Pie in the Sky

Pie in the Sky
By: Nicholas A. Dunlap, CPM

Ten percent rent hikes in this market? Sure, it’s a nice idea. I guess this would apply to the complexes where vacancy rates had increased so dramatically that teaser rates, free rent and other such promotions were introduced in exaggerated form. But really, ten percent hikes? I guess it is important to consider that most Orange County is down approximately 6 to 10% from previous highs. Yet, per an article posted by the Orange County Register yesterday, these hikes will be able to occur in 2011 as the result of the following (per the article):

– Tight credit is hampering efforts to start new rental housing construction, which takes about two to three years to complete.

– A large number of “Generation Y” professionals, or professionals born in the mid-1970s or later, are expected to enter the housing market soon, as are other types of newly formed households.

-Apartments and condos often are the most attractive form of housing for this group.

– Industry experts expect the number of tenants to outstrip the supply of rental units by mid-2011, with increasing shortages through 2014.

– This shortage likely will increase rents by as much as 8% to 10% per year in 2011 and 2012 and by 4% to 7% per year through 2015.

As an industry professional, I see this as a lot of wishful thinking. Obviously things would be better for everyone if the economy were to pickup; people could get jobs, get raises and begin to indulge again. Isn’t the thought alone beautiful? Imagine that: the economy began to thrive again, so much so that people began to spend freely and frivolously. At the very end of their playful and once again enjoyable days, they would return home to their own apartment home (no longer doubled up to save) to contemplate their next fun-fueled, financially charged excursion.

As this recovery comes, NAHB Chief Economist David Crowe stated: “The vacancy rate for apartments is elevated now, but as the economy recovers and jobs return, the people who’ve been doubling up with relatives and friends will want a place of their own, there may not be one available.” There are and will be plenty of apartment homes available. I do not share in the optimism that the opportunities for rental housing are so extremely limited.

Right now, times are tough. But if you know your market and know your product, you can maximize your profits through efficient and precise management, marketing and leasing.

Please view the original post here: http://lansner.freedomblogging.com/2010/02/01/are-10-rent-hikes-coming/53705/