The majority of U.S. real estate investors are planning to increase their property acquisitions this year – but what does this mean for the rental market, and how will it impact property managers on the ground in top rental markets?
AppFolio recently conducted a regional survey of property managers around the country to gain deeper insight into some of the hottest real estate markets in the country, including Boston, Los Angeles, Chicago and San Francisco. Knowing that the regional multifamily explosion is showing no signs of subsiding this year and has actually out-shined the industrial sector, we decided to ask both commercial and residential property managers what they personally expect to see this year in their markets.
The survey found 71.5% of total respondents expect the average rent of the properties they manage to increase this year. However, the majority (64.9%) still claim they are not worried that filling vacancies will become more difficult and/or more competitive in their area in 2016 – which indicates that property managers are confident in the continued strength of the rental market this year.
Below are some of the key findings from the survey broken down by region:
Boston, one of the oldest cities in the United States, is growing at its fastest rate in decades, so it’s no surprise that 75% of property managers surveyed there claimed rent will increase on average for the properties they manage this year, compared to 25% who said they will stay the same. None foresaw a drop in prices.
Of those surveyed in Boston, 50% said they were most concerned about the increase in property taxes.
When asked what they believe to be the biggest challenge facing the Boston rental market in 2016, 50% said they were most concerned about the increase in property taxes. In addition, the majority (58.3%) said they aren’t planning on investing in additional rental properties this year, leaving 41.7% who said they plan to do so.
Where are they most optimistic? A majority of managers said East Boston is the city’s most undervalued neighborhood, while the Seaport district is its most overvalued.
In Chicago, 70% of property managers surveyed there believe rent will increase for the properties they manage this year compared to last year, leaving only 30% who don’t expect any change in their property’s rent.
In addition, 60% of those said they aren’t planning to invest in any additional properties this year with 40% who anticipate to do so.
According to ABC 7 Chicago, a study by United Van Lines shows that Illinois was ranked third on a list of states where residents moved from the most in 2015. However, Chicago appears to be an area of continued strength – at least in terms of rentals.
Although many are concerned there are more apartment rentals available than consumers need, half of those surveyed aren’t worried that filling these vacancies will be a bigger challenge for them this year, which could very well indicate that occupancy is on the rise in Chicago.
Los Angeles is the second largest city in the United States and a massive, competitive rental market. Our survey found that 89.7% of property managers think rent will increase on average this year, leaving only 10.3% who don’t predict any changes in rent.
In LA, 86.7% of those surveyed said they’ve turned down applicants because of too much demand for a vacancy.
Respondents were asked how they would assess the overall availability of rentals in the LA market: 69% stated that there aren’t enough rentals to meet consumer demand and only 13.8% said they never turn down tenants because of high demand. Overall, 86.7% of those surveyed said they’ve turned down applicants because of too much demand for a vacancy.
According to Rent Jungle, over the last six months the average apartment rent in Los Angeles has decreased by 7.3%; however, 79.3% of the managers we surveyed said the rental market will continue to rise in accordance with demand for the foreseeable future.
San Francisco has been an expensive city to live in for quite some time, which makes it no surprise to find that 83.3% of the property managers surveyed predict rent will increase on average.
As Real Estate Weekly wrote recently, multifamily is currently the most desirable property type to investors, which is emphasized in the survey data which shows 61.1% of respondents said this year the multifamily housing market sector will witness the most growth.
In addition, most survey respondents (83.3%) report that San Francisco rent will continue to rise for the foreseeable future as demand continues to outstrip supply.
One other notable data point is that 44.4% think not having enough inventory will be the biggest challenge facing the Bay Area rental market this year, followed by 33.3% who think the main issue will be too expensive rent prices.
So What Lies Ahead for Property Managers?
Out of all four cities, none of the property managers surveyed predicted that the price of rent in their region will decrease in any way. Being the largest city featured in the survey, it’s no surprise that the highest percent of those surveyed who anticipate rents increasing is Los Angeles property managers.
So what can property managers continue to expect this year? Real estate is a constantly changing and competitive market. According to Freddie Mac, demand for multifamily units was particularly strong from the second half of last year, and both rent and the need for them only continue to grow. It’s safe to say the real estate market looks strong again this year and it’ll be a while before we see rents decreasing meaningfully in these top markets.
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