Rental vacancy rate up in areaLandlords are offering a variety of incentives to attract tenants.
By Andrew LePage -- Bee Staff Writer
Published 2:15 am PST Thursday, January 20, 2005
Many landlords continued to struggle to fill apartments in December as the capital region's average vacancy rate rose to 7.8 percent.
The average apartment rent has risen 1.7 percent, or $15, over the last year to $913 in December, the industry research firm RealFacts reported Wednesday. The average reflects rents landlords charged for vacant units of all sizes in 352 middle-to high-priced complexes.
Today's vacancy rate - more than double that reported by RealFacts four years ago - stems from a lackluster local job market, the construction of thousands of new high-end apartment units and low mortgage rates that have turned many tenants into home buyers. Some analysts say the rental market could begin to tighten over the next year if, as widely predicted, Sacramento's job market heats up and higher home prices and mortgage rates make it more difficult for tenants to buy.
"We're at the softest part of the cycle," said Marc Ross, an apartment specialist with the CB Richard Ellis brokerage in Sacramento. "Right now we're in a very strong tenant market, and I think that will change over the next 12 to 18 months."
When today's rents are adjusted for the incentives landlords offer, such as two months' free rent for tenants who sign a one-year lease, rents have actually fallen slightly over the past two years, experts note.
Some landlords also are offering an additional incentive to fill units: Potential tenants who sign a lease within 24 hours of viewing a vacant unit get an extra $200 to $1,000 credit toward their rent. Those tenants are getting three months' free rent in exchange for signing an annual lease, Ross said.
RealFacts' measure of the average rent has been rising by a modest amount each quarter over the past two years, but that might be the result of RealFacts' regularly adding hundreds of new apartment units to its survey.
"It's a bit misleading because, in truth, rents have gone down consistently over the last year to 18 months," Ross said.
Last year about 4,000 apartment units - mostly high-end - were built in the capital region, while this year the number built will likely drop to about 2,700, Ross estimated. He based that number on his own research.
Aaron J. Frederick, an apartment specialist with competitor Marcus and Millichap, said his discussions with developers and planning officials indicate 6,400 apartment units could be built this year.
Apartment builders sometimes scrap or delay plans based on market conditions. Over the past year a growing number have converted their projects to for-sale condos, reflecting the glut of expensive new apartments here and the undersupply of relatively affordable condos for sale.
The weakness in the Sacramento rental market has trickled down to low-priced rental units not surveyed by RealFacts, though vacancies at lower-end apartments are lower and rents more stable.
For example, the average vacancy rate for 986 of the Sacramento area's least expensive apartment complexes was 4.8 percent last month, reports John Foley, director of Self Help Housing, a Sacramento nonprofit that helps low-income people find rentals.
Rents for units of various sizes were about the same as a year ago.
Still, many poor tenants struggle to find something they can afford if they lose a rental home where they had been paying a below-market rent.
"I'm getting more and more people who are shocked and dismayed they can't rent anything, yet I don't think the market is quite as bad as it was a year ago," Foley said.
Also making it rough on lower-income tenants, he said, are landlords unwilling to accept people with blemished credit or a past eviction. Others can't surmount landlords' minimum-income hurdle. Foley finds that, on average, landlords at low-end complexes require tenants to earn 2.7 times the rent to qualify.
About the writer: The Bee's Andrew LePage can be reached at (916) 321-1065 or firstname.lastname@example.org.
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