WORLD PROPERTY CHANNEL ®

Gleb Nechayev, CBRE economist

(MIAMI, FL) -- U.S. apartment landlords are smiling once again - their high vacancies and low rents may be turning around soon.

At least, that's the way a new analysis from CBRE Econometric Advisors sees it.

Apartment vacancy rates will decline in 2010, forecasts the research group, formerly CBRE Torto Wheaton. Rent discounts and concessions will become less wide spread.

The vacancy rate should drop to an average of 6.8% in 2010, from an average of 7.4% in 2009, a 60 basis points improvement.

"We are seeing increased demand in many markets amid indications that the apartment market, while still seeing higher than normal vacancies, is stabilizing," says Gleb Nechayev, Economist, CBRE-EA.

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

Specific to South Florida's tri-county area, apartment vacancy rates are forecast to compress 60 bps in Palm Beach County to 7.1% and 150 bps to 5.2% in Broward County, and expand 150 bps to 7.4% in Miami-Dade County.

Robert Given

"Miami-Dade County continues to be influenced by the large amount of shadow inventory within the market," notes Robert Given, Executive Vice President of multi-family investments in the CBRE Miami office.

"These factors are having less of an impact in Palm Beach and Broward Counties where vacancy rates are forecast to rebound in 2010."

CBRE-EA analysis shows that in 4Q 2009 average effective rents declined by 4.7% compared to 4Q 2008.

 The new forecast projects that in 4Q 2010 average effective rents will decline only 0.8% as compared to 4Q 2009.

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 to 2.9% in 2009 over 2008.

Within Miami-Dade County, area rents have held up relatively well during the recent housing correction with effective rents of apartments declining by only 2% in 2009, as compared to 5-10% in New York, Los Angeles, San Francisco, and Seattle.

Compared to other major markets tracked by CBRE, Miami has the smallest drop in effective rents in the fourth quarter of 2009.

Rents within South Florida are forecast to be fairly flat this year with a slight decline in Miami-Dade County.

Palm Beach and Broward Counties are forecast to resume a positive rent increase in 2011, with increases of 2.5% and 3.4%, respectively while Miami-Dade County will continue to remain flat.

Larger markets where CBRE-EA forecasts 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," Nechayev adds.

"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.

"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."

Nechayev says "anecdotal evidence suggests that cap rates on the most highly sought-after assets have already come down in recent months." 

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