Fall 2006 issue of Horizons

MARKET TRENDS & PROJECTIONS

Favorable trends in vacancy rates and average monthly rents indicate that the multi-family market is growing. At the nation- al level, average occupancy rates rose 1.6 percent this year to reach 95.7 percent. The National Association of Realtors reports that vacancy rates have dropped from 6.2 percent in 2005 to 5.7 percent in 2006. In 2006, multi-family owners have been able to increase their occupancy rate with less rental concessions - a trend that was less prevalent in 2005. In the first quarter of 2006, investment in multi-family projects reached $24 billion, a 30 percent increase from the first quar- ter of 2005. This investment growth has been somewhat curbed by a new trend of condominium conversions, howev- er. This slowing has become a current issue because it decreases the number of available rental units in the market. It is estimated that 120,000 rental units have been eliminated in the national market in the past year as a result of condo- minium conversion.

At the local level in St. Louis, some industry experts estimate that more than 2,000 units have been removed from the mar- ket and predict that another 3,000 units will be converted this year. Although investments in multi-family projects have increased, the construction costs and condominium conversion projects have impeded multi-family development growth. There have not been enough new units built to meet the growing demand of renters. Falling housing availability and the reduction of the competitive rental inventory could lead to rent spikes ranging from three to five times over inflation, depending on the pro- ject's specific geographic location. On average, rent is antic- ipated to rise 4.1 percent in 2006 compared to only 2.9 per- cent in 2005.

58 • summer 2006 issue