REALITY CHECK: Rental Market Prices High, But Leveling Off

--Hot Neighborhoods Remain Pricy

--Houston Rents Take A Hit

By Vicki Schmelzer

     NEW YORK (MNI) - Rents continue to hold at high levels given heightened

demand this fall, but are leveling off in some cases as supply levels rise,

according to residential leasing and property managers interviewed by Market

News International for the latest REALITY CHECK. 

     Rents are a sizable part of the monthly CPI report due out Friday,

accounting for nearly 8% of the total - more than the closely-watched energy

component.

     ABODO's national apartment report, released earlier this month, found that

the median rent for a one-bedroom apartment in October was $1,020, which was a

new high for 2017. 

     This compared to $1,018 in September, which was at the time a new yearly

high and $1,016, the high rents seen in January and July. For their calculation,

ABODO uses over one million ABODO listings across the United States. 

     "This is among the highest levels we've seen," said Sam Radbil,

communications manager at apartment listing site ABODO.  

     In "2016, as many people know, we saw apartment prices go through the roof

nationally. Things have started to come back to more traditional levels, but

they are still right up there with some of the highest rents we've seen," he

told MNI exclusively. 

     At $1,000-plus rents for a one-bedroom apartment, as has been the case

since early last year, "it's very expensive across the country," Radbil said. 

     In late 2016/early 2017, more multi-family units came to market, which has

allowed the "supply and demand game to kind of even out those prices," he said. 

     Although rents "are extremely high right now, we don't anticipate major

increases going forward - in the rest of this year and next year," Radbil said.

     The areas that saw the most substantial rent rate increases recently were

those that offered job growth and greater career opportunities, and in some

cases, desirability, he said. 

     "There are certain cities, whether it's Portland or Austin, TX, or Denver,

that are so-called 'trendy cities,' where rent prices, regardless of economic

health, are going increase as long as there is less supply and more demand," he

said. 

     Housing shortages in these desired areas can be fierce and it would not be

a surprise to see a landlord asking $1,200 a month for an apartment, to get

offered $1,500 with a security deposit, because the renters need a place to live

immediately and "they know there is competition," Radbil said. 

     DC Metro area rents have been holding fairly steady in the past month, said

Benjamin Rieling, Co-Founder and COO at Nomadic Properties.

     With new projects still coming on market, supply has increased over demand

and as a result, "things are moving definitely slower than normal," although

this differs location by location, he said. 

     "What we are seeing is a mostly a shift in neighborhood, essentially

'located' neighborhoods like NoMa, Shaw, those neighborhoods in the core of DC,

are accelerating in demand - Logan Circle of course," Rieling said.

     With the DC Metro area a top destination for college graduates, developers

are building projects with younger renters in mind, he said. 

     "The interests and the tastes and likes of the younger generation is not

really the historical Dupont Circle, Georgetown locations; they're looking for a

more urban, hip, trendy spot," Rieling said.

     In contrast, many other traditional neighborhoods, "with parquet wooden

floors and older appliances" are having a "tougher time competing, in terms of

just amenities and newness of feature," he said. 

     A rental unit in a hot location might be on the market as little as one or

two weeks, whereas those in "'fringe' areas, where you used to get three or four

young college graduates or kids that worked on the Hill - like East Capitol

Hill, those neighborhoods are suffering more and we are seeing a much longer

absorption rate," Rieling said. 

     A rental unit in these areas might have been on market for 24 days in the

past. "Now, we are going over a month on a vast majority of our properties," he

said. 

     Landlords in these less hot neighborhoods are also being forced to offer

concessions and or amenities. 

     "The renter wants to get a certain price point and the owner has a price

point and we have to throw in concessions to make it meet in the middle,"

Rieling said.

     For example, an owner who wants to establish an "effective" rental rate of

$2,000 per month may have that amount on paper, but offer a month of free rent,

based on a 12-month lease, which brings the rent to a more renter-friendly

$1,800-$1,850 equivalent per month, he said.  

     In terms of timing, the transitional nature of the DC Metro area, means

that rentals during the summer months are typically "booming" and then "things

tend to slow down" in the fall, he said. 

     Overall however, with 11 colleges in the DC Metro area, the proximity of

Capitol Hill, the World Bank and other organizations, and with younger graduates

"priced out" of purchasing a home, there should be "steady strong demand" for

rental housing going forward, which should prevent a larger decline in rent

prices, Rieling said. 

     A strong U.S. economy is seen as keeping housing and rental prices high. 

     "I don't see the overall market slowing down tremendously in the next two

to three years," said Lisa Simmons, president of Beacon Management Services in

Atlanta.

     She saw the current real estate boom as "very different" from the "on-fire"

run-up in housing prices seen during the 2003 to 2006 timeframe, when "everybody

was buying everything."

     "There was this kind of mania associated with flipping and investing that I

don't see that so much anymore. To me, it's more like people are buying single

family homes, condominiums or townhomes in these developments close in, because

they realize that real estate is going to appreciate over time - it's a much

healthier market now," she said. 

     In terms of apartment rentals in the Atlanta area, "the 'Class A'

inventory" remains "very tight," "even with all of the Class A deliveries that

have come on in 2017 and scheduled for 2018," Simmons said.

     So, despite increased inventory, "The rental market is very strong for

single family, townhomes and condominiums," she said.  

     Investor interest plays a role also, and the investor community has

"appetite for well-located in-town properties, investment properties. And that's

the case for all throughout metro Atlanta - primarily in Buckhead and Midtown,"

where rents are higher, she said.

     "Midtown is a magnet for the millennial who just wants diversity,

walkability, fun restaurants and Piedmont Park," while "Buckhead is a lot more

corporate and upscale. But, they're both still very expensive places to live,"

Simmons said. 

     Younger workers, attracted by a "very robust" job market, prefer to be

inside the confines of I-285, the interstate highway loop around Atlanta, where

there are transportation alternatives beside driving, she said. 

     "They want to be close to a MARTA station; they want to be able to walk,

bicycle," Simmons said.

     Monthly Yardi Matrix data, released last week, showed that average U.S.

monthly rents in multi-family units were relatively flat at $1,354 in September,

according to their survey of 121 markets.

     "Nationally, average U.S. rent increases fell to 2.2% year-over-year

through September, down from 4.2% in September 2016," the release said. This was

a 10-basis point decline from the average rent in August. 

     Looking ahead, "rent growths tend to slow down in the fourth quarter, when

fewer people move, so if things hold to form, gains for the year could already

be baked in," Yardi Matrix said. 

     However, "demand should remain healthy for the next few years, due to job

growth as well as social and demographic trends," the release noted. 

     Like other economic data sets that have been temporarily skewed by

Hurricane Harvey and Hurricane Irma, there would appear to be spillover effects

for rents in select regions also in September and October. 

     Yardi-Matrix noted that "upwards of 50,000 multi-family units suffered

damage in Houston, where the multi-family market should get a boost as displaced

households find a temporary spot to relocate."

     ABODO noted that the cost of an average one-bedroom rental in Houston, TX

fell 5.06% in October. This is in contrast to Austin, TX, where one-bedroom

rents were up 0.97% on the month. 

     Regarding potential spillover for Houston area rents, "these numbers might

fluctuate far more than those in Chicago and Milwaukee, or places that didn't

experience major disasters," ADOBO's Radbil said. 

     Editor's Note: Reality Check series reports on sentiment among business

people. They are intended to complement and anticipate economic data. 

--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com

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