(Reuters) – Renting an apartment in the U.S. became even more expensive during the second quarter, as vacancies set a new 10-year low and rents rose at a pace not seen since before the financial crisis, according to real estate research firm Reis Inc.
The average U.S. vacancy rate of 4.7 percent was the lowest since the fourth quarter of 2001, down 0.2 percentage points from the prior quarter, according to preliminary data Reis released on Thursday.
Asking rents jumped to $1,091 per month, 1 percent higher than the first quarter and the biggest increase since the third quarter of 2007. Excluding special perks designed to lure tenants, like months of free rent, the average effective rent rose 1.3 percent to $1,041.
“The improvement in rents is pretty pervasive,” said Ryan Severino, Senior Economist at Reis. “Even in places like Providence and Knoxville, which you don’t think of as hotbeds for apartment activity, landlords felt the market was strong enough to raise rents on their tenants.”
Those two cities, in Rhode Island and Tennessee, respectively, posted quarterly effective rent increases of 0.7 percent, the smallest quarterly rise of the 82 areas tracked by Reis. No area posted a decline. On an annual basis, effective rents rose by at least 2.2 percent nationwide.
Severino characterized the broad increase in rental prices last quarter as “pretty amazing.”
Apartment dwellers have been facing higher rents since late 2009 but the pace of increase has been picking up steam over the past three quarters.
The surge in rental prices stems from a growing number of people who are looking for places to live, but are not willing or able to buy a home because of the ongoing slump in the housing market and tight lending conditions.
A dearth of new construction has also led more and more people to squeeze into tight urban areas at higher prices.
Generation Y has also been a driving force for higher rental prices in urban areas, particularly in cities like New York and San Francisco, where job markets are relatively strong. Even though home ownership costs less than renting, young professionals prefer to rent apartments in tightly packed cities than move out to the spacious suburbs, Severino said.
“This generation doesn’t hold home ownership on a pedestal the way prior generations did,” he said.
These dynamics have made the U.S. apartment market the best performing sector of commercial real estate since early 2011. That has helped landlords such as Equity Residential, Post Properties Inc, UDR Inc and AvalonBay Communities Inc, which have large concentrations of high-end apartment buildings in urban areas.
The particularly dense and expensive rental market of New York City loosened up slightly in the second quarter, with vacancies inching up 0.2 percentage points. Yet with a vacancy rate of 2.2 percent, New York remains the tightest market in the country and is by far the most expensive.
New York’s effective rents rose at a rapid 1.7 percent clip from the previous quarter and 3.9 percent from a year earlier. The average renter’s effective monthly tab of $2,935 beats the second-most expensive city, San Francisco, by over $1,000.
That California innovation hub and other technology-oriented markets like Seattle, Boston and Denver also posted sizeable gains in effective rents on both a quarterly and annual basis.
Memphis, Tennessee, had the lowest vacancy rate at 9.2 percent. The cheapest city to live in of the 82 urban areas that Reis tracks was Wichita, Kansas, whose monthly rent of $510 was less than half the U.S. average.