Uptick in County Rental, Vacancy Rates

Friday, June 6, 2008
Emett Pierce
San Diego Union Tribune

San Diego County's apartment vacancy and rental rates increased modestly over the past six months as foreclosures and failed condo conversions increased the supply of rental units.

In a survey of landlords and apartment managers scheduled for release today, the San Diego County Apartment Association, taking account of the prevalence of some housing types, found that the average rent was $1,201. That represents an increase of nearly 3 percent over the association's fall 2007 survey.

The study found a 4.8 percent vacancy rate countywide, an increase from the 3.4 percent reported in the fall poll. A 5 percent vacancy rate is considered to reflect a balanced and healthy rental market.

Units of three or more bedrooms had the highest vacancies, followed by two-bedroom, one-bedroom and studio units. Higher vacancies among larger units may be due to the recent spike in home foreclosures, said Linda Morris, president of the association.

"There are a lot of vacant homes out there," said Mark Goldman, who teaches real estate finance at San Diego State University. "It makes sense that the larger units are somewhat softer. The prospective tenant can now rent a single-family dwelling."

Those who responded to the survey represented nearly 40,000 rental units that included everything from single-family homes to complexes of more than 100 apartments, said Michelle Miller, a spokeswoman for the association. To create a snapshot of the market, those surveyed were asked to report what their vacancies and rental rates were on March 15.

The 2.8 percent rise in rental rates likely was caused by apartment owners passing on rising costs to tenants, Miller said.

"We theorize that it is being driven by increased operational costs," she said. "Water rates and electrical rates are going up. It's not really profit driven."

Apartment owners have been cautious about raising rents because of the downturn in the economy and increased competition from foreclosed homes, said Robert Pinnegar, the association's executive director. There were 1,413 residential foreclosures countywide in April, a 35 percent increase over the previous month and a surge of nearly 170 percent over April 2007.

Real estate economist Gary London said landlords also are facing increased competition from apartments that were converted to condominiums during the housing boom. As the housing slump deepened, many units that weren't sold were returned to the rental market.

Like every other segment of the economy, landlords have been affected by the rise in gasoline prices, Pinnegar said. Complexes in distant suburbs may not be able to raise their rents in the months ahead as people who make long, daily work commutes consider moving closer to their jobs.

"If you are in Alpine, with gas prices going up you may have to start dropping your rents," Pinnegar said.

Looking to the future, the association conducted a supplemental survey called the Apartment Availability Index, Miller said. It solicited information from operators of the 25 largest rental properties in the county. Those who responded represented 27,055 units.

The goal was to determine the number of vacant units as well as units on notice to become vacant within the next 60 days. The count was 10.25 percent compared with 8.6 percent in the fall survey.

"Even though it looks like increasing vacancies may continue, because the job market is stable outside the real estate sector, employees will still need rental housing," Miller said.

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