The outlook is slow but optimistic
According to Reuters, CB Richard Ellis (CBRE) expects apartment vacancy rates to remain high through 2010 hovering around 7%, and rent growth is not projected to resume until 2011. Apartment loan defaults are up (second only to hotels), rental rates are declining, and vacancy rates have recently been higher in multi-family than any other sector despite prospective homeowners turning into renters as a result of the credit crunch squeezing out people who can no longer qualify.
Obviously, some cities are doing better than others, but apartment management companies across the nation are frequently adding rent incentives and creative giveaways to draw renters. In my experience (long story), 3% occupancy is acceptable and even expected but beyond that, the boss upstairs (in another state) gets antsy. Vacancy rates are expected to do a little better next year nationally, but what about your market? Is multi family thriving or diving in your area?
Loading ...
Consumerism, Geo-mapping columnist
Marketing columnist
I’ve heard the same thing from investors who are worried about buying complex’ and not being able to fill them with tenants. Everyone who can buy is buying, but there are still so many people with bad credit, that with the right advertising and a rental price that can compete well in whatever area the property is in, it can get rented quickly.
Lani, We do a lot of property management The market here is very stable.One main reason is the Big Ten university out our back door.You may think it is because of the students.I think it is because of the stable employment base that the university provides.
Flickr | Facebook | Linked-in | Twitter
Sidenote/two cents:
That makes sense on a small scale and I say small because in Austin (home of the University of Texas, one of the largest colleges in the nation, along with 4 other colleges in the city) struggles despite DIVERSE mass employment- we’re the capital, so government jobs have been seen as stable (although hiring and raises are frozen since last year), the universities have provided renters (although only on the bus routes and nearby), we are the silicon valley of the South (although layoffs and company closings have hit us in the gut), etc. So I feel you on the “we have stability” front, but Austin was deemed “recession proof” a few years ago and everyone scoffed as the world crumbled around us and we stayed strong… now, we don’t take stability for granted.
In Greater Phoenix apartment vacancies exceed the national numbers by quite a bit. Overall 14% vacancy while some segments are as high as 26% vacancy.
For small multifamily properties the fight for tenants is tough. It’s not only physical vacancy, but economic vacancy that’s having a grave influence on the market. There are concessions and rents are down.
This lower income has resulted in a deluge of small multifamily properties entering the market, mostly thrashed and vacant. The medium and larger complexes are right behind.
I can’t see any improvement until the unemployment rate decreases which will probably take longer here then the U.S average. 2010 still looks like a weak year and it won’t be until 2012 that it may improve. The good thing is, that there not much supply being added to the stock, so once the stronger market returns it will be a very good one, at least that’s what the crystal ball said.
Flickr | Facebook | Linked-in | Twitter
Artur, Phoenix is a tricky market, isn’t it?? Do you think that with it being so tough for people to qualify for mortgages that rentals will become increasingly mainstream living? Some project that will be so.
You’re lucky in that supply isn’t being added, Austin (where we are) still have more multi-family coming online and our condo market which got approval and got started back in 2005 is just now coming live with units and we’re in a tight spot.
How are rental rates in Phoenix, are they going up, down or are they stable?
Lani,
Tricky is an understatement. On the one hand there are all these people losing homes, but they usually move in to homes next door just purchased by investors, not apartments. Although we’ve seen some people scale down into apartments that’s not a trend.
Rental rates seem to have stabilized, but they are down double digits in true numbers from early last year. I don’t see them going down more then current rates.
On the other hand, savvy brave investors can get a spectacular return on some properties. Imagine a 14 unit property for $400,000 and a current market 11 cap rate or a four-plex for $130,000 with repairs with monthly income of $2,500 less 38% expenses.