Apartment landlords are seeing a surge in rentals as mounting foreclosures reduce homeownership and an improving job market for young adults encourages them to find their own places to live.

The number of occupied apartments grew by 215,000 in the first half of the year in the 64 largest U.S. markets, according to MPF Research, almost twice the growth in all of 2009 and the most since the firm began tracking the data in 1992.

The vacancy rate declined to 6.6% last month from 8.2% in December.

"Overall demand is pretty stunningly strong in the first half," Greg Willett, a vice president at the Carrollton, Texas, apartment-industry research firm, said in an interview.

Investors are betting that the expanding ranks of renters will lead to earnings increases next year of about 5% to 10% or more for apartment real estate investment trusts such as Equity Residential and AvalonBay Communities Inc.

UBS AG this month raised its ratings on AvalonBay, Essex Property Trust Inc. and Post Properties Inc. to "neutral," from "sell." The change signifies a "less bearish" view on apartments, while acknowledging that "headwinds will remain," according to a July 7 report by New York-based analysts Dustin Pizzo, Ross T. Nussbaum and Derek Bower.

"The apartment REITs have priced in the most growth within the broader REIT group and as such are most vulnerable if the economy slows and job growth does not begin to come through in a meaningful way," the UBS analysts wrote.

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