Recent market research indicates that rent growth might be on the comeback. According to the Fall 2009 Sunrise Multifamily Rental Market Report released Nov. 27 by Albany, N.Y.-based Sunrise Management & Consulting, smaller markets across the Northeast region were seeing modest average rental rate growth while comparative rates in the major metros were either decreasing or flat. The Albany capital region, for example, experienced an average rent increase of $15, while New York City metro submarkets such as Westchester and Long Island, N.Y., saw an average rent decrease of $28.
Sunrise director of research Richard Dollins says the improvements don’t seem to be related to job growth and household creations, but are more likely being pushed by limited rental capacity in smaller towns and cities. “Certainly job creation helps to run the multifamily market, but in the smaller markets you have less excess capacity,” Dollins says. “With less excess capacity we are seeing a fair amount of pressure on the available stock.”
Operators in the Mid-Atlantic are likewise beginning to see effective rent gains in limited submarkets where concessionary conditions have flattened or are on the decrease. “Similar to the Sunrise findings, in markets where there isn’t a lot of new product in the pipeline, we’re seeing stabilized assets able to back off of the concessions,” says Cindy Clare, president of Mclean, Va.-based property management firm Kettler. “But we’re not raising rents on existing residents so they can move out, and I can offer concessions to a new resident, whether those concessions are stabilizing or not.”
From a national standpoint, many multifamily brokers are still advocating a larger market outlook and are still pointing to traditional high-barrier-to-entry and high job growth markets as the best bet for long-term gains in multifamily fundamentals. “Higher-barrier-to-entry markets are doing much better than overbuilt areas,” says David Baird, national director multifamily for Irvine, Calif.-based Sperry Van Ness Commercial Real Estate Advisors. “San Francisco and L.A. are good examples of markets faring better than more regional markets like San Bernardino or Riverside or markets like Vegas, Phoenix, and Florida where overbuilding was rampant.”
While rent increases any where are good news given the current economic environment, the industry doesn’t seem to be tracking in a positive direction just yet. “I think the best that you can say is that the market is in flux,” says Sunrise president and CEO Jesse Holland. “Some markets are going up, others continue to go down, and there’s no strong indicator either way. People are trying to find the new normal. There are no patterns.”
Clare agrees, noting the regional economic insularity of the Washington D.C., metro coupled with the market’s lingering propensity for concessions, “D.C. has fared a lot better than other markets in the country,” she says. “But call some people in the Southeast or in the West and say rent growth, and they’ll laugh you off of the phone.”