Vancancies Increasing

Vancancies Increasing

I was tooling around on Yahoo and found an article of importance to us as investors. The article talks about market trends for rental vacancies increasing to record levels. This work well with another posting I created that talked about / mentioned commercial properties being an increasingly better purchase. Here is one of the national factors that are creating better opportunities in commercial / rental properties. Keep in mind that the market is not falling apart but rather small incremental moves are being made in the vacancies of real estate properties. This also does not mean that you will not be able to rent your properties. It does give us an idea of how the markets are moving.

When a large company purchases a commercial property often they will finance the property to the hilt (or in other words at their highest amount) this then creates a highly leveraged property. If vacancies move even 1% this could cause a highly leveraged property to go into a negative cash flow. This negative cash flow can be detrimental to a company, really, big or small. This negative cash flow would then create more commercial / rental foreclosure and pre foreclosures.

Generally speaking, commercial properties follow the market of single family residences. If single family residences increase in value a short time later commercial properties will raise in value. When foreclosures increase in single family residences a short time later foreclosures will raise in commercial / rental type properties.
Because of the size of the properties many investors will over look commercial / rental properties. But, with the relative heading of the market for commercial properties you may want to consider adding commercial properties to your portfolio. This market is proving to be one of the greatest to pick up properties of any type.

Here is the article:
NEW YORK (Reuters) – The vacancy rate for U.S. apartments reached its highest level in more than 20 years in the second quarter and could soon exceed record highs if the recession persists, real estate research firm Reis Inc said.

The national vacancy rate rose to 7.5 percent, the highest since 1987 and an increase of 1.4 percentage points from last year, according to a report Reis released on Wednesday. The record high was 7.8 percent in 1986.

"We are reaching that historic high very quickly," said Victor Calanog, Reis director of research.

The second-quarter vacancy rate was 0.20 percentage point higher than the prior quarter and up from the cyclical low 5.5 percent reached in 2006, Reis said.

The U.S. recession has taken a toll on the U.S. apartment market, which largely relies on employment growth to fuel demand. Its largest tenant group, 18- to 24-year-olds, has been hardest hit by rising unemployment. Meanwhile, the apartment buildings sector has led all commercial real estate categories

on loan defaults.

Second-quarter asking rent fell 0.7 percent from a year earlier to $1,040 a month, and 0.6 percent from the prior quarter, the largest single quarterly decline since Reis began tracking quarterly data in 1999.

When free months of rent and other incentives landlords are using to lure tenants are factored in, effective rent was down 1.9 percent from the prior year and 0.9 percent from the first quarter to $975, Reis said.

"If you're a landlord right now at least you're recognizing that things are tough," Calanog said.

To maintain occupancy, many landlords, including Equity Residential, Apartment Investment and Management Co, AvalonBay Communities Inc and Mid-America Apartment Communities Inc, have sacrificed rental income and boosted concessions.

For example, in New York, the largest U.S. apartment market, vacancies fell 0.5 percentage points to 2.9 percent, despite a 1.7 percent decrease in rent to $2,679 compared with just the prior quarter and a 4 percent fall compared with last year.

"It's very clear there's some leasing going on, but it's coming at the cost of a whole lot of concessions offered," he said.

In other areas, such as Las Vegas, San Francisco and San Jose, California, effective rents dropped more than 2 percent from the prior quarter.

Nationally, the picture may grow worse as the year progresses as Reis expects more than 100,000 units from new construction to come onto the market by the end of the year. Some 47,000 units have already come on line this year.

"With general expectations of an economic recovery pushed back to early 2010 at the earliest, it seems likely that apartments will have to endure a few more quarters of distress, lower rents and higher vacancies," Calanog said.


If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125


Thank you for the useful information. Its pretty crazy that things have gotten this bad economically. But, while doors may be closing for many, they seem to be opening for us!

Also, it's interesting that you mention commercial properties following a few steps behind residential realty, I may of never realized this. I am certainly interested in learning more about the commercial side of REI.

I have a feeling this thread has gone slightly unnoticed due to the lack of response. I know there are many here who will find this information beneficial, hopefully others will notice.

Thanks again! Smiling
-Mike Hutchins

Between the lines

nstreet i believe you have to...Read between the lines! I have been doing that my whole life,I am not saying...I am good at it! What i am saying is...Getting better! The new market will be like no other...Too make the deals,I believe it will really come down to chance.
After reading your posts i see a small bank and a multi property deal in the works. I always think to get things done...Use the people around you!
Thanks Coach


Invest in yourself!


Hi again,
The AVE. is there for the right person! I once told somebody "For you have eyes, But you cannot see! And they're reply was...Huh! I wish,I could give more info! But as you can see, I am still learning.
Your friend,invester


Invest in yourself!

Interesting info

I saw a rent a room hotel on Channel 2News recently that had gone into foreclosure don't know whether its still available though. What interests me is finding a building for individual room rental because alot of people on craigslist are requesting room rentals for $300-$400 a month. I want to know how to tap into that market.


In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.


Great idea! I'm sure there are many of us here who would like information on making this work. I know I would.

Good luck! Smiling
-Mike Hutchins


You're right about one thing, commercial properties are overlooked by investors. This makes me take a second look and consider the deals available there.


Thanks for sharing the insightful article with us. It is interesting how commercial properties and residential properties can have similar trends. The more we learn and understand the market the better position we will be in. Believe and Achieve! Smiling - Joe


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Joe Jurek CPA


I am glad that so many have been able to gain information from this post.

Consider now...If the commercial properties will follow similar trends as the residential properties that would mean there will be a surplus of commercial real estate soon.

With a surplus of commercial real estate banks will be more and more willing to be creative. You may be able to ask the banks to finance the entire transaction and the banks may do this just to get rid of the properties.

As the market worsens for commercial look for more creative options to pick up commercial properties for you and you may get properties at with great options.


If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125