With vacancies running above 10.6% nationally according to the U.S. Census Bureau Second Quarter 2009 data, landlords are doing what it takes to fill rental space in the nation’s apartment stock. In parts of southern California, namely the Inland Empire and Los Angeles, reports are indicating higher vacancy than the national average. Unemployment has reached a 25 year high and expected to near 11% by the second quarter. It could get more challenging over the next 9 months before it gets better.
What are the main causes for the vacancies? Some would say poor management. But, when it’s hitting a majority of the apartment owners, then one must look at the conditions of the market, not merely poor management. Supply and demand -- this is the case here.
Rent.com recently found in a survey that 70% of the nation’s apartment stock is being impacted and the renters are indicating a very common message. In its survey of 987,450 units across the nation, 90% attributed their situation to job losses, while 51% said they were trying to save money or could no longer afford rent at all. Other responses include: 43% saying they were “doubling up” or moving in with others in order to save money, 35% were looking for a better deal, 37% were impacted by increase credit declines, 31% were relocating, and 22% were buying a home.
All but one of the responses (buying a home) are attributed to job losses and an unstable economy. In other words, demand for apartments is found wanting when people are losing their jobs or can’t find work. It’s encouraging that we only loss 85,000 jobs in December 2009 when we’ve had so much job loss over the past 2 years. But, this loss is disappointing especially after November 2009 had a slight gain in jobs of 4,000. December’s fall was higher than expected. Experts thought the loss was going to mount to 10,000 job losses, not 85,000. So, my question, “Why does the stock market continue its march upward?”
What are apartment landlord’s doing in order to keep their buildings full? Creativity is king. First, they lowering rents, then they are offering free rent. Included in the incentives are free storage or more parking, lower deposits, or relaxed pet policies. Times are changing. The landlord is not in the driver seat. Now the tenant is calling the shots.
For investors – it’s a time to buy. Apartments for sale in Los Angeles and San Diego are plentiful, while forecasters are beginning to see some apartment units for sale in the Inland Empire (Riverside and San Bernardino) ahead of the competition of the long anticipated commercial loan defaults coming. This will in turn create more supply and put upward pressure on cap rates, thus driving down values. However, many investors are surprised at the slow deal flow. The difference in the bid / ask of apartments for sale in southern California still exists. Apartments in San Diego are still strong, whereas apartments in Riverside and San Bernardino counties are still having a difficult time, because of vacancy. Vacancies are still high and will remain high until the employment picture improves.
By Michael Duhs, Managing Broker of East West Commercial at (949) 939-8352, specializes in apartments for sale and senior housing for sale in the counties of Los Angeles, Orange County, San Diego, Riverside and San Bernardino. East West Commercial is seeing its Commercial REO and Apartment REO business increase in southern California. Contact Apartment Broker Michael Duhs at http://www.EastWestCommercial.com for investing in commercial properties for sale or coming to market.
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