Why Apartment Firms
Are Catering to Renters

In San Francisco's South Beach area, a two-bedroom apartment that rented for $3,000 a month two years ago today rents for about $2,100. In Austin, Texas, landlords of new rental apartment developments have been offering such incentives as DVD players and televisions to tenants who sign leases.

Meantime, renters throughout most of the country are enjoying some of the most attractive offers that they have seen in years, often including as many as two months of free occupancy for signing a 12-month lease. Even apartment-building owners in relatively healthy markets like New York City are being forced to make concessions.

"Prices are down 15% to 25% across the board," says Barbara Corcoran, chairman of Corcoran Group, a large New York brokerage firm. "It's 'a steal of a deal,' as they say in my business."

This cheery outlook for renters is the product of one of the sharpest increases in vacancy that the apartment rental market has witnessed in years. The weak economy coupled with overbuilding in some regions pushed the national vacancy rate up to 5.7% at the end of the first quarter, up from 4.8% the end of last year and 3.2% in the first quarter of 2001, according to figures not yet released by Reis Inc., a real-estate data company.

Particularly hard hit have been regions in the south and southeast, which saw a flurry of development in recent years. The vacancy rates in Austin and Charlotte, N.C., are both over 10% and Atlanta is rapidly approaching that level, according to Reis.

For landlords, this is depressing news. With rents falling and vacancy rising, analysts have been scrambling to cut their earnings projections for the large public apartment-building owners. For example, Post Properties Inc., which owns thousands of units in the Atlanta area, is expected to earn $2.98 a share this year down 14% from 2001, according to a survey of 14 analysts by Thomson Financial/First Call.

But most renters fortunate enough to be looking these days are finding the market tilted solidly in their favor, especially when it comes to new developments.

Consider Jefferson Canyon, one of several new developments in northwest Austin. Late last year, the developer of the 309-unit project, JPI Partners of Las Colinas, Texas, began offering prospective tenants their choice of a digital camera, a 25-inch TV or a $200 gift certificate. That promotion, which helped JPI lease more than 100 apartments, was discontinued, but monthly rents are still down at about $1.10 a square foot, about five cents less than they were when the project opened, says Michelle Murany, the project's resident services manager.

"It's a renters' market," she says. "They just go from place to place and say, 'Here's what the others are offering, can you beat it?' Then they move on to the next place."

The sharp rise in vacancy is due partly to overbuilding, but an even greater cause is the decline in demand. More than 48,000 apartments were vacated in the first quarter, the largest number of move-outs since Reis began collecting data in 1980. Part of this was due to job cuts throughout the country, forcing renters to double up. The rental market also has been hurt by the home-sale market, which has stayed strong thanks to low interest rates. "The rental market has been getting hit from both sides," says Lloyd Lynford, the president of Reis.

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