Valley job losses driving apartment vacancies

By Brian Wargo (contact), In Business reporter

Fri, Oct 30, 2009 (3 a.m.)

Nevada’s jobless rate second in nation after Michigan (10-21-2009)
Foreclosure frenzy hits apartments (8-7-2009)
Analyst: Apartment market points to further deterioration (4-24-2009)
Foreclosed, vacant homes pressure apartment rents (4-10-2009)
Apartment occupancy dips due to economy, unemployment (2-20-2009)

Real Estate in Crisis

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A real estate research and investment firm predicts apartment vacancies will rise into 2010.

Marcus & Millichap reports that deep job losses — especially because of the downturn in the leisure and hospitality industries — have lessened the demand for apartments, especially lower-end units.

The firm predicts that because of the struggling job market, the region in 2009 and 2010 will see fewer than 10,000 new households, far fewer than were added during the boom years from 2000 to 2007.

Homes and condos for rent are competition for apartments, and with 6,600 condos under construction, that will make it even tougher for apartment owners into 2010, said John Vorsheck, Marcus & Millichap’s regional manager.

The firm projects the vacancy rate will increase from 10.7 percent in the third quarter to 12.1 percent by the end of the year, an annual increase of 4.2 percentage points. In contrast, the vacancy rate rose 1.8 percentage points in 2008.

A wave of job losses among low-wage earners has reduced the demand for lower-tier apartments by 3.5 percent in the past year to 10.6 percent, Vorsheck said.

Higher-end apartments saw vacancy rates rise nearly 1 percentage point in the third quarter to 10.8 percent, he said.

Although construction has slowed, “the considerable stock of single-family homes serving as rentals will remain a source of competition for the top-tier apartments,” Vorsheck said.

The reason is that the rents requested by owners of top-tier apartments are about $200 more a month than the mortgage payment on a median-priced home. A year ago, the mortgage payment on the same home was $340 per month more than those same apartments, Vorsheck said.

The thinning of the rental pool has prompted apartment owners to drop rents to attract tenants. During the past 12 months, rents have fallen 2.8 percent to $847 a month, Vorsheck said. With free rent and other incentives, that has effectively reduced rents 5.2 percent to $790 a month, he said.

In the high-end units, rents have fallen 2.4 percent in the past year to $970 a month, while the lower-tier units have fallen 3.2 percent to $756 a month, the firm reported.

That has caused revenues to decline 7.8 percent in the past year. Apartments are offering 25 days of free rent on average, up from 16 days a year ago, the firm reported.

By the end of the year, Vorsheck said apartment owners will seek rents of $841 a month, while incentives will effectively reduce rents to $779 a month.

Apartment construction remains tepid with 1,714 units completed in the past 12 months, down from more than 4,000 units in the previous year, Vorsheck said.

In the valley, 2,200 apartments are under construction with most expected to open in the next six months, Vorsheck said. Another 4,000 units are in the planning stages, but they won’t go forward until the economy improves, he said.

Discussion: 11 comments so far…

By davidwayneosedach

10/31/09 at 6:46 a.m.

Suggest removal

In this economy it is the lower end apartments that will remain full.
By SgtRock

10/31/09 at 9:56 a.m.

Suggest removal

I don't know what the problem is.

Biden declared that the recession was over.
By rich44

10/31/09 at 11:45 a.m.

Suggest removal

Where in the world do they get thier price figures from, a quick look through the review journal shows no apts in any region in the valley anywhere near the prices referenced in this article!
By LasVegas2009

10/31/09 at 1:46 p.m.

Suggest removal

rich44: Try craigslist:

Oct 31 - $699 / 2br -

Oct 31 - $620 / 1br -

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Oct 31 - $750 / 1br -

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Oct 31 - $775 2 BED 2 BATH CONDO

Oct 31 - $567

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By Bakersfield

10/31/09 at 1:54 p.m.

Suggest removal

If low end was 756 and high end was 970, as the article states, I think I'd work very hard to make an extra 214 a month in order to live in "high end" vs. "low end". I've stayed in both when I worked in L.V. during the 1990's boom. The low end was a scary dump, the high end was very nice. Then again, you can get a house on the cheap right now......
By fogcity

10/31/09 at 4:09 p.m.

Suggest removal

Not good news for the investrors who purchased homes assuming they would get a rental rate that would provide a good return on their investment. An exodus of people from LV will put further pressure on rental rates.
By wizardofOz

10/31/09 at 4:18 p.m.

Suggest removal

I'm waiting until they will PAY ME monthly to live there.

(Shouldn't be all that too long....)
By stevem

10/31/09 at 5:04 p.m.

Suggest removal

i think this town is in denial about how bad it's going to be here in a few months.

city center is NOT going to be some kind of salvation for us.

sure, it will be busy those first few months, but the "newness" will wear off and all the construction workers will have left town and the layoffs will begin.

stop and think about if city center would have never been built. if it was just still the old boardwalk casino and those little strip malls there. imagine if none of the workers that came to town to build it had ever moved here. imagine the impact that would have on our LOCAL economy.

all the restaurants, dentists, movie theaters, casinos,...everything that opened to serve them would have never opened.

well, those restaurants and stores DID open, and houses were rented out to them, and when those workers leave, all those are going to close.

it's over. accept it.

now, let's fix it.
By 9ballguy

11/1/09 at 10:29 a.m.

Suggest removal

stevem I could not agree more with your point of view. CityCenter will not be a salvation for Las Vegas. There's more pain to come and everyone will have to accept the facts and hopefully work together to get through it.
By environprotector

11/1/09 at 6:06 p.m.

Suggest removal

The more people who leave the valley the better! We need to get back to a more manageable population here!

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