Not that long ago, owning a residence seemed attractive in a number of ways. The availability of mortgage money was abundant in many forms, down payments were nominal and interest rates were low. This drove demand for sales and, as such, prices rose rapidly.
As a result, there was a buyer’s perception of huge increases in equity and subsequently net worth. Then the credit markets collapsed and this once relatively safe haven investment changed quickly.
“The change came fast and the depth of the economic downturn was more severe than anyone had anticipated,” says Jim Bobbitt, a senior vice president and multihousing specialist in Tampa with CB Richard Ellis. “With this change came lifestyle decisions for many that had to match the uncertain nature of the economy. For some, renting provides the right solution. Flexibility in lease terms and lower cost of occupancy is attractive as economic factors become more unsettled.”
Smart Business talked with Bobbitt about the changes over the past year, how they’re affecting rental demand and how the supply side is responding.
How different is today’s rental market from one year ago?
The change we have experienced has been constantly evolving, but it is the product of significant market influences. After many rushed into the heated housing market, it became apparent that the fee ownership of housing for many was starting to unravel. Many owners had put themselves in a position where they now had mortgage obligations on residences that they could no longer afford to carry, nor could they afford to sell due to falling values. In addition, pending job losses and a tough credit market were clouding the future. As the downturn deepened, some owners turned to leasing their own property. In more severe circumstances, forced foreclosures became more commonplace. All of these factors played into changes on both the supply side of the equation as well as the type and number of potential renters in the market.
Has this movement affected the value of apartment properties?
Overall, I would say that it has helped to further stabilize the multifamily market. While leasing has indeed become a viable alternative, there are some factors to consider. As noted prior, many single-family homeowners have turned to leasing their homes to avoid default. This has added new inventory to the rental market. In some cases, properties developed or converted to condominiums have now entered the rental market, as well. Together, these have increased the overall supply side of properties for rent. Keep in mind, however, that leasing in a potentially distressed situation can have disruptive and unsettling consequences for a renter. Established apartment communities with experienced ownership and management can significantly mitigate unforeseen issues. As the nontraditional rentals exit the market over time, we expect that quality rental properties will see solid appreciation.
It appears then that this is a good market for prospective renters?
It is. Many of the properties available were built for ownership or to effectively compete with for sale properties. Many of these have attractive upgrades such as granite countertops and new stainless appliances. In addition, the amenities such as pools, fitness centers, business and social venues all contribute to an attractive lifestyle. Add that to a competitive market and you have aggressive pricing for at least the near term. Renters are getting better properties for very attractive rates. On a broader scale, this is an important factor in helping to attract jobs to our area. Cost of living, once a traditional advantage in Tampa, had dissipated with the run up in prices. Now quality properties at reasonable rates will be a key factor in attracting potential new businesses to our area.
Can we expect to see new properties added in 2009?
Yes, we will see some new additions to the market this year. The planning and permitting processes are such that these are projects that had been committed to some time ago and will finally come to fruition this year. In addition, we are seeing interest in potential sites for longer-term projects. Land prices have come down substantially, which is a key component of future development. While we all struggle with the challenges of today, there are those who are actively positioning for the eventual recovery. Unquestionably, apartment living will continue to play a significant role as the very mobile next generation looks to enter the work force.
JIM BOBBITT is a multihousing specialist and senior vice president with CB Richard Ellis in Tampa. Reach him at (813) 273-8410 or email@example.com.