If you’re thinking about raising the rent or building a business plan based on a rent increase this year, this might be a good time for a reality check on the rosy forecasts issued at the beginning of the year (see Rental Outlook 2012: The Good Times Roll on).
Unfortunately for single family landlords, virtually all the rent price data out there is multifamily, which reflects poorly on real estate data providers since there are now more single family units than multifamily (see Secrets of Single Family Rentals). Until the bean counters wise up, we’re forced to rely on apartment data to get a feel for supply and demand in local markets.
On a national level, rentals are doing as well as predicted, perhaps even better. The national vacancy rate fell 0.30 percentage points in the first quarter to 4.9 percent, the lowest level since the fourth quarter 2001, according to preliminary results from Reis, the commercial real estate data provider. Effective rents rose to a national average of $1,018 per month, up 0.9 percent, the largest quarterly increase since the first quarter 2008. According to the Reis report, the first quarter’s year-over-year growth rate of 4.5 percent was the largest rate of growth reported during any quarter over the past 10 years. The average rent has not grown by more than 4.5 percent, year-over-year, since the third quarter of 2001 when it grew by 8.7 percent. According to Real Facts, which tracks apartment rents nationwide, the average rent rose to $1,008 during the first quarter of this year, a 4.1 percent boost.
A new analysis released April 25 by TransUnion, which provides credit screening services to property managers, found that the average rent for the nation increased 4.4 percent from $829 in the first quarter of 2011 to $865 in the first three months of 2012. However, many major rental markets experienced declines in prices during this same timeframe.
Like all things real estate, national average rental trends are about as useful to a local real estate professional as a national weather forecast might be to someone planning a picnic. It can be sunny in most of the nation and still rain on your parade.
TransUnion analyzed trends in 10 major rental markets, including the Atlanta, Chicago, Dallas, Denver, Houston, Los Angeles, Las Vegas, Phoenix, San Diego and Washington, D.C. metropolitan statistical areas (MSAs). Contrary to the national data, six of those markets experienced declines in rental prices between Q1 2011 and Q1 2012.
The largest year-over-year percent declines in rental prices were observed in Denver (-8.8%), Chicago (-4.8%) and Los Angeles (-2.6%). Atlanta was the only market that saw a significant rise in rental prices, increasing 6.3% from $737 to $783 between Q1 2011 and Q1 2012.
“Our data highlights the fact that rental markets must truly be observed city by city as there are differences even in the largest metro areas situated relatively close to each other. For instance, our analysis revealed that rental prices dropped in Houston and Los Angeles while they increased in Dallas and San Diego.” said Mike Mauseth, president of TransUnion Rental Screening Solutions. Amen.
Here’s a little more detail on some markets around the country.
Apartment rents are rising in King and Snohomish counties and should keep inching up for the rest of the year, two leading research firms agree. But that could change in 2013 when a bumper crop of new projects is completed and the vacancy rate is likely to increase. Average monthly rent for the first three months of this year was $1,094, up 1.7 percent from the fourth quarter of 2011, according to Apartment Insights Washington. Source: Seattle Times.
Apartment rents will likely increase in 2012 in San Diego, Riverside and San Bernardino counties this year, according to the University of Southern California Casden Multifamily Report. In San Diego County, average rents will rise 3.4 percent to $1.64 per square foot in 2012 and 5.2 percent by the end of 2013 to $1.67 per square foot, the report said. In Riverside and San Bernardino counties, the report forecasts average rents to rise 3 percent to $1.26 per square foot in 2012 and by 3.8 percent to $1.27 per square foot by the end of 2013.
Los Angeles County
The Casden Report forecast predicts average rents will increase 7.9 percent to $2 per square foot in 2012 with total growth of 9.6 percent to $2.04 per square foot by the end of 2013. Vacancies are expected to rise slightly in 2012 with increases continuing in 2013 as rent growth slows. Falling home prices may cause the county’s multifamily market to lose its most creditworthy renters to home purchases.
The Casden forecast predicts average rents will increase about 3.3 percent to $1.78 per square foot in 2012 with total growth of 5.1 percent to $1.83 per square foot by the end of 2013. Vacancy is expected to remain relatively stable during this time. •The positives: ?The county’s home prices are the least affordable in Southern California, thereby negating the short-term impact of lower home prices on demand or rents.
Rents have been on the rise in the region as demand increased from people avoiding homeownership while the market languished, and a high number of people who, having lost their homes to foreclosure turned to rentals for a place to live. Apartment rents have been rising nationwide, but rents throughout the Northern San Joaquin Valley remain fairly flat.
But rents in Modesto are about the same as they were in 2006. During January, February and March, the average rent being asked at large Modesto apartment complexes was $799 per month, according to Reis. Six years ago, the average was $801.
The latest stats show the average apartment rent jumped $25 a month to $960. Landlords have the upper hand with vacancy rates at only 2.5 percent, but prices could start dropping as construction revs up. Source: KMSP.
New York City
Manhattan apartment rents surged in the first quarter, coming within about 5 percent of the peak as would-be homeowners struggled to get mortgages and lingered longer in the leasing market. The median rent rose 7.1 percent to $3,100 a month from $2,895 in the first quarter of 2011, according to a report today by appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate. It was the largest year-over-year increase since the second quarter of 2007, when rents climbed 11 percent. The number of new leases in the three months through March jumped 14 percent to 7,621.
Rents are up only 2.3 percent over the first quarter of last year, according to Rent Jungle, the “kayak”of rental listing sites. The overall occupancy rate does remain well below the national norm, however, at 92.7 percent. Effective rents for new leases climbed at a solid pace of 1.1 percent during 1st Quarter. However, the quarterly rent growth number actually fell a bit below the rent upturn volume posted during the initial few months of 2011, so annual rent growth slowed to just 1.7 percent (RealPage.com).
Average rents in Las Vegas in the first quarter fell 1.3 percent from a year earlier (RentJungle). TransUnion also reported rents down 1 percent in Las Vegas (see above).
How to Do Your Own Research
Increasing a tenant’s rent is a lot easier if you can make a convincing case that you are just keeping up with trends in the market (and the tenant will probably encounter similar increases elsewhere).
However, getting the data you need is not always easy. If you want to shell out several hundred bucks for a subscription, the three top databases for multifamily rentals are Reis, CoStar and LoopNet (you can often the data you need with a free trial subscription). They are basically listings sites for commercial real estate of all categories.
Other good sources are state university graduate schools of real estate, such as Lusk at UCLA, Arizona State University, and Texas A&M. Among rental listings sites, RentJungle, Move, Zillow and Trulia aggregate rental data. Googling local news media and leading real estate blogs also is a good idea.