REALITY CHECK: US APARTMENT RENTS ON UPSWING, SAY BROKERS
09:20 EDT 05/09 --NYC, Boston, Los Angeles, and Detroit Rental Markets On Fire --Dallas Market Sluggish From Overbuilding; Southeast Flat
By Gary Rosenberger
NEW YORK (MktNews) - Most apartment rents nationwide are on a solid upswing as local economies grow and available residential space gets gobbled up, say brokers, building operators and referral services.
Boston, Detroit and Los Angeles have seen substantial increases, and in New York City, according to a published report, rent-stabilized apartments are no longer safe from big hikes.
Dallas and Florida markets, however, are suffering as a result of overdevelopment. Landlords there are compensating for the weakness by offering concessions for people to move in.
In Boston, rental markets are very tight and prices are moving up accordingly, according to Matthew Newman of Just Rentals, an apartment rental magazine.
"They're probably up 10% to 20% from a year ago. The problem is a lack of units and high demand," Newman said.
Newman said students are particularly hard-pressed to find apartments even though new dorms have been erected by Northeastern University and Boston University.
The L.A. market "is crazy," said Mark Verge, owner of Westside Rental Connection, an apartment-locating service with four offices in Los Angeles and an Internet site. "A year ago, we'd put up a listing for $1,100 and it would go for $1,000. Today people get the price they ask for and then some," he said. Verge said rents are up about 10% for a one-bedroom and apartments are renting much faster.
He said demand is coming from job creation stemming from dot.com enterprises and the entertainment industry.
"It started in the last four months," he said. "Vacancy rates have got to be about the lowest in years."
One apartment leasing firm with properties in Ohio, Florida and Michigan said rental markets vary. "Michigan is incredibly hot, Florida is slow and Ohio is just normal," she said.
"In Michigan, demand is definitely outstripping supply," said Joy Anzalone, senior executive and chief operating officer for Consolidated Management Inc. in Cleveland. She said increases of 4% to 6% are common.
"We're in the suburbs of Detroit and the market there is extremely tight. Rent increases are fairly aggressive, especially in places where people are upgrading their product," Anzalone said.
"In Florida the market is softer, but we've been able increase rents at about 2% to 4%, just keeping pace with inflation," Anzalone said.
The Ohio market is somewhere in between, with increases averaging about 3% to 5%, she said. "There's not a lot of new product in the Cleveland market."
But Anzalone complained that rent increases in any of those states have not offset steeper increases in the cost of utilities, real estate taxes and other maintenance expenses.
"Water and sewer costs in some municipalities are up 40%, and the cost of electricity and gas has skyrocketed," she said.
"People balk at 5% increases, but our costs have gone up far more than 5% this year. You can't begin to make up the price increases," Anzalone said.
An executive for an Atlanta real estate consulting firm said the local rental market was "in balance" despite strong new housing construction.
"We were up 8 properties with about 2,070 units in the first quarter of 2000 versus 5 properties and 1,054 units in '99," said Ellen Burnstein, senior consultant at Dale Henson Associates.
"We have not overbuilt as yet," Burnstein added, estimating rent increases at "a little above the inflation rate."
"We always say if the good Lord's willing and the creek don't rise, we figure rent increases at about 1% to 2% above the rate of inflation, and that's pretty much held the last two years," she said.
The "prestigious" Buckhead area of Atlanta has seen rents spike slightly higher during the first quarter, by around $20 a month -- still not a huge increase in percentage terms, she said.
Her firm, which also consults in the Dallas area, said that city's rental market does seem to be suffering from overbuilding.
"In Dallas they're giving major concessions," Burnstein said, noting that landlords are often compelled to offer two months free rent or appliance upgrades.
In St. Louis apartment rents are rising by around 5%, which according to Angela Sweet of Apartment Search, has been "typical" for the area.
"Where we're seeing a big change is around Washington University, which no longer allows sophomores, juniors and seniors to live on campus," Sweet said.
Sweet said the rule change caused vacancy rates around the campus to plunge to near zero and rents to rise 5% to 10%.
"It probably would have been more, but the whole community was caught off guard when they announced the change," she said.
In New York City, a published report states that rent-stabilized apartment rentals may zoom higher next year if proposals in front of the Rent Guidelines Board are enacted.
A New York Times article in late April said some New York City apartments may be subject to increases unseen even during the days of double-digit inflation -- 8.5% for a one-year lease and 12% for a two-year lease. Another option would raise rents 6% for one year and 10% for two years.
Edward Hochman, the chairman of Rent Guidelines Board, said the Times took the "most egregious" proposals and ran with them."You have a better chance of winning a lottery than seeing rents go up by 8 or 12 percent," he said.
"These proposals are just a starting point for board deliberations. There have been many proposals and the Times chose the most egregious ones," Hochman said.
He said the board will make a decision based on the price index of (landlord's) operating costs, or PIOC, that it put at 7.8% for the past year. Underpinning those costs were a 55% increase in heating fuel and a 5% increase in real estate taxes.
Hochman said that the increases will wind up in a range above the 2% that tenant interests have accepted in five of the past six years but below the 8% that landlords are proposing. A final decision is due in late June.
The Labor Department is scheduled to release April CPI data on Tuesday, May 16 at 8:30 a.m. EDT. March CPI rose 0.7% versus a 0.5% increase in February.
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. |
