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Marth 14, 2005
http://www.northbaybusinessjournal.com
© 2005 North Bay Business Journal |
Marin and Sonoma county apartment rents remained flat during 2004, as landlords continued to make rent concessions and offer updated apartments to attract tenants throughout the year.
Contributing to the weak rental market were anemic Bay Area job growth and low interest rates. The low rates attracted many apartment residents into the housing market, a key element to the continuing soft rental market.
However, one positive market indicator was a 3% increase in apartment occupancy levels in Marin and Sonoma counties. This should be good news for landlords, who were facing vacancy factors as high as 10% in Sonoma County in 2002 and are now enjoying an occupancy rate of 92.3%. In Marin, the occupancy rate is even higher, with apartment owners reporting average occupancy rates at 94%-95%.
While most local apartment owners have struggled to keep their buildings filled since the rental peak in 2001, the precipitous rental declines slowed in the fourth quarter of 2002. The declines since that quarter have been nominal. For example, the average Marin County apartment rent in 2002 was $1,552 per month. In the fourth quarter of 2004, it was $1,474, a modest 5% decline in the two-year period.
Over the same period, average rents for Marin County one-bedroom apartments declined 6% from $1,355 to $1,273. Two-bedroom rents remained virtually flat over the two-year period, falling from $1,437 in the fourth quarter of 2002 to $1,412 for the same period in 2004, according to RealFacts.
The stronger occupancy rates are an encouraging sign that the rental market may be poised for an upturn. Although many owners are taking a wait-and-see attitude, others are seeing positive signs that higher rents are on the way.
"It's taking me a much shorter period of time to fill apartments when they become vacant," says one Mill Valley four-plex owner. "Even though I can't get the same rents I did in 2001, I can fill the unit in two weeks rather than 30 days."
Prices to cool
As the rental market firms up, the white-hot apartment sales market is expected to cool, according to industry insiders. Low interest rates have made it easier for buyers to get into apartment investments, even when rents have remained flat. As interest rates rise, it will take larger down payments for buyers to acquire investment properties.
Buyer demand has pushed gross rent multipliers up to historically high levels. For instance, gross rent multipliers in Southern Marin have normally ranged from 12 to 13.5 times annual rents in a market more balanced between buyers and sellers. In the strong sellers' market of the past two years, multipliers for smaller properties - between two and six units - have moved from 13.5 to as high as 19 times rents.
Likewise, in Sonoma County, where gross rent multipliers are at least two percentage points lower than in Marin County, prices are reaching historical highs because of buyer demand.
In the past two years, the North Bay apartment market has been extremely active, with prices per unit rising nearly 25% from 2001 to 2004. The average price per unit in Marin for buildings of six or more units rose from $168,000 in 2001 to more than $225,000 in 2004. In Southern Marin, the price per unit is even higher. A six-unit building in Sausalito sold in December 2004 for $2.1 million - $350,000 per unit with a cap rate of 4%.
In Sonoma County, the average sales price per unit jumped from $79,312 in 2001 to more than $100,000 in 2004. Meanwhile, average rents in Sonoma County have been flat for the past 12 months. Average two-bedroom, one-bath rents are now from $1,000 to $1,095 per month in complexes with multiple amenities. In buildings with only basic amenities - no fireplaces, workout rooms, or pools - two-bedroom rents can be as low as $900-$975 per month.
For 2005, look for a softening of apartment sale prices and a continuing flat rental market in the North Bay.
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Katherine Higgins is an investment broker at Higgins & Associates in Greenbrae specializing in apartment sales in Marin and Sonoma counties; 415-526-1444 or katherine@khiggins.com. |
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