LOS ANGELES—National apartment vacancy rates dipped to a low 4.2% during 2014 according to the 2015 National Apartment Report released by Marcus & Millichap, and ended the year at 4.7%. These numbers far surpassed expectations for the year, leading researchers to conclude that demand for multifamily product is not leveling off anytime soon.

During 2014, 238,000 new apartment units came online, the most in the last 14 years. This was driven by a national pent up demand for 270,000 apartment units. This led to a 3.8% rental growth for the year. However, the report anticipates that 210,000 new apartment units will come online in 2015, surpassing the demand for 186,000 units. This minor oversupply issue will likely raise the vacancy rate to 4.8% by the end of the year, and strip rent growth to 3.5%. Homeownership at the end of 2014 also dropped to record lows—for the last 19-year period—of 64.4%.

San Francisco leads the national apartment index with sub-5% vacancies, above average job prospects and rental growth. The city is up from its number two ranking last year, pushing New York to the number two spot. The Bay Area dominated the top rankings on the index, with San Jose ranking number three and Oakland ranking number four. Finally, Denver came in at number five. Detroit, St. Louis and Indianapolis filled the bottom spots on the list.

National apartment values have hit 13% above the 2007 peak, with class-A assets priced at a premium to replacement cost. For this reason, value-add and development investments will offer better risk-adjusted returns in the coming year. This is well illustrated by TruAmerica Multifamily's recent $481 million purchase of a 14-property class-B multifamily portfolio. It plans to invest an additional $40 million to renovate the property and take advantage of the significant rental upsides.

The report includes an economic update, which showed that employers added 2.7 million jobs during 2014, meaning all of the jobs lost in the downturn have now been recovered. Retail sales are up 5.8%, adjusted for inflation, from the previous peak period. In 2015, the report anticipates that consumer spending will continue to increase, which, along with a healthy fiscal outlook, will drive GDP growth to 3.1% in 2015 with 2.9 million to 3.1 million new jobs generated. Finally, the Federal Reserve has concluded its “quantitative easing program,” which means we will again adopt a “normal” monetary policy.