Rental apartment construction on the rise

I haven’t spoken about the multifamily space in a little while, but it is still booming.

Read here:

Construction cranes are coming back on the scene after a stay in storage.

But their handlers are choosy, returning them for now to the lone sector of the commercial real estate market that is fertile ground: rental apartments.

Amid an arid new-development landscape in commercial real estate, the apartment market is blooming. Vacancy rates are falling, demand is surging and new supply is scant, letting landlords raise rents for seven straight quarters, says Ryan Severino, senior economist with Reis, a commercial real estate research firm.

“More people in the (rental apartment) industry are getting excited about new projects,” he said.

Besides tight supply, new construction is being driven by falling homeownership rates and growing numbers of people in their 20s and early 30s who are finally landing jobs and moving to their own place.

Rental apartment operator AvalonBay Communities (NYSE:AVB – News) has $1 billion in development projects under way, and notes that rental household formation has grown by over 1 million units the past 12 months.

AvalonBay broke ground in the third quarter on four projects on both coasts, at a cost near $210 million. Plus, $600 million in projects is starting this quarter, including in Manhattan where rental vacancy has dropped to the low single digit percentages, pushing rents up.

An additional $3 billion in the development pipeline should keep AvalonBay busy the next two or three years, President Timothy Naughton told analysts recently.

UDR (NYSE:UDR – News), another big apartment operator, has more than 2,500 units in development for an estimated $751 million. Management says it’s looking for more sites to buy.

Construction of rental housing is even starting in hard-hit Florida housing markets. Colonial Properties (NYSE:CLP – News), which focuses on multifamily apartments in the Sun Belt, began construction recently on a 232-unit apartment community in Orlando — Colonial Grand at Lake Mary — with completion set for late 2012.