REALITY CHECK: US REALTORS SAY RENTAL PRICES VOLATILE
--St. Louis/Atlanta Stable, Houston Down, New York/Boston Soar
By Gary Rosenberger
NEW YORK (MktNews) - U.S. rents are mostly on a modest upswing, but vary markedly from region to region, according to brokers and other industry executives.
The biggest determinant of market conditions is supply, and the amount of multiple-dwelling construction varies greatly from city to city, they say.
But downward price pressures have been in place for two years as the lure of low mortgage rates have turned phalanxes of renters into home owners, they say.
In New York City and Boston, where there are big influxes of young professionals and not much new construction, rentals are soaring -- with 20% increases for vacated apartments considered common, they add.
An executive from a St. Louis apartment-locator service said rentals in her city are again on the rise after being hurt by the trend toward home ownership.
"Three years ago rents were moving up quite rapidly at about 10% to 15% a year, but in the past two years interest rates had people buying houses and the increases slowed," said Angela Sweet, vice president of Apartment Search in St. Louis.
"It affected the market for larger apartments quite dramatically," she said. "Three bedroom apartments actually dropped lower as they were emptying out, but now they've come back up."
She noted that while rents are mostly back up, "they're not rising as fast as in the past."
Vacated apartments that run in the $450 a month range may swing $10 or $15 higher, or about a 2-3% increase, she estimated.
"People play around a lot with rents -- they may go up $10 and bring it down by $5," Sweet said.
In areas where there is a lot of university housing, a captive student population has prevented the rent decreases that took place in other parts of the city.
Sweet expects to see more downward pressure on rents in the future now that "new buildings are popping up for the higher-end market" after a construction lull that lasted for several years.
In Atlanta, rents on vacated apartments are going up at a moderate 4.6% annual pace, according to Ellen Burnstein, principal consultant for Dale Henson Associates, a local real-estate consulting firm.
The firm tabulated that figure in a period beginning in mid-98 and ending in June '99.
Burnstein said that increases are capped by "rampant" construction that creates competition among landlords for tenants.
She said one month's free rent on a year lease is not uncommon in Atlanta.
Apartment construction has slowed somewhat in Atlanta from 6,136 new units in 1997 and 6,203 new units in 1998 to 4,643 units this year, said Burnstein, citing her firm's data.
The slowdown in construction, however, is due to issues unrelated to the local economy.
"It's getting harder to find available land suitable to build on, also neighborhood opposition to new construction is getting stronger," she said.
But there are other factors that create upward price pressures on downtown rentals, Burnstein said.
"People are beginning to figure that they want to live nearer their jobs. There's incredible gridlock every morning. It's hard if you live in Gwinnett County and have to go downtown for your job," she said.
In Houston, too-much new construction of luxury apartments and recent oil company layoffs are contributing to downward price pressures, said Nancy Tropoli, president of Apartment Connection and Avalon Homes, a realty firm specializing in leasing.
"In Houston you've probably got one of the most volatile markets anywhere in the country," Tropoli said.
"We're now diversifying from our oil economy, which used to make this place feast or famine, and it's not as bad as it used to be," she said.
However, the REITs (real-estate investment trusts) market has contributed to a glut of luxury apartments and is putting heavy pressure on landlords to offer concessions to tenants, she said.
"The problem is that (REIT) institutional investors are fairly demanding -- they like upscale with nice amenities, but those are not the most profitable assets," Tropoli said.
In fact, it is the "B minus and C" properties, where the greatest profits lie -- a market REITs have ignored, she said.
"The buildings are a little older, in less desirable locales and of lesser quality -- but the maintenance costs are not as high because there are fewer services you have to provide," Tropoli said.
She noted that Houston has three or four highly desirable neighborhoods "where they all started building at the same time and everyone is now vying for the same tenants."
While nobody is actually lowering rates, they are offering deep concessions -- as much as six weeks free rent a year to tenants and for brokers up to 50% additions to their regular fees, she said.
Rent declines on Houston's luxury apartments are "being camouflaged by concessions," Tropoli said. She added that things could get worse once the promised layoffs from consolidating oil companies proceed.
In New York and Boston, the opposite is taking place, as very tight markets push rents up -- sometimes stratospherically.
A Boston broker said "rents have been moving up at around 17% a year" on vacated apartments.
"It's due to the economy," said the broker, who asked that his name not be used. "Boston has a lot of professional people moving in. I would say rents have doubled from where they were six or seven years ago."
In New York it's also a landlord's market, said Joe Gresh, senior sales associate for Bellmarc Realty, a residential brokerage in Manhattan.
"The market is tight and there's very little availability -- I would say rents have been moving up 20% on average over the last three years," Gresh said.
Non-rent stabilized apartment dwellers are seeing big increases in neighborhoods that are being gentrified, he said.
Gresh described one client who moved to the bowery -- a less desirable Manhattan neighborhood -- six years ago only to see it become trendy. His landlord raised his rent by 44% for a one-year extension and 60% for a two-year extension, and he's moving out.
"A non-rent stabilized tenant only has to worry if he's got an undervalued apartment," he said. "Even so, if you're a good tenant, the landlord isn't likely to charge you the market rate."
Gresh said the big jumps began three years ago -- when he began to see certain properties, "tenement-style walkups," that were unsalable become respectable.
"I think it has lot to do with some TV shows that show young people living in these apartment," Gresh said. "People now find it charming. I call it urban-decay chic."
The Labor Department is scheduled to release August CPI data Wednesday at 8:30 a.m. EDT. July CPI rose 0.3% after being unchanged in June.
Editor's Note: Reality Check stories survey sentiment among business people and their trade associations. They are intended to complement and anticipate economic data and to provide a sounding into specific sectors of the U.S. economy.
>>>Posted as follow-up to discussion on inflation and housing. |
