboro, OR-WA22 | 3.9 | 3.6 | 5.6 |
| Providence-Warwick, RI-MA23 | 4.6 | 7.1 | 3.5 |
| Raleigh, NC24 | 4.4 | 6.7 | 6.5 |
| Richmond, VA | 7 | 6.6 | 7.6 |
| Riverside-San Bernardino-Ontario, CA | 6.7 | 4 | 5.5 |
| Rochester, NY | 5.1 | 7.5 | 6.9 |
| Sacramento-Roseville-Arden-Arcade, CA25 | 1.2 | 5.6 | 3.7 |
| St. Louis, MO-IL | 4.9 | 9.6 | 8.1 |
| Salt Lake City, UT | 3.8 | 6.6 | 6.5 |
| San Antonio-New Braunfels, TX26 | 13.4 | 7.6 | 9.3 |
| San Diego-Carlsbad, CA27 | 3.6 | 4.8 | 5.5 |
| San Francisco-Oakland-Hayward | 4.3 | 4.3 | 3.9 |
| San Jose-Sunnyvale-Santa Clara, CA | 5.4 | 6.3 | 2.5 |
| Seattle-Tacoma-Bellevue, WA | 1.9 | 4.6 | 3.9 |
| Syracuse, NY | 13.6 | 2.4 | 17.9 |
| Tampa-St. Petersburg-Clearwater, FL | 10.6 | 9.9 | 11.8 |
| Toledo, OH | 4.6 | 6.7 | 18.1 |
| Tucson, AZ . | 7.9 | 3.9 | 5 |
| Tulsa, OK | 9.9 | 11 | 7 |
| Honolulu | 9.4 | 8.2 | 5.9 |
| Virginia Beach-Norfolk-Newport News, VA | 8.6 | 5.2 | 8.5 |
| Washington-Arlington-Alexandria, DC-VA | 6 | 7.7 | 5.9 |
| Worcester, MA | 4.1 | 4.4 | 4.5 |
Note from these graphics below that even during severe recessions, vacancy rates don’t rise much, only about 3% from the norm. This tells you that whether good or bad markets, the supply of rental properties never gets out of hand.
In the last few years, new apartment construction has been hot, yet even if kept growing at a strong pace, it would take decades to catch up.
Screen Capture courtesy of Ycharts (Yahoo.com)
US residential rental vacancy rate timeline history, courtesy of FRED
The takeaway from this discussion of rental occupancy rates is that a lot of factors are in play. The ROI performance of your particular multifamily portfolio is still something your property manager can help with. The occupancy levels in particular cities might make it more difficult and risky to invest there. Buyer beware!
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