Low vacancy
Beverly and Milo Ball, both in their 70s, were tired of yard work and wanted to travel. So they sold their south Spokane home and moved into a two-bedroom apartment with an attached garage.
“We decided we’d try apartment living. It seems to work for us,” said Beverly Ball, who lives in Adirondack Lodge, a south Spokane apartment complex.
Jim Frank, owner of Greenstone Homes & Neighborhoods, which developed and owns Adirondack Lodge, estimates that 25 percent of the renters in his four apartment communities are seniors.
“As we’ve been in the business, we’ve seen a number of people who have sold their homes and decided that apartment living is nice and has a lot of advantages,” said Frank. “Some people look at living in an apartment as a lifestyle option.”
Lifestyle trends, a brisk economy and increased home prices coupled with tightened lending standards are contributing to increased demand for apartments. Vacancy rates dipped to 1.6 percent in Kootenai County this spring and were at 4.2 percent in Spokane County, according to the Washington Center for Real Estate Research at Washington State University.
Professionals say the area is facing an apartment shortage that will increase rents.
“The last time we had a vacancy rate this low was during the housing boom in Spokane in the early 1990s,” said Rawley Harrison, a broker for Watson Management who has been in the business for nearly 30 years.
Watson Management oversees properties that are 20 units or smaller, with one-bedroom units typically renting from $350 to $425 a month. Watson is experiencing increased demand for the low-to-moderate-priced units.
About 700 apartments were slated for construction in the greater Spokane area in 2006, according to records from Spokane and Spokane County, and more than 500 units are planned this year. But the area has also lost hundreds of apartments to condo-conversion projects in the past few years.
Some developers are now facing a ripple effect from the sub-prime lending crisis, making it harder to get loans for apartment projects.
Ted C. Jones, chief economist for Houston, Texas-based Stewart Title Guaranty Co., has studied the Spokane market for years and is surprised that landlords haven’t increased their rents more, given the area’s vibrant economy and the shortage of units. Although income was up by 6 percent in the past year and the area’s job growth was nearly double the nation’s 10-year average, rents increased by less than 2 percent, said Jones, who reviewed Center for Real Estate Research data.
Similar job growth in other communities typically generates 5 percent to 10 percent rent increases, Jones said, adding, “The consumer has been winning big time here from the looks of it.” Jones expects that rents could increase by 10 percent in the next few years because residential construction isn’t keeping pace with demands.
Glenn Crellin, director for the Center for Real Estate Research, said a shortage of rentable units can push prices up, although so far those increases have been modest. The center’s spring survey of 10,000 apartments in Spokane County found the average rent was $588 a month — an increase of under $10 compared with a year ago. Crellin said average rents have been creeping up slowly over the past five years, costing about $85 more today.
Kootenai County had average rents of $643 a month, about $20 more than the same time last year. Crellin said it’s harder to get data on Kootenai County because fewer units are surveyed.
When vacancy rates are this low, developers tend to enter the market because they can recoup their investment, he said. When rates climb to 6 or 7 percent, development tends to be more targeted. New apartments tend to have more amenities and garner higher rents, Crellin said, which compensates for higher construction costs.
“The experience shows that the newer buildings have a much higher occupancy rate than the older structures,” Crellin said.
Frank, of Greenstone, said vacancy rates aren’t a major determining factor in his projects because apartments sometimes take three years between the planning and the renting stages. Frank has several projects in various stages, including a 114-unit complex going into the former North Cedar Drive-In site in north Spokane and a 200-unit project being planned for Coeur d’Alene, on Ramsey Road north of Hanley Avenue.
Instead, Frank looks at the overall market. Even if vacancies were low when a project started, it doesn’t mean they will be low when it’s finished, Frank said, adding “There’s going to be business cycles, there’s going to be ups and downs.” He likens his ongoing building and ownership of apartments in varying business cycles to cost-averaging in the stock market.
Larry Soehren, of Kiemle & Hagood Co., which has a residential leasing division, said rents will increase in the 300 to 400 market-rate apartments the company manages. “We are pushing rents up, but not dramatically.”
Apartment owners could very well raise rents higher, based on vacancy, he said, but they consider other factors, such as potential loss of existing tenants.
“Owners get comfortable. They don’t want to risk turnover,” said Soehren, adding that when apartments turn over it typically means repainting and other expenses.
Watson Management is among a number of companies that have raised rents to capitalize on the current market and help compensate owners for increases in property taxes, utilities, maintenance and insurance.
“I have property owners that actually want me to find ways to conserve water because their water bills are so high,” said Harrison, the Watson broker. The increased expenses are chipping away at net operating income, which has gone downhill steadily over the past 10 years, Harrison explained.
Frank said Greenstone’s apartment projects, such as Big Trout Lodge, in Liberty Lake, are targeted to people who are willing to pay a higher price for larger units with amenities such as big kitchens.
The apartments feature Craftsman-style designs surrounded by green space and are located in or near neighborhoods.
Features like an attached garage appealed to the Balls, who are creating a new home. Living in an apartment allows them to pick up and go when they want and have a maintenance-free lifestyle.
“You don’t have to put on a new roof when your house needs a new roof,” Ball said.