Last week we examined the state of the market on a national level. This week we are going to take a closer look at the North Carolina multi-family market. We are going to focus on the Raleigh-Durham rental market area. We are noticing a disturbing trend and we want our investors and landlords to understand what is going on and how to deal with it. The problem we are seeing right now is a high winter inventory. This is combined with a higher than average vacancy rate. These issues are both affecting the Raleigh-Durham rental market area.
2017 Raleigh-Durham Rental Market Data
If it seems like your vacant units are taking longer to rent – you are correct. If it seems like rents are no longer rising as fast – you are also correct. Here is the market data to prove it. Over the last year, rent prices have only risen 2.7% in the Raleigh-Durham rental market area and only 3.3% statewide. But, in reality, rents have not increased at all because the latest inflation figures (as of October 2017). The current inflation rate for the United States is at 2%. This means that your rents have only risen 0.7% annually. That is about as stagnant as you can get.
Another problem affecting the Raleigh-Durham rental market is a high inventory of available and vacant apartments and rental homes. Based on the leading rental site, Realtor.com there are 1,321 available rental properties in Raleigh. Now if you add the total listings in Durham, Morrisville, Holly Springs, and Wake Forest you have a grand total of 2,163 available rentals. This is close to the total supplied by Rent Jungle with a total of 2,464 listings. While this number gives us an idea of why tenants may not be lining up to rent your one vacant apartment, it doesn’t really paint the whole picture. Vacancy rates are a better indication of the supply and demand.
For that, we are going to turn to the Third Quarter 2017 Research Report for the Raleigh-Durham Multifamily market supplied by Colliers International. Based on their summary statistics, the Raleigh market has a vacancy rate of 4.9%. The vacancy rate for the Durham-Chapel Hill Market has jumped up to 6.2%. If you own rental properties in the West Durham submarket then you can expect a vacancy rate of 8.5%. The Collier report stated that rate was the “highest among the overall Triangle market.” The Central Raleigh submarket came in second highest with a vacancy rate at 6.3% during the third quarter.” Now this was the third quarter report, we are expecting these rates to rise slightly during the fourth quarter of 2017.
How to Cope with High Vacancy Rates and High Inventory Counts
Overall, we are seeing that the activity within the Raleigh rental market has been extremely slow. High inventory will likely mean a brutal winter with many owners seeing unit vacancy of four months or more. What is more, this will drive rental prices down as investors and property owners compete for the limited number of tenants.
It is expected that inventory increases in the winter. If given the choice, most renters do not want to move during winter or during the Christmas season. What is more, we are seeing more and more tenants staying put and not moving after their lease expires. If they have stayed at the same location more than two years, they can expect a jump in the rent anywhere from 10 to 15%.
Since we are seeing a higher-than-average fall inventory carry over into the winter season, we can expect a delay in the spring price recovery. The market will have to work through the inventory before prices can begin to increase.
What can you do during this rental stalemate?
First and foremost, trust your property manager. We want to get your property listed as quickly as you do. We will now, however, sacrifice quality for income. Getting a bad tenant into a property is many times more expensive than waiting for a qualified tenant. We will do everything in our power to actively market your rentals. Second, come back and check out our article next week on tips and suggestions on “How to Get Your Property Rented by Christmas.”