7.5B pounds of investment targeting UK residential development

The Financial Times is reporting that investment interest is pouring into residential real estate in the United Kingdom and putting upward pressure on prices. The push is particularly strong in London which is attracting 71% of the 7.5B pounds targeting residential real estate. This adds up to pre-recession levels of investment activity in the London market. For more, see “Interest soaring in London land.”


Apartment vacancies decline; rents rise


Apartment vacancies in the U.S. dropped in the second quarter from the previous three months, the first quarterly improvement in two years, as private-sector job growth boosted demand for rental housing, Reis Inc. said.

The vacancy rate for apartment properties was 7.8 percent, down from a 30-year high of 8 percent in the first quarter and up from 7.7 percent a year earlier, according to a report today by the real estate research firm. First-quarter vacancies were the highest since 1980, when Reis began tracking the data.

“The apartment sector is on the path towards recovery,” Victor Calanog, director of research at New York-based Reis, said in today’s report…

Landlords’ asking rents rose 0.4 percent from the first quarter and were down 0.7 percent from a year earlier. Effective rents, or what tenants actually paid, climbed 0.7 percent from the prior quarter and were unchanged from a year earlier.

This won’t come as a surprise to those of you who have been watching residential REIT stocks during the past year or so.

Manhattan rental market heats up

Reuters reports that Manhattan landlords are faring much better than last year:

The Manhattan apartment rental market strengthened in the second quarter as landlords drew confidence from a more robust sale market, but it is still softer than it had been in the past decade.

The average rent per square foot in the second quarter was $49.60, according to a report from brokerage Prudential Douglas Elliman. That is 12.3 percent higher than last year but 7.6 percent lower than the 10-year inflation-adjusted average of $53.67, Elliman said.

Likewise, the number of listings on the market fell 31.8 percent to 4,972. But the average for the 10 years through 2008, when investment bank Lehman Brothers collapsed and sent Manhattan’s real estate market into a tailspin, was nearly 16 percent lower at 4,193.

“What you have is a noticeable improvement from the landlord’s perspective in the second quarter,” said Jonathan Miller of appraisal firm Miller Samuel, who writes the Elliman report. “The perception is that things are not as dire as they were a year ago. That’s causing them to be more firm in their asking rents.”

Also, the article quotes an analyst saying that “Owner-paid concessions are becoming a thing of the past.”

Related: “In Manhattan, most apartments aren’t sitting empty for long: A flurry of lease signings pushed the quarterly vacancy rate below 1% for the first time in nearly three years, leaving few choices for apartment seekers during the prime leasing season.”

Apartment rents are rising


Apartment rents rose during the first quarter, ending five straight quarters of declines and signaling the worst may be over for the hard-hit sector.

Nationally, the apartment vacancy rate stayed flat at 8%, the highest level since Reis Inc., a New York research firm, began its tally in 1980.

Reis tracks vacancies and rents in the top 79 U.S. markets, and rents rose in 60 of them, led by Miami, Seattle and New York—all cities that have notched big rental declines in the past year.

Rents increased 1.6% in the first quarter in Miami and 0.9% in New York. The gains came during what is usually a seasonally weak period for apartments and suggested that landlords may have some momentum heading into the peak spring and summer leasing season.

Keep in mind that housing costs currently account for 42 percent of the Consumer Price Index.

REITs power higher

Traders are betting that the real estate recovery is for real. Higher commercial and residential rents may be coming sooner than most people think.

Vanguard closed-end REIT fund

Drop in apartment construction may lead to shortages, big rent increases

Apartment rents have been falling. Vacancy rates are high. But how long will that last?  Steve Brown of the Dallas Morning News reports that we may soon be facing a shortage of apartments:

A dramatic decline in U.S. apartment construction could lead to a shortage of rental housing in the years ahead.

This year, developers are expected to start about 87,000 units – less than a third of what they build on average each year. And the outlook for 2011 isn’t much better.

“We will be facing a severe shortage of apartments in the next few years, which will increase the cost of housing for consumers,” Sharon Dworkin Bell, senior staff vice president of the National Association of Home Builders, said at this week’s convention in Las Vegas. “We believe we should have 300,000 starts every year to have a stable market.”

That’s not likely in the foreseeable future.

“We have a combination of limited supply coming on and increased demand when the economy recovers,” Bell said.

Michael Costa, a partner in McFarlane Costa Housing Partners of California, said, “We know that the demand for housing – especially rental housing – is going to be there. Each month we are not able to get our starts going, we fall further and further behind.”

At some point, a lack of rental units will take a bite out of consumers’ pocketbooks. “We are predicting now we may see upwards of double-digit rent increases,” Costa said.

Orange County, Calif., rents fall 6.7% to mid-2006 level


The average rent for a unit in a large Orange County apartment complex fell to $1,473 a month in the fourth quarter of 2009, the fifth straight quarter to see monthly rents drop.

Apartment tracker RealFacts reports today that numerous empty apartments forced local landlords to cut rent $105 a month on average — 6.7% — vs. the fourth quarter of 2008. And it’s the lowest average rent in 3 1/2 years.

We at Inflation Watch are well aware of rising prices for health insurance, college tuition, food, and many other items. But as long as apartment rents continue to fall, inflation (as measured by the Consumer Price Index) will probably remain quite tame.

Whither apartment rents?

Bloomberg reports on the results of the latest apartment survey by RealFacts:

Apartment rents declined throughout the U.S. West and South in the third quarter as rising unemployment made it harder for landlords to raise their rates. The average asking rent fell to $965 from $1,002 a year earlier, said Novato, California-based RealFacts, which surveyed owners of more than 12,600 complexes. The occupancy rate dipped below 92 percent from almost 93 percent a year earlier.

Though some observers portayed the situation as dire (“Apartment Rents ‘Plunge’ in the West,” read the headline at Calculated Risk), it is worth noting that occupancy rates reported by RealFacts increased in many locations, including  San Diego, Sonoma County, Marin County, and the huge Inland Empire. This suggests that even in California, with 12.2 percent unemployment, rents may be close to the bottom.

In at least one location — the Tri-Cities area of Washington State — rents have actually begun to rise:

Unlike much of the rest of the nation, the apartment occupancy rate in the Tri-Cities continues to rise — and so does the cost of rent.  “We are in an upward trend,” said Jolene DeGarmo with Kennewick’s Crown Property Management, which conducts an apartment rental survey twice a year…. The latest survey shows occupancy rates are at 98 percent in Kennewick and Richland and 97 percent in Pasco, DeGarmo said.  And that incredibly tight availability of units means they’re renting for premium prices. Sarah Smith, 21, just ended her apartment search after several months of looking. Last year, her one-bedroom apartment cost $400. A friend who recently moved into the same building is paying $465 for a one-bedroom, she said.

For what it’s worth, investors in Real Estate Investment Trusts don’t seem unduly alarmed. Even after a recent pullback, shares in REITs are up nearly 50 percent since mid-July:

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