There is a report out today that states apartment rents are plummeting around the nation. Plummeting is too strong a word, and it is NOT in every area of the United States. The culprit: lower wages and job losses.
A report earlier this month stated a similar trend, but I would respectfully suggest that the authors need to do a better job of writing their stories. You cannot highlight a half dozen cities, all with unique problems facing them (big boom times, tons of construction and now construction layoffsl; or financial centers with financial execs and other employees being laid off; etc.) and say it is indicative of the entire nation. The trend depends on where you are talking about.
For example, there are many major cities that are seeing rents stabilize, not drop. True, shares in the largest companies that own high-end apartment complexes have been dropping. But that trend is not indicative of every apartment owner. Once again, it depends on . . . Location, Location, Location.
So for those flippers out there who were hoping to earn some cash flow while waiting out the market, you are out of luck (and you CoC readers know how I feel about flipping -- it is gambling and the consequences are now being felt).
The softening rent trend, where it is happening, is generally good news for potential renters. Property owners who know what they are doing can do some simple things to more than even out for any vacancies suffered over the long run. Its easy. Keep rents slightly under the market and do everything you can to resist the urge to increase them as high as possible. What happens? Your renters stay longer, thus evening out the situation.
A Grubb & Ellis report looking at 2009, focused on multifamily opportunities in Orange County, Calif., noted two contradictory trends (that I have been writing about for almost a year now).
As I have written in many previous CoC posts, the pool of renters is increasing because foreclosures forced more homeowners into apartments. In addition, many renters who had planned to buy either cannot, or are waiting for even more bargains in hopes that home prices will decline farther. Conversely, also as I have written, there is an increase in supply as more single family homes and condominiums that aren't selling are leased to renters, putting pressure on traditional multifamily. Interestingly, but not unexpected, many young people fresh out of college are having trouble finding work. As a result, they are moving in with roommates or moving (moms and dads, here is where you gasp) back home, decreasing the pool of available renters.
The bottom line: Prospects for the apartment industry in the long term are incredibly strong, despite islands of dropping rents in a handful of markets around the nation. Good management of a complex that is in a relatively stable market will not see "plummeting" rents, but a stabilization.
UPDATE......... I should have mentioned what is happening in Central Ohio since this area represents the majority of my business transactions. Multifamily in Columbus remains generally strong (remember what I said about regional differences?) due to the large pool of college students who rent here (an estimated 100,000). In addition, while apartment vacancies are expected to uptick just a bit, asking rents are forecast to climb nearly 2 percent, with effective rents edging up some 1.7 percent, according to market forecasts. Says one prognosticator, the Columbus apartment market will end 2009 "with healthier fundamentals than earlier in the decade."
More food for thought.......