Tenants, Landlords, Multifamily, Commercial

Rents in primarily Western markets remained on the rise at the end of 2005 despite unexpected drops in occupancy levels.

All but three of the 29 metropolitan statistical areas (MSAs) in Novato, CA-based RealFacts' quarterly rent and occupancy survey yielded year-to-year rent increases.

While vacancy-heavy landlords may still offer incentives to get renters in the door, the upward trend in rents means long-term rental contracts are a better deal than month-to-month or shorter term rental contracts for new or moving renters.

Overall, rents were up 3.4 percent in the last quarter of 2005 compared to the same period in 2004, according to RealFacts's data base of more than 11,450 apartment communities of 100 units or more in a swath of 15 states concentrated to the west of the Mississippi River, but also Florida and Indiana.

Up 7.3 percent in the last year, the rental growth leader was the Riverside, CA, MSA, followed by a 6.6 percent increase in the Los Angeles-Orange counties MSA; 6 percent in Las Vegas, NV; 5.1 percent in Phoenix, AZ; 4.7 percent in Reno, NV, and 4.5 percent in Fresno, CA.

Only Colorado Springs, C0, and Tucson, AZ, saw rental declines, both at 1.4 percent. Rents were flat, remaining unchanged in Oklahoma City, OK, RealFacts reported.

Based primarily on rents for two-bedroom apartments, but including a mix of everything from studios to 4-bedroom townhomes, the highest average rent in RealFacts' coverage area was $1,459 in Los Angeles.

The City of Angels' high rent level was followed by the California MSAs of Oxnard, $1,363; five-county San Francisco Bay Area, $1,359; Silicon Valley (San Jose-Santa Clara County); San Diego, $1,254; Vallejo, $1,092 and the Riverside-San Bernardino counties MSA, $1,086.

Cheapest rents were in Tulsa, OK, $529; Oklahoma City, $532; Tucson, $616; Indianapolis, IN, $646; Albuquerque, NM, $666; San Antonio, TX, $667; and Salt Lake City, UT, $680.

As rents rose, occupancy levels ticked up too, but only 0.8 percent in the last quarter of 2005 compared to 2004. An unexpected third-to-fourth quarter occupancy rate decline of 0.5 percent became the first significant decline in eight quarters, since the first quarter of 2004, when the national economy was first showing signs of improvement.

"Seasonally, third quarter occupancy usually goes up so it is not unheard of for the fourth quarter to decrease. But we thought this decline was notable. We don't have one answer why. It could be different depending on where you go. In San Diego county (where the occupancy rate has been falling all year) there are condo conversions. In other markets people are still buying homes. I don't think there is one simple answer," said Chris Bates, sales and marketing director at RealFacts.

"It (the occupancy rate decline) was unusual. It was across the board. We had a 0.2 percent decrease a couple of quarters ago, but (statistically) that was zero. This (the 0.5 percent decline), I think, is statistically significant," said Bates.

Condo conversions, newly constructed rental apartments, and home buying all impact the supply of rental housing and occupancy rates.

"There is the possible structural change in the rental market as the boom in single-family home purchases has an impact on rental apartment occupancy rates," RealFacts reported.

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