A recent nationwide study of rents and occupancy, conducted by RealFacts for 2Q09, reveal that renters are showing resistance to paying a premium to rent an apartment in a high-end market.
Rents were in decline in every market nationwide in the current quarter except for a few modest increases in Tampa-St Petersburg, FL at 1.2%; Kansas City, MO at 0.7% and San Antonio, TX at 0.6%. On average, asking rents are down nationwide in the second quarter of 2009 from $968/mo.over first quarter at $978/mo. The markets that were hit hardest this quarter are high-end markets such as those in California. The San Francisco Bay Area, usually ranked as the most expensive place to live in the country, lost some of its luster this quarter. The current quarter’s decline comes on the heels of similar losses sustained in 1Q09.
The San Jose area posted the greatest decline for the current quarter at -3.8%, followed by San Francisco at -2.7% and Austin, Texas at -2.4%. Other struggling markets are Oxnard-Thousand Oaks at -1.8%; Riverside-San Bernardino, CA at -1.8% and Los Angeles at -1.6%. With the exception of Austin, TX what these markets have in common is that they are located in California and their average rental rates are over $1,000.00/mo.
The RealFacts survey demonstrates the effects of higher than average unemployment statistics in California. According to a May 2009 survey released by the EDD, California’s unemployment stood at 11.5%, compared to the National average of 9.4%. The San Francisco Business Times reported that the Bay Area lost 130,000 jobs from May 2008 to May 2009. Companies like Yahoo!, headquartered in Silicon Valley have had to make cuts of about 10% of its regular staffers.
On the brighter side of the rental markets, the rate at which occupancy has been declining in the past two quarters has slowed down in the second quarter of 2009. This suggests that asking rents are beginning to reflect what the market can bear. For example, in Oxnard California, the average rent went from $1551/mo. down to $1,473/mo. But the occupancy rate actually increased by nearly 1.0% in this same quarter.
Other markets that posted positive absorption this quarter were Orlando, FL, 0.6%, San Francisco, 0.4% and San Jose at 0.3%. All other markets were down. The highest drop in occupancy for the quarter was found in Boise, ID at -3.2%, Oaklahoma City, OK at -2.1% and Indianapolis, IN at -1.4%.
It’s seems today’s renter is looking for a bargain. There aren’t enough high income renters with good credit to commit to premium rents prevalent in high-end markets. Many renters have been forced out of high markets due to lack of employment opportunities or sufficient income. In some cases these renters decide to move to a location where housing is less expensive and where they can rent the same quality apartment unit for less than half the price.
(Source: RealFacts, www.realfacts.com, phone: 415-844-2480)