Summer is always the busiest time in the rental business when it comes to leasing activities. It is when most leases expire and the most demand occurs. People tend to move in the summer when they have the time, energy, and favorable weather to do so. This is when rental prices will reach their seasonal peak. The Portland rental market is no different, but for years now we've seen rental prices increase even through slower seasons. This summer things changed.
We rented a lot of apartments and houses this summer. We had a large portfolio of properties come on board with our company and we had a lot more vacancies than we were anticipating. While we were definitely busy doing leasing, it did provide an excellent opportunity to understand the state of the rental market. Here is a summary of what we noticed:
- Rental prices have plateaued with some signs of softening
- Prospective renters have lots of different options to choose from
- Prospective renters are still putting in applications, but more are backing out
- Apartments with large floor plans sit vacant for longer and have experienced the most price drops
- Single family house demand is still high, but prices have to be reasonable
Our findings are consistent with what we are seeing from the market reports. While Portland still has a very low vacancy rate compared to the national average, we have seen supply levels double since this time last year. New apartment units coming online after construction are definitely the contributing factor for this. The market after all is driven by supply and demand.
We did not have to price drop many units this summer, except in some circumstances and that was mostly concentrated on two unit sizes: 1. Large apartments with more than 1,100+ sq ft. and 2. One bedroom apartments and studios with the exception of units that are sub-$1,000 in rent.
Large apartments simply have too much square footage, and applying the same rental price per square foot that we have been renting things at in the immediate past are challenging. If the monthly rent is over $2,000 then the prospective renters are finding that all of sudden they have a plethora of housing choices to choose from. No matter what people theorize about tenants preferring historic properties in Portland over new construction, we say that they are simply out of touch with the market. Some of these new units are high quality, beautiful properties with lots of amenities and neighborhood attractions that tenants are drawn towards.
Studio and one-bedroom apartments also experienced some tough times this summer. There is simply so much supply of one-bedrooms that it is quickly becoming over-supplied. It makes sense because there simply isn't that many people that want to shoulder the entire rental payment without taking on roommates, or they simply can't because they don't qualify from an income perspective. What did prove to be a deep market was units under $1,000 per month. Those went off the shelf almost as fast as they went up because it fit with people's budget and they were willing to take less square footage for the lower price.
Single family homes still did well for the most part. We had some sit longer than anticipated which came as a surprise and in response we had to price drop. Most of the renewals we had we only did a minor price increase, if at all. In total we probably averaged a 1-2% increase in renal prices for renewals but a 0% increase for turn overs.
Now that fall is here we anticipate to see a further softening of the market. More buildings are being completed and brought online. These apartments will have a tough time renting up compared to others that have been completed in the years past and we are now seeing consistent concessions, such as several months' free rent, and even price drops. Several places now are advertising 3 months' free rent, which lowers the effective rental rate quite considerably.
We are entering into a new era in the Portland rental market, and the change will start to separate out the good operators from the bad. A strong rising market makes things easy, but a softening market can make people frustrated and it tends to amplify sloppiness or underlying problems. Rentals are about competition and making your units standout is the name of the game. Look for ways you can improve the property or offer some amenities like bike parking or smart thermostats that tenants feel like they are getting more for their buck than previously. Two bedroom units are now the most in demand product we have, an if there are two bathrooms, then even better.
These opinions are purely from anecdotal observation from our own rental portfolio and speaking with other landlords and property management companies. If you have experienced similar or different situations then we want to know! Get in touch with us or make a comment so that we can all share other perspectives and insights.