Rental Rates

By admin, June 26, 2011 8:17 am

 Rental Rates

Over the past five years, the US Apartment Rental Rates have remained relatively stable.  This is somewhat surprising, given the fact that the US Apartment Vacancy Rate had increased greater than 200 basis points (2%) during this same period.

Rental Rates: US Apartments

Below is a graph analyzing the effective US Apartment Rental Rates over the past five years.  All data within this article, including the below graph, is derived from data that was supplied by REIS:

Rental Rates 1

As you can see from above, the average Rental Rates for US Apartments did not fluctuate outside the ~$950 to ~$1,000 range.  In fact, the Rental Rates did not change much at all.  Taking inflation into consideration from 2007-2011, this was not an increase in Rental Rates based upon inflation accounted, “real terms”. 

Rental Rates 4

Apartment Vacancy Rates

It is somewhat surprising how the Rental Rates remained stable, given the increase in the US Vacancy Rate for US Apartments within the same time period:

Rental Rates 2

As seen above, the Vacancy Rate has experienced quite a change over the last five years.  The Vacancy Rate increased 33% on a relative basis, from Q1 2008 to Q3 2009.  This increase in the US Apartment Vacancy Rate forced most management companies to offer discounted rents, promotions, and/or ”move-in specials”.  For more information, read google Real Estate’s article on Vacancy Rates.

Vacancy Rates Impact on Rental Rates

By combining the two charts above, it is easier to get an idea how US Vacancy Rates have affected US Apartment Rental Rates:

Rental Rates 3

It is important to note that the US Apartment Rental Rates are in absolute dollars, while the US Apartment Vacancy Rates should be in percentages.  The important “take away” from the above graph is that the Vacancy Rates did not really have an overbearing impact on the Rental Rates.  This surprised me, so I wanted to figure out why.  

The weak correlation between Rental Rates and Vacancy Rates was most likely due to the subsidies that real estate managers provide when vacancies are high:

  • Move-in specials
  • Promotions
  • Reduced security deposits
  • Widened credit standards
  • Additional utilities paid

The management companies seem to be able to stabilize the Rental Rates, because they find other ways to compensate for decreases in demand.  By offering more “subsidies” and reducing credit requirements for potential tenants, the apartment management companies have been able to offset the decrease in demand.

Rental Rates: Conclusion

While Vacancy Rates over the past five years don’t seem to have strongly affected Rental Rates within the same time period, this is not the norm and was due to various “subsidies” by property managers.  The Rental Rates would have decreased if the vacancy rates had remained high for a longer period of time.  Although Rental Rates seem high through the US, it is important to understand that a stagnant Rental Rate can be a decrease in “real terms” when inflation is factored into the equation.

Rental Rates

 Another informative article from google Real Estate.

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