The apartment rental market – multifamily housing – is tightening, and vacancy rates are forecast to drop to an average of 4.5 percent this year from 5.2 percent in 2005. Average rent is projected to increase 5.3 percent in 2006.

Conversion of apartments into condos accounted for 34 percent of the multifamily properties that traded hands in 2005. NAR expects condo conversion to slow this year, coinciding with an increased demand for rental housing.

Total investment in multifamily property rose 72 percent in 2005 to $86.9 billion, with $29.4 billion spent by condo converters who took 191,400 units out of the active rental market. The top markets for garden apartment investment are Phoenix, Tampa, Orlando, Los Angeles and Atlanta.

Not surprisingly, areas with the lowest apartment vacancies happen to be markets with a lot of conversion activity. These include Fort Lauderdale, West Palm Beach, Miami, San Jose, Calif., and Northern New Jersey, all with vacancy rates of 2.5 percent or less. These areas also are experiencing rapid in-migration, which is increasing housing demand.

Multifamily net absorption is forecast at 289,100 units in 59 tracked metro areas in 2006, compared with 319,400 absorbed last year.

- Walter Maloney - www.realtor.org