Hard-pressed renters might start moving out of better apartment complexes in search of more modest quarters with lower rents, observers of the rental market said last week.
That would be good news for owners of smaller apartment complexes, most of which don’t offer extensive amenities, even as it presents a headache to owners of more luxurious properties.
But others in the apartment business say the trend isn’t apparent yet. One possible reason: Apartment complexes are offering enough deals free rent, for instance that top-quality complexes manage to stay competitive with lower-priced properties.
And the competition from vacant single-family homes that are on the market as rentals also appears to be churning the apartment market.
Alex Mellinger, a multi-family specialist with CB Richard Ellis in Reno, said rising unemployment and tight labor markets cause apartment tenants to think hard about their housing costs.
“In this economic environment, many tenants prefer cheap over nice,” Mellinger said during an annual forecast event sponsored by the CCIM, a commercial real estate organization.
Todd Blonsley, who handles multi-family properties as a broker for Marcus and Millichap Real Estate in Reno, predicts that the shift into lower-priced properties may drive rental rates slightly upward in smaller apartment complexes in the next year.
He projects a 1 percent rise in average rents at complexes with fewer than 80 units. But big complexes, the ones that typically carry higher rents in exchange for shiny fitness centers, big swimming pools and other amenities, are likely to see a 1 percent decline in average rents as demand weakens this year, Blonsley
Johnson Perkins & Associates of Reno has reported that average rents in large complexes fell by $10 a month between the third and fourth quarters of 2008. In smaller complexes, the decline averaged $5 a month.
That’s a turnaround from the previous five years, when rents in Reno and Sparks climbed by anywhere from
1 percent to 4 percent annually.
Don Wilkerson, whose Gaston & Wilkerson Management Group is a big manager of apartment complexes throughout the region, believes the price-cutting is about to end.
“We’ve probably seen the worst of it,” he said last week, noting that rents generally have retreated to 2006 levels. “Seasonally, spring improves our market as well, so I am optimistic.”
The number of special deals in the market appears to be enough to keep tenants from shopping for less expensive rentals, Wilkerson said.
But he acknowledged that apartment owners and managers continue their struggle to find pricing that will keep their apartments filled without eroding the financial fundamentals of a complex.
Some, Wilkerson said, have offered big incentives packages only to discover that they attracted large numbers of undesirable tenants. And the arrival of undesirable tenants can drive stable, long-term tenants away from a complex.
Apartment tenants are tempted to move, too, by often-attractive deals on single-family homes that are on the market as rentals, says Brian Egan of Egan Commercial Real Estate, president of the Northern Nevada Apartment Association.
In many cases, rents on those homes are competitive with those paid by tenants in top-quality apartment complexes.
But Egan noted the apartment market is so complex that it’s almost impossible to accurately describe the
factors behind vacancy rates and rental rates.
In recent months, for instance, he noted more tenants are taking on roommates as a cost-saving measure. That creates more vacancy, Egan said, but it’s a factor that’s almost impossible to track accurately.
Nevada’s October unemployment rate of 12% is up slightly from the 12.5% mark it posted in September thanks to 3,600 additional jobs.