Tuesday, April 6, 2010

Apartments Lead, Office Sector Lags Recovery?

US apartment rents rise in first quarter

By Alan Rappeport in Washington, Financial Times

Published: April 6 2010 06:07 | Last updated: April 6 2010 06:07

Rents for US apartments rose in the first three months of the year after five quarters of record declines, offering hope that a key sector of thecommercial property market is turning round.


Rent prices picked up by 0.1 per cent from January through March after falling by a record 2.3 per cent last year, according to new data from Reis, a property research company.

That the increase came during the traditionally dormant winter months is a sign that landlords have started holding back on the aggressive bargains they were offering to lure tenants. “Effective” rents, which include special deals such as additional months on a lease without fees, outpaced asking rents, rising by 0.3 per cent.

“The faster pace of effective rent increases versus asking rents imply that concession packages are no longer increasing and may in fact be tightening,” said Victor Calanog, director of research at Reis.

Although Reis characterised the figures as “robust” and pointed to a “surprising show of resilience” in the apartment sector, it noted that new buildings are coming on to the market more than half empty and that vacancy rates did rise in 30 of the 79 markets that it tracks. However, the vacancy rate remained flat at 8 per cent during the quarter.

“The apartment sector may have indeed hit the bottom of the current business cycle and may be on the path towards recovery,” Mr Calanog said.

Apartments still face headwinds, with unemployment at 9.7 per cent and foreclosure activity expected to accelerate this year. One factor that might help is the ongoing volatility in the market for homebuyers due to shifts in government stimulus measures, which have turned renters into buyers.

“In many ways the expiration of the tax credit in the second half of this year is a positive development for the multi-unit housing rental market,” said Jonathan Miller, chief executive of Miller Samuel, a real estate appraisal company.

The slide in rents in New York City, the most competitive apartment rental market in the US, also reversed course in the first quarter, with rates rising by 0.9 per cent after falling by 2.9 per cent in 2009. Of the 79 cities that Reis tracks, 60 saw effective rents rise, with Miami gaining 1.6 per cent to lead the pack.

“I would say things are definitely going quicker now,” said Peter Sommer, a broker and sales associate with Halstead Property in New York. “A lot of these Wall Street firms abated their hiring freezes and people are coming to the city again.”

Office vacancies hit 16-year highs

By David Ellis, CNNMoney.com staff writerApril 5, 2010: 2:13 PM ET

NEW YORK (CNNMoney.com) -- Office vacancy rates are now at their highest level in 16 years, according to a report published Monday, as elevated unemployment levels across the country continue to temper the demand for space.


Roughly 700 million square feet, or 17.2%, of the more than 4 billion of available office space nationwide was unoccupied as of the end of March, according to the real estate research firm Reis. The last time office vacancies were this high was in 1994.

The trend however, has not just been isolated to those parts of the country that have been particularly hard hit by the recession.The number of empty offices has been on the rise since the start of 2008, as soaring unemployment and a wave of business failures have crushed commercial real estate.

In fact, nearly three-quarters of the country's major metropolitan areas experienced an increase in office vacancies in the first quarter of 2010.

The city of Detroit has the highest office vacancy rate. Mired by troubles within the automotive industry, just over a quarter of all of the office space in the metropolitan region now sits empty, according to Reis.

Washington, D.C. boasts the lowest vacancy rate, with just 10.4% of all office space vacant as of the end of March.

Office rents, another widely-watched indicator of the health of the real estate market, continued to decline, falling 0.8% in the quarter.

California's Orange County and New York City saw the biggest decline in rents so far this year, falling 2.3% and 2.1% respectively.

One positive development: The data indicates that businesses are paying closer in rent to what landlords are asking for, suggesting that landlords are not making as many concessions as they used to.

Still, analysts at Reis noted that rents and the level of office vacancies are unlikely to improve until sometime next year, given that commercial real estate typically lags what is happening in the broader economy.

"We expect less of a bloodbath in fundamentals in 2010 versus 2009, but rents will still decline and vacancies will still continue to rise," Victor Calanog, Reis' director of research said in a statement.