The Housing Chronicles Blog: Renters gaining upper hand as vacancies rise

Wednesday, January 21, 2009

Renters gaining upper hand as vacancies rise

Although the rental market in Southern California started weakening over a year ago, the recession is now giving tenants the upper hand to renegotiate lease agreements -- even mid-stream -- in various markets around the country. In some areas such as downtown L.A. and Long Beach, previous conversion projects re-converted back into rentals and new condos dumped onto the marketplace at once can easily spike vacancy rates and require landlords to offer concessions they would've found previously unnecessary. From a Wall Street Journal story:

As the housing downturn deepens, rental rates are falling in many major U.S. cities, including New York and Los Angeles, and tenants are finding they have greater leeway to renegotiate their leases.

Early in the housing crisis, former homeowners were starting to rent again, supporting demand for rentals. Now, with more newly constructed condos being converted into rental units, landlords are struggling to keep buildings occupied. Apartment rents nationwide fell 0.4% in the fourth quarter from the third quarter -- the first drop since 2003, according to Reis Inc., a New York City-based real-estate research company. Apartment vacancies rose to 6.6% in the quarter from 5.7% a year earlier.

In some major cities, the declines have been far steeper. In Manhattan, rents fell on almost all kinds of apartments in 2008. Rents of studio apartments fell 7.4%, and rents of one-bedrooms and two-bedrooms in buildings without a doorman fell 5.5% and 5.6%, respectively, according to a report released Tuesday by the Real Estate Group of New York, a Manhattan-based brokerage firm. In Miami, 60% of rents decreased in the fourth quarter, and 45% of rents in Los Angeles declined. Rents did buck the trend in a few cities. During 2008, rents increased 2.3% in Pittsburgh and 4.2% in Houston...'

Some landlords and property managers say they have never encountered so many tenants looking to bargain. Mitchell Rattner, president of Home Equity Savers in Riverwoods, Ill., owns 50 condo complexes and homes around Chicago with a partner and says that requests by tenants to negotiate were almost unheard of until fairly recently. In the past 10 months, he's discounted two of his tenants' rents midlease to keep them from moving out. "If they're good payers, we will give them a discount," he says...

It may be easiest to negotiate in cities like Miami and Las Vegas that have been hit hard by home foreclosures. There, renters are getting a boost from a "shadow supply" of rental units: Investors who have scooped up foreclosed homes are renting them out so they don't have to sell into a declining market. Such investors "are undercutting a lot of the normal rental rates so they can attract tenants quicker," says Elizabeth Olds, real-estate economist with Boston-based Property & Portfolio Research Inc.

In some California cities, vacancy rates are being boosted by the conversion of new condo projects into rentals, says Patrick S. Duffy, principal of MetroIntelligence Real Estate Advisors, a real-estate consulting firm based in Los Angeles. In downtown L.A., where there are a lot of new condos, the vacancy rate was almost 10% in the fourth quarter, compared with an L.A.-wide vacancy rate of 4.5%...

Click here for full story.

1 comment:

Willow said...

When I was researching rentals a year or more ago I could not find that many. It seems now there are more posts in Craigslist and the newspapers. Pages and pages of them. I found using as a guide to what the comps are has been a way to see how far the average has come down.