Strong growth of rents and occupancy levels of rental apartments have pushed some building values to record levels as Americans shift away from home ownership. While concerns about the economy are cooling the market for most other types of commercial real estate, apartment rents and occupancies continue to be boosted by demand from millions of people who are victims of foreclosure or are unwilling or unable to buy their own homes. At the end of the third quarter, 5.6% of the nation's apartments were vacant, down from 5.9% in the second quarter, and the lowest level since 2006.

Rents are up even in some cities that have been hard hit by high unemployment and the housing crash, like Orlando, Fla., Detroit and Phoenix. Effective rents, which include landlord discounts in some markets, rose to $1,004 a month in the third quarter, up 2.3% from a year earlier.

Forecasters say rent increases could slow or stop if the economy weakens further. But for now, these trends are producing outsized returns for real-estate companies, compared with other commercial-property classes. Values of apartment buildings in the best locations--with modern amenities like resort-style swimming pools and outdoor movie viewing areas--went into record territory in the third quarter, according to an index compiled by Green Street Advisors. The previous record had been set in the second quarter of 2007.

 

(excerpted from the Wall St Journal, written by Dawn Wotapka)