As demand for apartments rises across the nation, tenants are experiencing the challenges of a landlord’s market. A rise in rental rates is one factor, but so is the simultaneous rise in residential development. How do these two dynamics play out at the same time?
First, why the demand for rentals? Some national data indicate a perfect storm for the increase, including:
- An increasingly attractive lending environment for builders
- Growth of area colleges, like Grand Valley State University
- Shifting mobility attitudes of younger generations
- Foreclosures from the Great Recession pushing homeowners out of ownership
- New renters entering the market due to good jobs both for first-time renters leaving parental homes and new residents relocating for jobs
- Empty nesters downsizing and migrating to condos and apartments, often to downtown properties from the suburbs
- Overall modest but steady strengthening of the economy
Renting is becoming a sexier proposition for Baby Boomers looking for new experiences once the last child heads to college. Developers can vouch for the momentum of this cohort over the past decade. “The attraction for rentals is also because urban living in Grand Rapids is popular,” says Bradley Veneklase, an associate broker for Parkland Realty in Grand Rapids. “City living is a relatively new concept for West Michigan; it didn’t take off until 2007. Renting allows people to try it before they buy it, especially empty nesters who are unsure how the transition from a large house to smaller living quarters will go. Giving up a backyard in the ‘burbs for a loft with a small terrace is a major shift.”
According to commercial real estate provider, Reis, national apartment vacancies dropped from 8% in 2009 to 4.1% by the end of 2013. As supply and demand naturally goes, this forces renters to vie for options within an ever-shrinking pool of spaces. You can guess what that does to rents, even while new construction widens the pool of rental units. Market rates increase. According to Apartment List, a rental housing website, inflation-adjusted figures show an increase of 6% in apartment rents from 2000 to 2012.
As demand continues to grow elsewhere, so it does here in Grand Rapids. In fact, the vacancy rate of 1.6% in the Grand Rapids-Wyoming MSA is the lowest in the country, according to Zillow.com. To put that into context, the national vacancy rate was at 7% at the end of 2014. So the challenge runs even deeper in our backyard: There are more apartments than ever, yet still demand is chasing available units. This reality continues to push rents up but also continues to make Grand Rapids neighborhoods aesthetically attractive and more walkable. Plus the density factor works to attract retail businesses and hyper-local commerce.
So what is keeping some renters from moving into (or moving back into) the home-buying pool, given how difficult it is to find a rental of their choosing? Mortgage rates experienced a sharp rise in spring of 2013 and continued until the end of 2014 (see graph for three-year trend). Further, credit is still an issue for former homeowners, and for many Americans pay has been disappointingly stagnant. Add to that, many younger homeowner prospects are simply uninterested in owning a home - a cultural shift to be sure but one which has lots of advantages for the contingent delaying marriage, having children, and the responsibility which owning a home triggers.
From Cascade to the West Side to Creston to Eastown to the Central Business District, new developments and the repositioning of what were former office buildings now being converted to retail and apartments are underway which come with ripples of neighborhood improvements and increased value in their wake. This, of course, is good for Grand Rapids. It’s also good for the renting contingent who seek an urban or simpler lifestyle, cool environments, new senses of “place” and, hopefully, market-rates which are commensurate with wages to sustain all that makes Grand Rapids a nationally recognized city in which to live!
Add 86 apartments 820 Monroe Avenue NW, the former Sackner Products factory, is currently undergoing a $21.8 million makeover. The street level will include 40,000 in retail space, with the second, third, and fourth floors consisting of 86 loft-style apartments. A restaurant will be new construction added to the south end of the building. Phases of the project will be completed starting this fall through early 2016.
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One of the coolest corners in all of Grand Rapids is Union and Cherry in the Heritage Hill neighborhood. The tallest building also occupies the northwest corner: 547 Cherry Street, also most commonly known as Oakwood Manor Apartments.
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