Landlords are raising the rent in the St. Louis area, and tenants have to pay up. The market for apartments and rental houses here is swinging in favor of the owners.
Data from Reis Inc., the commercial real estate analysis company, lay out the bad news for tenants. Apartment rents will finish 2012 up 4 percent — nearly twice the rise in other consumer prices. Meanwhile, Reis predicts a 4.4 percent rise for 2013 in the metro area.
Rents are up because vacancies are down, and landlords are finding it easier to fill their apartments. The metro area vacancy rate is 5.8 percent, the lowest in 10 years by Reis’ estimate.
“It’s come a long way in a short period of time,” said Ryan Severino, senior economist at Reis.
Experts say the improving economy and a growing population of young adults are boosting rental demand. Meanwhile, recent memories of slumping home prices and tighter lending standards continue to keep potential home buyers sidelined in rental properties.
Lower vacancies and higher rents may spark a small revival in apartment construction, which has been dormant since the recession. Builders finished only 152 apartment units this year, but 1,044 are being planned, according to Matt Bukhshtaber, vice president at CBRE multi-housing investment sales group.
“Developers are starting to look for solid sites,” he said.
That’s still a tiny number when compared with the 135,000 units in apartment buildings around metro St. Louis.
There are signs that the market for rental houses is tightening as well. Laura Jayne Bauer of Olivette knows that well. Bauer’s mother moved in with her after a serious heart attack this summer, and her rented townhouse would no longer do.
“I was really in a pinch. I needed to find a house,” she said.
It had to be a big house, with a first-floor bedroom and bath for her mom and enough room for three older children, one of whom is married.
That limited her selection. Still, she was surprised how hard the search was. She paid $85 to an apartment search service that provided only bad leads.
She checked online ads. “I got a lot of run-around,” she said. “They wouldn’t call you back.” Houses she managed to see were “rundown, dirty and just a mess.”
Then she spotted an ad for an Olivette house that looked perfect. When she visited, she asked the rental agent whether she could bring her family to look the next day. No, said the agent, “we need $1,650 today.”
“I’d seen the house all of 10 minutes. It’s insane. If you find something, you have to jump on it,” Bauer said. She took the house.
“They do rent quickly,” agreed Laura Kaspar, who runs REI Liaison of St. Charles, the rental agent on Bauer’s home. “We have a zero vacancy rate.”
Kaspar’s firm manages property for its owners, and those owners are changing. Two years ago, lots of investors were buying up foreclosures and renting them out. Today, the typical new landlord is a homeowner who relocates for a job and can’t sell the house.
“Ninety percent have been transferred, and they’ve had their property on the market for over a year. They need to stop the bleeding,” Bauer said.
As a result, there are better — and more expensive — houses for rent. “We’re seeing houses that are not typical. We’re seeing a lot of nicer inventory,” said Debby Done, president of Apartment Search, a St. Louis matching service for tenants and landlords.
MILDER SLUMP HERE
St. Louis’ 5.8 percent apartment vacancy rate is still above the national average of 4.6 percent.
While America endured a Great Recession, St. Louis apartment landlords put up with a milder slump. Vacancies rose from 6.8 percent in 2007, when the housing bust was beginning, to a high of 9.2 percent in 2009, the year the economy hit bottom. Then vacancies began a slow decline.
Rents fell by 1 percent in 2009, according to Reis, as the newly jobless doubled up to save on rent, or moved back with parents. Rents then began a slow creep back — up 0.8 percent in 2010 and 1.5 percent last year before this year’s estimated 4 percent as of December.
The rental market is recovering despite rising home sales in St. Louis. Sales have risen for 17 of the past 18 months in St. Louis city and county, and they are up 15 percent for the year as of November.
More home buyers might mean fewer renters, but that doesn’t seem to be the case. Part of the explanation lies in the slowly recovering job market, which means 20-somethings can move out of mom’s place and into apartments, says economist Severino.
And there are a lot of young adults in the prime renting age. “They are a very large generation because their parents were a large generation,” Severino said.
While the population of the entire St. Louis area grew only 0.4 percent from 2007 to 2011, the number of people ages 20-34 rose 3.9 percent during that period, according to estimates by the Census Bureau.
Six years of falling home prices also soured some potential buyers.
“The young singles and couples are less likely to jump into buying after everything that’s happened,” said Done, of Apartment Search.
Meanwhile, tighter mortgage requirements keep more people renting.
As they raise rents, landlords find that tenants are becoming more demanding. Christopher Thiemet, a south city landlord and real estate agent, was showing a rental house to a prospective tenant recently.
“She was looking at the house as if she were a buyer,” he said. “She was asking about the gutter that wasn’t hung properly. If they are going to pay $995 a month, they want to make sure they won’t be inconvenienced. They don’t want to be annoyed.”
Rents can rise, in part, because few new apartments are being built. But that’s starting to change, notes CBRE’s Bukhshtaber.
As new apartments come on line in future years, and as rents go higher, he thinks vacancy rates could rise to 8 percent by 2016.
Meanwhile, investors from out of town are shopping for apartment buildings in St. Louis, he says. Returns on investment are higher here than in the big cities of the coasts.
All that means a stronger market for landlords who want to sell their properties.
Editor's note: This story was updated Wednesday to correct Matt Bukhshtaber's title at CBRE.