Apartments in central Ohio trend toward high end
July 29, 2014
By the end of this year, central Ohio is expected to have added more than 7,500 new apartments to the market since the start of 2013.
With all those new units, one might imagine that rent prices would fall. But experts say that average rents are still expected to rise this year and vacancy rates are projected to move up only slightly.
At least a couple of housing trends are having a major influence, including one that began when the deep recession of the past decade pushed many to rent instead of buying a home.
On top of that, many apartments are being built in urban areas that carry a premium on rates, helping to boost overall averages.
The market for those properties consists largely of millennials, empty-nesters and baby boomers, said Rob Vogt, a partner at the Columbus-based real-estate research firm Vogt Santer Insights.
"The interesting thing about it is that some of (the people renting) don't particularly look at some of the other renters' choices out there," he said. "Millennials have been wanting to accept these higher rents."
Still, as construction on apartment complexes continues, supply could be surpassing demand in Columbus.
A report from Marcus & Millichap, a national commercial real-estate brokerage, predicts that the vacancy rate for apartments in the Columbus metro area will rise to 5 percent this year from about 4 percent in 2013. The report attributes that increase in part to the completion of 3,830 apartments last year and the predicted completion of 3,770 more this year.
That's a flood compared with 2012, when only 650 units were completed in the metro area, and 2011, when 882 units were completed, said Jordan Marshall, an associate at Marcus & Millichap's Columbus office.
"There's a lot more apartments coming online, and because so many are being added, obviously some of those get absorbed," Marshall said. "But naturally, as you build more and more, there are going to be more vacant apartments."
He added that while Columbus historically has operated around a 6 percent vacancy rate, it lately has been nearer to 4 percent.
"Nobody is projecting that we're going to go back to the 4 percent vacancy," he said. "Maybe closer to the 5 percent vacancy rate."
The Marcus & Millichap report also predicted that average rents will rise to $773 per month this year, an increase of 1.3 percent. Last year, average rents rose 2.1 percent, and the year before that, about 3.9 percent.
Nationwide, the average rent is predicted to increase 2.6 percent this year, according to the report. Vacancy, meanwhile, is predicted to rise to 5.2 percent.
One might expect rents to drop if units aren't filled, but Marshall said many of the new apartments are Class A apartments - the most upscale - which command higher rents to begin with.
The average rent for a Class A one-bedroom apartment is usually around $800 to $900, while Class B apartments - a step below in finishes and amenities - rent for about $600 to $750 and Class C apartments typically fall in the $500 range, said John Wymer, president of the Columbus real-estate management company Oakwood Management, which operates Class A, B and C apartments.
Marshall said there was only about a 1.2 percent growth rate in Class A rents year over year at the end of 2013, compared with a 7.1 percent growth rate at the end of 2012. For Class B apartments, rents grew about 1.2 percent in 2013 versus 4.3 percent the year before. Rents for Class C properties, though, increased 4.6 percent in 2013 compared with 2.3 percent in 2012.
"All the new units are coming online. That's why rent growths have dropped in Class A and Class B," he said. Class C apartments, he said, are still benefitting from the effects of the recession as more people start to move into apartments.
Marshall was unable to provide specific predictions for how much the rent for each class might grow this year.
Brian Schottenstein of Schottenstein Real Estate Group said he expects the average rent among his company's properties to rise this year as it completes about 700 Class A units in central Ohio. He doesn't think the vacancy rate of Schottenstein properties, none of which is higher than 2 percent, will change.
"Some of the older communities might be affected, but I think ours will be fine because they're brand-new," he said. "People might be moving up from an older community to a newer community."
Some of the new projects in Columbus offer high-end amenities. For example, Schottenstein said his group's properties offer free wireless Internet, 24-hour fitness centers, movie-theater rooms and community gardens, all included in the rent.
"The new product that's been able to come online at these higher-rental rates has been able to offer the consumer a higher level of rental living," Wymer, of Oakwood, said.
Wymer said Oakwood has upgraded some of its older Class B units with features such as remodeled kitchen areas. As a result, they've been performing fairly well.
Wymer doesn't expect his properties' vacancy rates to change much this year.
"Things might be a little more challenging next year, starting next spring," he said, as new properties come on the market.
If the vacancy rate rises, Vogt said, it could mean more options for renters. Some landlords might waive security deposits or provide a free microwave as part of the deal, and others might invest in upgrades such as landscaping and stainless-steel appliances to draw tenants.
Vogt said it's hard to say whether an upward trend of vacancy rates and average rents could continue after this year. He said that while developers likely will continue building, the question is whether they will be able to find locations.
"These sites are starting to become fewer and fewer," Vogt said.
Overall, he said, the increased number of new and renovated properties might draw people to the Columbus area.
"It's a positive thing for central Ohio in general," he said.