Rental market finally firms up
Apartment vacancies drop; some owners raise rents after years of stagnationJanuary 26th, 2001
Spokanes apartment market has weathered stormy conditions for several years, but finally, observers say, theres a break in the clouds.
A recent survey conducted by Washington State University says apartment vacancy rates in the Spokane area fell below 5 percent last fall, which is their lowest level in six years. At the same time, the study says, average apartment rents rose 5 percent compared with a year earlier, to their highest level in at least three years.
Some property managers say vacancy rates have gone back up slightly since September, as historically happens during the winter months. Still, they say, the apartment market is stronger now than it was last year and is in substantially better shape than a few years ago.
While falling home-mortgage rates might be a reason for concern, because they give apartment dwellers added incentive to buy houses, property managers and owners are hoping the lower vacancy rates and higher rents signal that sunnier days are ahead.
Fewer new (rental) properties are coming on line, says Bruce Jolicoeur, a principal at the Auble, Jolicoeur & Gentry real estate appraisal firm here and longtime observer of the Spokane-area apartment market. If growth trends remain consistent, I expect we are going to continue to see some firming up over the next year.
Mitch Swenson, a real estate agent at Spokanes Tomlinson Black Commercial Inc. who specializes in multifamily properties, concurs, saying, Over time, the vacancy rate has lessened, and it has been trending down slowly. Were right at the cusp. Were beginning to come out of the trough.
Though on the upswing, the apartment market here still isnt strong, says Lorelei Koester, vice president of operations for Alvin J. Wolff Management Co., which owns and operates more than 2,100 units in the Spokane area. She says the apartment market still undergoes seasonal swings in activitywith winter drawing significantly less traffic from prospective renters than the summer monthsto a degree that she hasnt seen in other cities.
Also, she says, lower home-mortgage rates could hinder efforts to fill vacant space this spring.
The lower the interest rate is, the more affordable a home is for a renter, Koester says. Its certainly a flag for us to be watching.
Koesters caveat, however, follows a year in which Wolff Management was able to raise rents very aggressively during the summer. Overall, she says, the companys performance was better last year than in 1999.
Even some smaller, older apartment buildings, which suffered most severely when vacancy rates climbed and rents stagnated here during the mid- and late 1990s due largely to an upswing in construction of new units, have been more attractive to renters in this past year.
For example, Mike Avila, owner of a small property-management company here called Aero Realty Services that manages some properties of that type, says, Four of my apartment complexes are running at 98 percent occupied as of the end of the year.
Thats a big improvement over the previous year, when two of those complexes were 15 percent vacant, he says.
Those four properties have between 12 and 17 rental units each and are located in different parts of the Spokane area, Avila says. Aero Realty also manages a number of rental houses, duplexes, and other properties with eight or fewer units, and Avila reports improved vacancy rates in those properties also.
As vacancies decline, rents have increased. The WSU survey measures rates by the actual rent per net rentable square foot of the properties included in its study. Last fall, the survey says, actual rent was about 63 cents per square foot, an increase from a year earlier when actual rent was 60 cents per square foot.
The winter months typically are the slowest in Spokanes apartment market, and a lot of complexes offer concessionstypically a month of discounted rentat this time of year. Jolicoeur says, however, that use of concessions to lure renters in general has decreased and will become less frequent if the apartment market continues to tighten.
At last, he says, apartment owners and managers are getting a reprieve from the softer market that dominated the mid- and late 1990s.
Its been tough on them for years, Jolicoeur says. Rents have been flat or declining for several years, but operating expenses have continued to increase.
Vacancy rates in Spokanes apartment market began to climb in the mid-1990s and crested in 1997, when the vacancy rate hovered around 10 percent.
The construction boom that sparked that rise in vacancies followed a tight market earlier in the decade, when vacancy rates fell below 2 percent. The boom was most evident in 1995 and 1996, when the city and county issued building permits for about 1,000 and 1,350 units, respectively, or well above the number of new units that the Spokane market can handle without boosting vacancy rates, Jolicoeur says. The market typically can absorb between 650 and 750 new units a year, he says.
A relatively low number of new units have been added during each of the past two years, which observers say has helped the market to firm up.
The city and county issued permits for about 500 new apartment units last year and about 600 units the previous year. Jolicoeur says he expects that about the same number of unitsbetween 500 and 600will come on line this year.
Two large apartment projects that currently are under way would account for about half of that activity.
Alvin J. Wolff Inc., the acquisition and development arm of The Wolff Cos., has started work on the final phase of the Big Trout Lodge apartment complex in the Liberty Lake area. That project is expected to be completed this summer and will add 180 units there, giving the development a total of 520 units.
Also, a 116-unit apartment complex called Cedar Canyon Villas is coming out of the ground on Spokanes South Hill, just east of the Cedar Canyon Village shopping center along 57th Avenue. The project, which is being developed by Rich Naccarato and his family through a limited-liability company, is scheduled to be completed this spring.
A side benefit of the improving apartment market is that more out-of-town investors have begun eyeing rental properties here, Swenson says.
Investor interest, he says, is piqued by the fact that the average cost of apartment buildings here is much lower than in other metropolitan areas in the Western U.S. While a new rental property in downtown Seattle might sell for $135,000 per unit, a new development here would sell for $50,000 per unit, Swenson says. Older complexes here sell for $25,000 to $30,000 per unit, he says.
Inquiries from out of town havent translated to increased sales yet, Swenson says, but, Im very optimistic about this year and the next couple of years.