Posts Tagged ‘vacancy rate’

It’s a Renter’s Market

Tuesday, January 26th, 2010

Apartment vacancies in the United States hit a 30-year high during the fourth quarter of 2009 as many would-be renters moved in with family or roommates to save money.  According to Reis, Inc., a New York research firm that tracks vacancies and rents in 79 markets across the country, the apartment vacancy rate was eight percent at year’s end.Apartment vacancies at a 30-year high as failed condominiums glut the market.

Rents declined by three percent in 2009, even as landlords upped the ante to attract creditworthy renters.  In New York City, effective rents – which include concessions such as one month free rent – fell 5.6 percent last year, the worst performance since Reis first tracked data in 1990.  Asking rents fell 2.3 percent from 2008 to an average of $1,026. Effective rents, what tenants actually paid, decreased three percent to $964.

“We’ll shampoo their carpets.  We’ll paint accent walls.  We’ll add Starbucks cards,” said Richard Campo, chief executive of Camden Property Trust, a Houston-based REIT that owns 63,000 apartments.  Complicating the situation is competition from 120,000 new rental units that came on the market last year.  These include some failed condominium projects that were converted to rentals.  A hefty percentage of these developments had secured loans before the credit markets froze.  With new development at a virtual standstill, apartment completions are expected to decline 50 percent in 2011.  For apartment owners, the limited new supply means they can increase rents as soon as job growth returns.

“If you are renting a place, now might be a good time to renegotiate that lease,” advises Victor Calanog, Reis’ director of research, who predicts that the apartment sector could recover in the second half of 2010 if jobs start returning or people think the economy is improving.

Office Rental Rates Falling as Demand Slides: Part 1

Wednesday, January 14th, 2009

It should be no surprise that rental rates for office space have weakened as demand declines.  Nationally, rents for office space fell 1.2 percent during the fourth quarter of 2007, even though owners offered concessions such as free rent for a limited time frame to lure users.  According to Reis, Inc., a New York-based real estate research firm, rents declined in 65 out of the 79 national markets it tracks.

jump_off_cliffDuring 2008, office tenants walked away from 42,000,000 SF of space, which brought the U.S. vacancy rate up to 14.4 percent, compared with the 12.6 percent reported just one year ago.  Vacancy rates are expected to continue to rise through 2010, which will put even more downward pressure on rental rates.  Given the overall volatility of the real estate market, just how low rental rates will go is anyone’s guess.

The one bright spot is the deflationary economy, which has lowered energy prices and other commodities.  This may provide relief to owners faced with lower rental income at a time when covering their debt obligations may be a struggle.

Suburban Office Vacancies Rise

Tuesday, July 15th, 2008

According to a recent Crain’s Chicago Business article, suburban office vacancy rates shot up to 13.1 percent during the second quarter of 2008.  That is the highest level in more than two years. According to the commercial real estate services firm, Transwestern Commercial Real Estate, the vacancy rate is at its highest level since the first quarter of 2006, when it rose to 13.7 percent.  There’s no doubt that demand for suburban office space is in lockstep with job growth or loss; we’re not seeing any job growth in the suburbs right now.

Class A landlords are more likely to accept lower rent deals right now than was true in the last year, but this can be risky.  This has the effect of also reducing the building’s value, because this is a function of the in-place income stream.  Sometimes, it is better to pass on a low rent deal and simply “assume” accepting a higher rent to protect the building’s value.

The sales market has been robust over the past several years, so protecting value has been a priority.  With credit now being largely unavailable, building owners are no longer in the sale market because buyers are unwilling or unable to pay top dollar.  Because we don’t know when the office market will stabilize and since selling isn’t viable at present, landlords may take that lower rent to boost occupancy.

A respectable number of transactions will be completed this year, but only because there is so much low-cost sublease space available.  Additionally, some industries are likely to make positive contributions to the suburban office scene.  Companies providing goods or services to hospitals, physician practices and the senior-housing market are experiencing growth, as are data-center operations and some engineering firms, especially those working with energy production or conservation.