Are you a renter? If so, and you recently renewed your lease, you probably noticed a big spike in rent. In some cases upwards of 10%. Why?
Typically this time of year, leverage tips in favor of renters as owners position themselves to ride out the winter months. However, this year seems to be a bit of an aberration. As we emerge from this recession, people are choosing to splinter out on their own instead of living with friends and family. With depleted savings and high equity down payments required for home ownership, many view renting as their only option. As a result, vacancy rates are falling and rental rates are increasing. It’s simple supply and demand.
Throughout 2010 very little supply has been added to support this increased demand. According to the latest Apartment Market update from REIS for the Boston metro area, just over 1,000 units will be completed in 2010 while absorption is expected to exceed 2,600 units. REIS predicts this trend to continue through 2014 with an average of over 2,000 units being absorbed and only 1,100 units being completed. Average vacancy has therefore decreased to 5.4%, the lowest rate since 2007. REIS predicts rates to decline to 4% by the end of 2013 while rents will continue to climb steadily around 3% per year.
Across all of Boston’s submarkets, the same story holds true, prices are up and vacancy is down giving renters little flexibility to negotiate lease terms. As supply is unable to keep pace with demand, owners are maintaining the upper hand and are not only raising rents but also getting rid of rent concessions.