ACCESSLASVEGAS August | September 2009
historically been a correlation between the reduction of unemployment and a rising demand for apartments. Moving ahead, though, to 2010 and 2030, 72 million people will be seeking residences, and by 2030, there will be a need for 8.6 million apartments, equivalent to roughly $1 trillion. Lee attributed this to the growing Gen Y population, which tends to delay marriage and have more debt; thus, homeownership is projected to drop to 62 percent. Lee noted that every 1 percent decline in homeownership equates to one million new renters. Furthermore, the lack of new development will result in pent-up demand, while rents will start to increase in 2011-2012, resulting in great opportunity by the end of 2011. In order to prepare for the recovery, Campo said that his company has invested in improved revenue management and call systems. Faith noted that his company is in the process of fundraising and working toward land ventures. Both agreed that they want to be prepared for when the market does turn. Meanwhile, Lee advised tracking and understanding your target resident through research. When the panels were asked what keeps them up at night, Lee responded, “worrying that the industry will not do things differently.” He added that the industry tends to lose sight of on-site staff but that it is extremely important to motivate and train good people. In order to retain talent, noted Faith, ensure that your employees know your company’s vision and values, as well as opportunities that could be available to them.
Apartment Vacancy at 22-Year High in U.S. Source: Bloomberg.com
U.S. apartment vacancies rose to their highest in 22 years in the second quarter as job losses cut tenant demand and more units came to market. Vacancies climbed to 7.5 percent from 6.1 percent a year earlier, New York based real estate research firm Reis Inc. stated. The last time landlords had so much empty space was in 1987, when 4
vacancies reached 7.6 percent as the Standard & Poor’s 500 Index plummeted 23 percent in the last three months of that year. “Vacancies continued to rise despite what has traditionally been a strong leasing period for apartment properties,” said Victor Calanog, director of research at Reis. Job losses and falling wages are shrinking the pool of potential renters, defying forecasts that prospective homebuyers would rent rather that purchase as house prices decline. The U.S. unemployment rate rose to a 26-year high in June and U.S. payrolls dropped more than forecast in June, the government said last week. Equity Residential, founded by billionaire Sam Zell and now the biggest U.S. apartment landlord by market capitalization, said in April that job losses made the company “cautious” and it was offering rent reductions to lure tenants. Asking rents for apartments fell 0.6 percent in the second quarter from the first, Reis said. That matched the rate of change in the first quarter, the biggest drop since Reis began reporting such data in 1999. Asking rents dropped 0.7 percent from a year earlier to an average $1,040 a month.
technology companies or the housing boom. Rents paid by tenants climbed the most in Birmingham, Alabama; Chattanooga, Tennessee; Louisville, Kentucky; Norfolk/Hampton Roads, Virginia; and Syracuse, New York, according to Reis. The vacancy rate increased the most in Tucson, Arizona, by 1.5 percent to 9.9 percent, followed by Charlotte, North Carolina; Little Rock, Arkansas; and Richmond, Virginia, Reis said. Vacancies shrank the most in Columbia, South Carolina, by 1.2 percent to 13 percent, followed by New Haven, Connecticut; Colorado Springs and Birmingham, Alabama, the report said. New York had the lowest vacancy rate in the second quarter, at 2.9 percent, followed by New Haven, home to Yale University; Central New Jersey; New York’s Long Island; and Syracuse, New York, according to Reis. Jacksonville, Florida, had the most apartment vacancies, at 13.1 percent, Reis said. Next were Charleston and Columbia in South Carolina and Greensboro / Winston-Salem in North Carolina, said Reis.
Rents Drop
The vacancy rate rose even as the net change in occupied space climbed by 2,530 units, Reis said.
Rents paid by tenants, also known as effective rents, fell 0.9 percent from the previous quarter to $975, said Reis. Effective rents were 1.9 percent lower than a year earlier.
A total of 22,696 units were completed last quarter, raising the total for the first half to 47,000, Calanog said. Reis expects more than 100,000 units to become available this year.
Effective rents fell the most in San Jose, San Francisco, Las Vegas, Southern California’s Orange County and Seattle.
“New buildings coming online over 2009 and 2010 will face higher initial vacancy levels, and will work to increase the pressure on leasing managers,” Calanog said.
Those cities had been boosted by