On a national basis, rents and occupancies have fallen. Carrollton, Texas-based M/PF Research says occupancies have fallen 30 basis points, while rents fell a percentage nationally. Meanwhile, Novato, Calif.-based research firm RealFacts says occupancies nationally have fallen from 92.2 percent to 91.4 percent.
On a market-by-market basis, the picture isn’t much brighter. RealFacts says rents only rose in the first quarter of 2009 in three markets—Houston, by 0.8 percent; Oklahoma City, Okla., by 0.3 percent; and Vallejo-Fairfield, Calif., by 0.2 percent. M/PF, on the other hand, reports that Washington, D.C., is the only market that saw occupancy and rents rise this year.
Here’s a look at what specific markets industry watchers seem to think are surviving—and which ones are struggling.
With the stability of the federal government and its large employment base, it's safe to say that no other market can match the nation’s Capitol right now. M/PF says D.C. was the only market to post gains in both rents and occupancies in the first quarter.
“DC pretty much stands alone,” says Greg Willett, vice president of research and analysis for M/PF. “Occupancy is in good shape, and rents are rising a little bit.”
But not everything is great. Marcus & Millichap says total employment is falling for the first time since 2001. Because of this, the research and brokerage firm forecasts vacancies to rise 100 basis points to 6.4 percent in 2009, while asking rents will likely decline 0.3 percent to $1,360 per month this year.
Boston is also a bit of a conundrum. It lost almost 80,000 jobs last year, and Willett says it could top out at about 120,000. “If you look at employment numbers and household formation, there’s nothing there that says this one should be OK,” Willett says. Yet listen in to a REIT's conference call, and you'll see that many public companies still seem to love the market. Willet thinks the market’s saving grace is that renters aren’t leaving for shadow rentals. Keefe, Bruyette and Woods analyst Stephen Swett thinks the high cost of home ownership helps. But Swett and Willett both agree that the market could be in for a fall.
“I would be cautious going forward on Boston,” Swett says. “Historically, it has not faired well in times of job losses. It just may be a late-cycle downturn for Boston.”
OKLAHOMA CITY, OKLA.
The place that added the most jobs in 2008? According to Willett, it was Oklahoma City, which added 2,100 jobs in the year that ended in February. RealFacts says average occupancy in the city was at 93 percent, up 2.8 percent from 2008. Average rents moved to $610 per month, up 2.9 percent from the year before. But, as with Boston and Washington, D.C., there’s a downside to this pretty picture. Since February, Oklahoma City has lost 3,000 jobs. “Even with the overall number going negative, there’s still decent growth in energy, health care, and government,” Willett says.
And there’s little new competition slated for the near future. “There is no construction,” Willett adds.
With so many bad markets around the country, it’s hard to pinpoint the three worst. Putting an entire state at the top of the list makes it easier. With Los Angeles rents falling 5.7 percent, San Francisco rents falling 5.2 percent, San Jose rents dropping 4.9 percent, and Orange County's rents sliding 4.3 percent, California may have the three worst markets in the country, according to M/PF. Only Vallejo-Fairfield, Calif., which RealFacts says was one of three markets showing rent growth in the first quarter, seems to have positive signs. California has seen massive job losses and a staggering amount of foreclosures. But now, there are signs people are purchasing those foreclosures. “The biggest problem is clearly that job losses across the state are so huge,” Willett says. “Secondarily, this is the first spot where home sales have started to surge, as that entire product that went into foreclosure is starting to move. Apartment operators seem to be trying to prevent loss of renters to home purchase with enormous rent cuts."
While California markets aren’t faring very well, their neighbor to the north could be even worse off. Marcus & Millichap forecasts the city’s vacancies to jump 190 basis points to 7.5 percent and metrowide asking rents to fall 2.7 percent to $987 per month in 2009. “The acceleration of weakness in Seattle and the Bay Area does stand out [as a surprise in the first quarter],” says Andrew J. McCulloch, an analyst for Green Street Advisors. “Those areas are weakening a little quicker than we thought.”
The market has both job loss and oversupply problems. “It’s the same situation as in the California markets, plus you have a huge amount of supply coming online in Seattle,” Willett says. “It's got Texas-sized inventory growth, and they’re not used to that.”
PHOENIX AND LAS VEGAS
It’s almost too easy to put Phoenix and Las Vegas on a worst rental markets list. Yet they’re first-quarter numbers from RealFacts show they still belong. In the first quarter, Phoenix metro area rents fell 1.9 percent to $777, while occupancy levels fell 0.5 percent to 88.2 percent. In Las Vegas, rents fell 1.4 percent to $866, while occupancy levels dropped 1.1 percent to 91 percent. Even Reno, Nev., saw year-over-year occupancies fall 3.5 percent to 90.3 percent.
“Phoenix and Vegas aren’t good,” McCulloch says. “Those issues on the condo side might rebound before those on the single-family side.” Unfortunately, the glut in those markets is on the condo side, which means there’s probably more pain ahead. “For the housing bust markets, I think it’s too early to call a bottom,” McCulloch says.
MARKETS TO WATCH
Though Dallas and Houston have stayed relatively healthy, Willett thinks San Antonio could be the best bet amongst the Lone Star state’s markets. Right now, it has flat employment, but the Department of Defense is expected to pump 10,000 new jobs into medical facilities at Brooke Army Medical Center and Fort Sam Houston. There isn’t much supply coming into the market, either, and the apartments that have delivered have done fairly well. “New product is really leasing well,” Willett says. “They’ve delivered 5,000 units in the past year. That stock is 90 percent full. The overall numbers are not great, but dig deeper, and you can see some strength under there.”
If this list were done in the past three years, South Florida would have been ugly. It still isn’t pretty. But year-over-year, there’s a sense that it’s moderating, while other markets have begun to plummet. Miami, for instance, only saw rents move down 1.3 percent to $1,173 in the first quarter. Occupancy levels, meanwhile, fell 0.8 percent to 92.5 percent, according to RealFacts. “Florida is not showing a rebound but precursors to a rebound,” Green Street's McCulloch says. “The compass was so bad last year that it looks better on a relative basis. It might not be getting that much worse. You need job growth for it to get better, though, and you’re not seeing that yet.”