At the upscale Devonshire in downtown Boston, where monthly rents range from $1,900 to $8,000, new residents can have their broker fee paid if they sign a one-year lease.
Part Two of a Two-Part Series
After a period that saw apartment vacancies creep up and property owners offering various incentives to keep apartments filled, the rental market appears to be recovering.
Tenants can still find appealing incentives, according to industry watchers, but come Sept. 1 – a day when, due to the area’s many colleges, thousands of leases typically turn over in the Boston area – many apartments will be filled.
“We seem to be trending in a direction that’s positive in the rental market,” said George McHugh, vice president of property management for Chestnut Hill Realty.
As occupancy rates have risen, the use of concessions has dropped off. Most property owners are still offering to pay the broker’s fee, but some of the larger property owners are cutting back on the practice of offering one or two months’ rent free.
At the upscale Devonshire in downtown Boston, where monthly rents range from $1,900 to $8,000, new residents won’t find rent-free months, but they can have their broker fee paid if they sign a one-year lease.
John Donovan, who heads leasing and marketing activities for Devonshire, said many of the bigger property management companies have stopped advertising rent-free months, after using the tactic in the spring and summer to get apartments leased up for the fall.
“I think the market is definitely in a recovery mode,” said Donovan.
Anthony Gomes, chief executive officer of Rex Real Estate in Boston, said the rental market is a lot tighter than it once was. “The market has changed a lot. The incentives are starting to go away,” said Gomes.
Gomes, whose company focuses primarily on professionals relocating to the city, has also noticed that rents are climbing at Boston properties. Last year, a renter could secure a one-bedroom apartment on one of the top floors of Charles River Park, a premier residential complex near the FleetCenter, for $1,900. Today, rents for a one-bedroom apartment on a lower-level floor in the same apartment complex can start at around $2,200.
“That’s a good barometer that the marketing is tightening up,” said Gomes.
The recovery comes after a considerable softening of the rental market that some experts believe began in the summer of 2001. Job layoffs in the financial services and high-tech industries were partly to blame, as many young professionals either fled the state for other career opportunities or moved in with roommates.
The construction of new apartments in and around Boston also brought an influx of new inventory, spurring more competition among apartment managers to attract tenants. And with mortgage interest rates hitting historical lows, many tenants decided it was an ideal time to become a homeowner.
Meanwhile, property owners who relied on an influx of college students every fall suddenly found themselves competing with colleges and universities that built new dorm rooms, a policy advocated by Boston officials concerned about the affordability of rental units in the city.
In a survey of its members in the fall of 2002, the Greater Boston Real Estate Board found that the vacancy rate had climbed to 8 percent – a significant increase from the 2 percent vacancy rates enjoyed in 2000 and 2001. GBREB could not provide current vacancy rates.
As property owners slowly began recognizing the market shift, they became more flexible with rental terms. Some owners of smaller properties gradually lowered rents, and larger property owners advertised incentives to woo would-be renters.
Al Norton, rental manager with Prudential Unlimited Realty in Brookline, said some property owners resisted his advice last year to provide incentives like paying the rental broker fees. But when the fall approached and they were left with empty apartments, they started to realize that tenants couldn’t afford the high rents.
The market change started to sink in and property owners made adjustments to draw renters to their apartments. “Before it was like a starting contest between landlords and they didn’t want to blink first,” said Norton.
‘A Position of Strength’
The adjustments made for an unnaturally busy October and November last year, says Norton, as renters were able to take advantage of some “unbelievable deals.” This year, while there is still a “decent amount” of apartments available for the fall, there are considerably fewer properties available than a year ago, according to Norton.
“Most of the choice listings rented in June or July,” he said.
The large property management companies that haven’t leased all units have aggressively pushed in the last two weeks to fill those apartments. Some have gone from offering rent-free months at select properties to providing a month or two of free rent at all their properties, said Norton.
Still, Norton anticipates a “traffic nightmare” on Wednesday, Sept. 1, because there will be many people moving to new apartments.
At Chestnut Hill Realty, McHugh estimates a 94 percent to 96 percent occupancy rate for the company’s apartment portfolio. The full-service real estate firm – which owns and manages more than 5,000 apartments in Boston, Cambridge, Brookline and Norwood, as well as Rhode Island – has offered concessions at select properties throughout the year. But in strong market areas like Brookline, Cambridge and Brighton, Chestnut Hill Realty has limited or offered no concessions, McHugh said.
With September approaching, however, the company will reassess its inventory and start taking steps to fill empty apartments. In some cases that means the company will rely more heavily on concessions, offering to pay one month’s rent as well as the broker fee for renters.
“It’s not so much that we don’t think we can move the units,” said McHugh. “We’re making the business move to aggressively fill them up.”
Renters are definitely on a more level playing field, according to Devonshire’s Donovan. Before, with fierce competition for apartments, renters felt pressure to secure an apartment they liked or they would lose it.
Today, renters are making exhaustive rental searches, according to Donovan, and owners are renovating and improving their apartment buildings to entice residents. Devonshire, for example, is undergoing a multimillion-dollar renovation.
“The playing field has been leveled,” he said. “For a lot of landlords it’s really forcing them to step up to the plate.”
At Devonshire, there have been some encouraging signs that capital improvements are paying off. The first phase of the penthouse reconstruction involving eight homes is almost complete, and all of those penthouses have been leased for September. In October, Devonshire will focus its marketing efforts on getting the penthouses that are part of the second renovation phase leased.
In an interview last week, Donovan expressed optimism about the residential rental market.
“Based on what I’ve seen this year, property owners and landlords are rediscovering a position of strength, which a few years ago we didn’t have,” said Donovan.
Aglaia Pikounis can be reached at apikounis@thewarrengroup.com.
