Apartment vacancies hit 30-year high

Renters' market, anyone? While that already happened here in Southern California a couple of years ago, now it's swept across the country like a flu-like virus to include almost all metro areas. According to REIS, the 8% national rate is the highest they've seen since first starting to track the market. In response, landlords are lowering credit standards, cutting rents and offering incentives ranging from Starbucks cards to weeks or a month of free rent.

From a Wall Street Journal story:

The vacancy rate ended the year at 8%, the highest level since Reis Inc., a New York research firm that tracks vacancies and rents in the top 79 U.S. markets, began its tally in 1980.

Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession...

Landlords now must entice tenants to renew leases. "We'll shampoo their carpets. We'll paint accent walls. We'll add Starbucks cards," said Richard Campo, chief executive of Camden Property Trust, a Houston-based real-estate investment trust that owns 63,000 units. He said the first half of 2010 should be "pretty ugly," but was optimistic the sector would pick up later in the year...

Landlords were also hit last year by competition from a wave of new supply that hit the market. The 120,000 units that came onto the market last year, including some busted condo projects that had to be converted to rentals, represented the most new construction since 2003, according to Reis...

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Apartment rents now falling across the U.S.

Although rents in many places of Southern California started falling at least 12 months ago, it's been more recently that the declines have shown up in multiple markets throughout the U.S. Bad news for flippers hoping to earn cash flow until the market rebounds, but generally good news for potential renters. Some advice for landlords: if you keep your rents slightly under the market and resist the urge to push them up as high as possible, you'll keep your tenants longer, which will more than even out for vacancies you'll suffer over the long run.

First, from a Bloomberg News story:

U.S. apartment rents fell in the fourth quarter from the third as the national vacancy rate climbed to a four-year high of 6.6 percent, Reis Inc. said.

Job losses and lower wages are cutting into the pool of potential renters in their twenties and thirties, defying the expectation that apartments would benefit from the housing slump, the New York-based research firm said.

Asking rents fell 0.1 percent from the previous quarter, to $1,052 on average, their first quarter-to-quarter decline in almost six years. They rose 2.4 percent from a year earlier. Effective rents, what tenants actually paid, fell to an average $996 last quarter, down 0.4 percent from the prior quarter and up 2.2 percent from a year earlier...

Next, from an L.A. Times story:

After rising for several years, rents in the Los Angeles area are declining because of the economic recession and depressed home prices, researchers, real estate agents and property managers say.

The lower local rents match a national trend, according to a report released Wednesday showing apartment rents fell in 54 out of 79 U.S. metropolitan areas in the fourth quarter of 2008. Softening rents add another obstacle to a housing market recovery, economists say, because tenants with low rent payments feel less urgency to buy a home...

Los Angeles apartment rents fell 0.7% in the fourth quarter, the first decline since 2001, although overall rents for the year were up slightly over 2007.

Property owners and real estate agents say the supply of rental units has climbed in the last year. Overbuilding during the real estate boom added vacant units to the rental pool, and some home sellers discouraged by the moribund real estate market are renting their houses or condominium units rather than trying to sell. Foreclosures add both supply and demand to the rental market, as foreclosed homes become rentals and former owners seek places to rent.

Declining incomes and rising unemployment also mean people have less to spend on rent.

Mark Verge, owner of the property listings service Westside Rentals, said he'd seen rents fall faster in the last three months than at any time since he founded the company 13 years ago.

"I used to have to beg owners to lower rents. Now they ask me, 'What do you think I should lower it to?' " Verge said.

Verge said his service had 24,000 units listed for rent -- a 33% increase from the 18,000 he had at this time last year.

Rents had been holding up in the early part of last year, Verge said, as property owners accustomed to annual rent hikes continued to ask for relatively high amounts. In recent months, however, owners have found they must lower rents or let their units lie vacant, Verge said...

Finally, from the Lansner on Real Estate blog:

It may take landlords awhile to catch on, but rising vacancies should result in lower apartment rents in 2009, a local Grubb & Ellis Co. manager says.

Grubb & Ellis, a Santa Ana-based national commercial brokerage, issued its 2009 outlook saying that Orange County is the third-best multi-family market to invest in out of 56 U.S. apartment markets.

But Kurt Strasmann, Grubb’s regional managing director in Newport Beach, said the high ranking is due more to Orange County’s “long-term fundamentals” (good job growth, diverse economy, etc.) rather than prospects for landlords in the coming year.

Rents will be affected by two contradictory trends, the Grubb outlook said:

• The pool of renters is increasing because foreclosures have forced more homeowners into apartments and because many would-be homebuyers are waiting for home prices to fall further.
• There’s also been an increase in supply as more houses and condos that don’t sell are leased out. Many new college grads unable to find work are doubling up with room-mates or moving back home, decreasing the pool.