Rents Fall as Vacancies Rise

CARLSBAD, CA - A handful of big local apartment complexes have cut rents in an attempt to fill empty units, a sign the recession is deepening. Even though a foreclosure pandemic has forced thousands of local families from their houses, apartment managers said they are struggling to keep their units rented, even in desirable communities on the coast.

At the same time, pressure on landlords is delivering relief for renters, who have seen their costs rise in each of the last 13 years, according to figures from the Bureau of Labor Statistics.

Tradition, an apartment complex near the Aviara Golf Course in Carlsbad, has cut its asking rent for a three-bedroom apartment from $2,015 to $1,799 per month, said Kris Nelson, business manager for the complex.

Tradition has seen its vacancy rate rise from a fairly consistent 3 percent to 8 percent recently, Nelson said. "We keep a regular survey in the area as far as how other apartment rentals are doing, and all of us are literally feeling the same thing," she said.

Apartment buildings are typically the most stable sector in the region's sprawling commercial real estate market. Indeed, industry surveys showed that the average landlord was able to keep rents increasing at roughly the rate of inflation in 2008.

Still, a sudden outbreak this year of falling rents and rising vacancies at major complexes suggests the economy has entered a new level of weakness.

In Temecula, Somerset Apartments has seen its vacancy rate shoot up from 3 percent to 20 percent. Managers responded by slashing rents by 25 percent for two bedroom, two bath apartments - - from $1,200 to $900 per month.

Throughout Escondido, property managers have reported a similarly tough time in keeping units leased, though vacancy rates are much lower.

At Woodlake Apartments, the complex has increased incentives, such as discounting the first month's rent, said Jeanne Marshall, the complex's property manager.

"We have eight vacancies right now, and we've never had that," Marshall said. "We ask them when they leave, and it's all because of the economy. They've lost their jobs ... and they're going back to live with family or they have to downsize."

Also in Escondido, a higher-end complex, Archstone, has dropped rents by $200 to $400 per month over the last few months.

Since January 2007, more than 9,600 families have lost their homes to foreclosure in North County, many in Oceanside and Escondido, according to ForeclosureRadar, a Northern California data firm.

In Southwest Riverside County, the numbers are even bigger with more than 16,000 families losing their homes. But those families have not flooded the rental market. That suggests borrowers have lost not only their homes, but also their jobs.

"Who knows where the people are going, but if people can't pay the rent, they can't pay the rent," said Nathan Cadieux, a multi-family housing analyst with Grubb and Ellis/BRE Commercial, a San Diego real estate firm. "If you're looking for a job, why would you stay in San Diego and pay $1,200 while looking for work when you could be in Arizona looking for a job and paying just $600 per month?"

Economists typically use U.S. Census numbers to track whether families are doubling up or moving out, and it is far too early in this recession to definitively determine where people are going, said Marney Cox, an economist for the San Diego Association of Governments.

But in most recessions, "whether it's moving back with the parents or recruiting a roommate, household size usually goes up," Cox said.

Several surveys released by major commercial real estate firms show that apartment complexes have shown rents going up, not down, on average across the county. But those reports were for the fourth quarter of 2008 and represent a countywide average.

As the economy weakens, "rents, at best, are staying flat," said John Chu, executive director for Cushman & Wakefield, a San Diego commercial real estate firm.

Chu said rents are most likely to drop in foreclosure-prone areas because apartment complexes have to deal with investors who buy foreclosed houses and put them up for rent at similar rents.

Cushman & Wakefield released a report this week that showed investors have taken notice, with the number of apartment units sold in 2008 reaching an all-time low for San Diego County since the firm started reporting figures in 1981.