DETROIT, MI - The residential rental market is a mixed bag for landlords, with both increasing demand and a higher supply of rental homes tempering it. More home foreclosures and fewer homebuyers mean the demand for residential rentals has grown in Southeast Michigan. At the same time, more single-family homes have been added to the rental pool. Strict credit requirements and fewer qualified renters are also putting a strain on the industry. Yet increased demand alone has allowed many landlords to restrict or eliminate many of the concessions they had to give a few years ago.
The residential rental market first experienced a steep decline in 2004 followed by a flat 2005 and a relatively flat 2006, said Kevin Dillon, senior investment adviser and associate partner of Hendricks & Partners real estate and property firm in Birmingham. One of the reasons the past 12-18 months have been better for apartment property owners is that the housing and mortgage crisis has automatically raised the demand for rental units. In addition, fewer area residents can afford to buy homes now as foreclosures have quadrupled, employers have been laying off staff and credit standards have been tightened, Dillon said. "Younger people in the workforce who would have been in a good position to purchase homes are now waiting until they find a home that is a good short-term investment," Dillon said. "Many first-time homebuyers will purchase a starter home and then (upgrade) in a few years. But now these consumers are waiting out the real estate mess."
The increased demand is only part of the story, said Faith Gaudaen, an associate in the real estate and litigation practices at Kemp Klein Law Firm in Troy. Gaudaen represents several residential management firms in her practice, and she said that while demand has risen, so has the supply of more nontraditional rental units such as condominiums and single-family houses. "In reality the market is mixed," Gaudaen said. "If you can rent a condo for $600 a month, why would you pay that much or more for an apartment in a high-rise building?"
The average effective rent was $765 in the third quarter of 2007, an increase of 0.9 percent, according to a Red Capital Group market summary of metro Detroit released in October 2007. Red Capital Group is a Columbus, Ohio-based firm that provides debt and equity capital, along with advisory services, to the multifamily housing, senior housing, commercial real estate, and health care industries. The company is affiliated with National City Corp. On a year over year basis, effective rents in metro Detroit rose 1.9 percent, the largest increase in six years, the report said. Asking rents rose 1.6 percent year over year to $828. The size of the average concession package fell to 7.6 percent of asking rents.
Effective rents in the Westland submarket (which includes Westland, Canton Township, Plymouth and Belleville) increased faster than any other submarket in metro Detroit, the report said. The average effective rent, defined as the average per-square-foot rent paid by the tenant over the term of a lease, rose 5.8 percent year over year to an adjusted monthly rent of $723 per unit in that submarket. Rent gains are expected to increase, with forecasts of year over year effective rent to accelerate to 2.5 percent in 2008, according to the Red Capital Group.
Residential home brokers are seeing an increase in their rental requests, with many doing "three to five leases for every home purchase," said Mark Rubenfire, a practicing real estate attorney for and partner of Jaffe Raitt Heuer & Weiss P.C. in Southfield. Apartment and condo complex owners are facing more competition from individual homeowners and investors, many of whom have purchased houses for $200,000 or less, Rubenfire said. These individuals now own numerous homes and can afford to rent their homes for a lower monthly
Source: CrainsDetroit.com