The residential rental market looks to be on the upswing.
And businesspeople are responding. Real estate firms such as J.P. Weigand & Sons are getting into the business of residential property management. Property management firms are adding inventory to meet demand. And developers are undertaking new projects or planning to add new apartment complexes.
Wichita, real estate experts said, is beginning to experience what markets in other parts of the country are already experiencing: a resurgence in renting brought about by the recession, a slow-to-recover economy and even generational preferences.
“It’s going to grow, I don’t have any question about that,” said Steve Murray, editor of Real Trends, a Colorado-based publisher of real estate information and analysis. “This is not a temporary, one- or two-year phenomenon.”
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Last month, Weigand, the area’s largest residential real estate firm, announced that it was creating a residential rental and management division headed by Tyson Bean, a founder and co-owner of Wichita Rentals, a property management firm with an inventory of more than 200 homes.
Weigand officials said at the time that they were getting into residential property management because of rapid growth in the rental market locally and nationally, a less-than-robust home sales market and changing attitudes among younger, first-time homebuyers.
“I see an increase in demand just due to probably these buyers taking a step back and saying, ‘Let’s assess the economy and let’s look to more flexibility,’” Bean said. “We’ve got very qualified renters. They just want something that’s going to be a little more flexible. They don’t want to purchase a home today in the event it’s going to be worth less tomorrow.”
Growth in residential rental demand is real, another local property manager said.
“The rental market from what we’ve seen, especially this year … is stronger than any of us have ever seen,” said Jason Gilstrap, operations manager for 7-year-old Premier Property Management, a Wichita-based firm that leases duplexes, single-family homes, townhomes and apartments in Wichita, Junction City and Kansas City.
Gilstrap said in the past year or so his company has seen the days on market for a rental property shrink by 50 percent and rental rates increase. He said Premier’s average rent is about $1,150.
“We’re all pretty interested to see what happens this winter,” he said. “Typically the rental market seems to slow down in October and pick back up in March. Last year, that slowdown never happened. We never had a property sit more than 30 to 45 days.”
The demand in rentals is not limited to single-family homes and duplexes. Two apartment projects — the Lux in downtown Wichita and another at the Waterfront at 13th and Webb — are being developed in Wichita, and plans for more are under way, real estate officials said.
The Lux will offer one- and two-bedroom apartments in the seven-story former KG&E building at First and Market. Completion of the project is expected in 2013.
Last week, Stephen Clark II announced plans for class A luxury apartments at the Waterfront in northeast Wichita. There will be up to 300 units in what Clark calls a gated village of luxury apartments, executive duplex rentals and furnished corporate apartments.
“There has been pretty strong demand from people moving away from homes,” Clark said. “There are execs in town who don’t want to mess with a home.”
Clark said there hasn’t been a new apartment complex project in Wichita for 10 years, and he’s aware of plans for other apartment projects in the city that have not been announced.
Rod Stewart says he also knows of projects in the works.
“There are a number of projects on the drawing board for multifamily,” said Stewart, a commercial real estate broker whose work includes sales of apartment complexes.
He said for a number of years investors were staying away from buying apartment complexes because occupancies were down. But that is changing in Wichita, hence the plans for new complexes.
“It’s much better,” Stewart said of area apartment occupancy rates.
The rental shift
So what’s driving the trends? Three things, real estate experts locally and nationally said.
One is the high rate of foreclosures, forcing onetime homeowners to become renters, Murray of Real Trends said. He said home ownership peaked in the U.S. in 2004, and since then it’s been declining. The decline was accelerated by the recession, which Murray said means that “5.4 million homeowners are now renting. That’s a big shift in five or six years.”
“We could see another million to 2 million households (across the country) shift to rentals due to foreclosures,” he added.
The burst of the housing bubble has also led to an excess supply of houses, prompting real estate firms such as Weigand to get into the business of residential rentals and property management.
“So now it kind of dawns on residential real estate firms that this is a huge market,” Murray said.
Another factor boosting renting is tougher lending standards. The days of easy credit ended when the housing bubble burst, forcing higher down payments on new mortgages and raising the credit score threshold for obtaining a mortgage.
Doug Bibby, president of the National Multi Housing Council in Washington, D.C., a trade group representing the nation’s largest apartment firms, said younger adults also are “encumbered by very, very serious debt” from college. So they don’t yet have the ability to purchase a home as early as generations preceding them did. And, Bibby said, “they are looking for more downtown living … a desire to be where the action is.”
These factors have been a big boost to the apartment industry, Bibby said. In its most recent assessment of apartment market conditions, the council said all five indexes in its quarterly survey of industry conditions moved higher in the second quarter of 2012, for the sixth consecutive quarter.
“It is very much a demand-driven phenomenon,” Bibby said.
And officials expect it to continue in Wichita.
“At this point, we don’t see any signs that it will slow down,” said Gilstrap of Premier Property Management. “We are 98 percent occupied. What we’re dealing with are numbers that as a company, we’ve never seen.”