July 6, 2012

Wichita rents lowest in nation among large markets

Apartment rents in the Wichita market were the lowest among 82 urban markets during the second quarter, according to the real estate data firm Reis.

Apartment rents in the Wichita market were the lowest among 82 urban markets during the second quarter, according to the real estate data firm Reis.

Wichita-area rents averaged $510 a month, less than half the national average of $1,091, according to the firm.

Oklahoma City and Tulsa ranked just above, at $555 and $569, respectively. New York had the highest average rent at almost $3,000 per month.

“The tenant is certainly getting a good deal,” said Tony Catanese, president of Key Management.

Those in the industry offered a variety of reasons as to why Wichita’s rents are so low.

Wichita is a medium-sized, slow-growing city surrounded by miles of easily developed ground, said Stan Longhofer, director of the Center for Real Estate at Wichita State University. That means that both housing prices and apartment rents are low relative to the rest of the country. Whenever demand increases and rents go up, a developer can build new units fairly easily, he said.

Catanese and Craig Hanson, president of Weigand-Omega Management, trace at least part of the reason back 15 years to when Case and Associates of Tulsa built or renovated 1,500 units at Central and Ridge, as well as several complexes on the east side in the late 1990s – and then the city economy crashed.

Next, as the economy recovered and the housing boom got underway, thousands of renters moved into low-end housing.

And then, the economy crashed again.

“They were never really absorbed,” Catanese said of the renovated and new apartments built in the past 15 years.

Hanson said the result is that few new apartments have been built over the past decade. As the city’s rental stock gets older, tenants are less willing to pay higher prices. And as tenants are less willing to pay, landlords become less willing to reinvest.

Brent DuPont of DuPont Management has seen this in the lower-end rental market. It’s gotten to the point, he said, where a lot of units have become so run down that they can’t be rented any more without significant reinvestment. He advocates that the city and mortgage holders take a stronger hand with landlords, requiring them to either bring their units up to code or tear them down. That would both improve the value of the rental stock and reduce the oversupply, he said.

Such moves also would allow landlords to raise rents.

At this point, DuPont said, outside investors need 12 or 14 percent returns to come into Wichita in a big way, and he hasn’t seen much of it in his segment of the market, yet.

But Jeff Harmon, regional manager for Case and Associates, said the units in his medium-to-upper-end complexes have lately seen a strong rebound in demand.

New tenants are moving to town for jobs at Spirit AeroSystems, Cessna Aircraft, Bombardier Learjet, Koch Industries and other companies. Occupancy has risen from 93 percent in the first quarter to 96 percent in the second quarter.

“The job market has improved all of a sudden,” Harmon said. “We’re seeing rents go up.”

Weigand-Omega’s Hanson said he has also seen demand increase on higher-rent properties – at least, a little bit. His group will manage Bennington Place, a 138-unit luxury complex near 21st and Maize Road, when it opens late this year or early next year.

He said at least three more new apartment complexes already have approval or are planned in the next few years.

Hanson said he sees a bit of a culture change going on that will benefit landlords long-term.

“I think the younger generation doesn’t want to be tied down as much to home ownership, and is willing to pay for the amenities that go with a newer product, the Wi-Fi and fitness centers,” he said.

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