I think it's best just to let your niece pick. Most instruments can be played softly. It's a matter of controlling the technique. If the neighbors are fussy she could dampen the noise with mutes or pads. If percussion is her thing, then steer her towards one of the quieter kits. You can get low-volume cymbals and drum pads to help minimize the volume. Or just replace the heads with mesh heads. There are also different techniques for holding the drumsticks that affect the volume, or she could use brushes instead.
I think that letting her pick her own instrument is a good way to keep her interested in playing. When I was younger, my parents decided I would learn to play the piano. What I really wanted was to learn to play the violin. I lost interest in the piano pretty quickly. As Strum Drum said, there are ways to dampen the sound of her playing. I hope she has fun learning to play!