In a statistical review on the MRIS Realtor database of all property management firms that serve the Northern VA marketplace and leased more than 20 homes in 2015 (21 property management firms in the survey), we are pleased to announce that McGrath Real Estate Services navigated through a tough 2015 rental market with the lowest-average “Days on Market” (DOM) for the 10th consecutive year. Good statistics get better when we combine the finding of the lowest average DOM with the highest average rents among all those firms in 2015. We found more qualified tenants faster, and at higher rent values on average than any other firm in the region in 2015. We started 2015 as the property management firm that delivered the best results in our region, and we finished that way too. As our client you deserve no less. Thank you again for allowing us to serve you as your property manager.
|COMPANY||RENTAL LISTINGS||AVG LIST PRICE||AVG DOM|
|McGrath Real Estate||359||$2,497||38|
|Mid-Atlantic Property Management||44||$2,234||56|
|Real Property Management Pro’s||249||$2,099||45|
Although we may have had the best leasing performance in the region, the simple truth is that when comparing 2015 to 2014, the same leasing performance indicators showed an increase in DOM for every management firm. That’s says something about the rental market.In 2014 it took us an average of 31 days on the market to find a tenant, but in 2015 it took an average of 38 days. On average it took all of the same surveyed firms 19% longer to find tenants in 2015 than in the previous year, and an eye-opening 54% longer on average in 2015 when compared to 2013. Many of our clients (especially those that had their property for rent in the second-half of 2015) experienced the “sting” of extended time on the market and vacancy and possibly rent reduction that typically accompany extended days on the market.
While in the business of being a landlord, together we need to adjust your market strategy to adjust to the changing dynamics in the marketplace (up or down) and you should expect some level of guidance on ways to improve your chances at landing a quality tenant while maximizing annual rental income. It is easier to digest some of our recommendations than others – for example, being amenable to considering tenants with pets on a case by case basis can open up the tenant market into your demand pool if you were against considering pets before because now more than 60% of Americans (and renters) are pet owners. So, while it may not be ideal, nor a comforting thought to consider tenants with pets renting your home – if you decline to even consider pets on a case-by-case basis you will have ruled out more than half of the tenant marketplace that could be interested in your home. Other significant decisions related to positioning your property for leasing success:
- Pricing the property relative to the Active comparable properties in the market now (not compared to what rent you achieved before, or what a neighbor rented for before, etc)
- It is critically important not to lose sight of how the home shows (fresh, appealing, clean, well-kept, functional) as well as capturing the home showing its best with professional photography that will present the home more attractively to gain the interest of potential tenants. Do not hesitate to invest in your own success when it comes to property preparation between tenants.
- Seasonal impact – yes, the time of year that your property is on the market will affect the demand and possibly the final outcome in renting your property and there are some “timing strategies” that you can employ after consulting with us within the full context of your timing intentions.
- Other “differentiators” – what other features can your home promote that differentiates it from the rest of the competition seeking those good tenants in the same price range?
There are many variables at play that affect the rental market in any marketplace (interest rates and confidence in sales market appreciation can cause tenants to become buyers or vice versa, job growth or loss in a region can affect housing demand, and the supply of new choices or other housing compared to the demand at the time your property is on the market), and the recent increase in supply of apartment buildings and high-rise condos has affected certain parts of the condo market in Northern VA in recent years.
There has been a strong supply increase of condos in North Arlington along the orange-line, also in Reston Town Center with the arrival of the metro along with the surge in popularity of the Town Center there, and not inconsequentially, massive new development in the Potomac Yards area of South Arlington/North End of Alexandria. As an example of how the new supply (and maybe weakened demand) has affected the Potomac Yards area – there are twin buildings called “The Eclipse” these buildings represent individually owned condos that have had a healthy demand to rent (and purchase) since they were built in 2006. Over the last four years we have seen tremendous growth and new supply of condos, apartments, and townhomes within a 1-mile radius of the Eclipse. This has nicely developed the area, but also increased traffic, and more significantly provided a surge in the number of rental choices potential tenants have when evaluating where they want to live and how they want to spend their rental money while considering this area. In researching data on MRIS we found that for this building in particular, looking at 2 bedroom units that rented in 2013 vs 2014 vs 2015 (through any brokers that listed units, not just McGrath Real Estate properties):
- 2013: There were 19 two-bedroom units listed in the Eclipse and they rented for an average close price of $2686, with an average of 40 DOM.
- 2014: There were 20 two-bedroom units listed in the Eclipse and they rented for an average close price of $2536, with an average of 59 DOM.
- 2015: There were 14 two-bedroom units listed in the Eclipse and they rented for an average close price of $2590, with an average of 97 DOM.
Averages are averages, but based on same-unit, same-building comparisons, if you had a condo here in 2015 it took more than twice as long to secure a tenant and you earned about $100/month less than you did just two years prior in 2013. This example isn’t intended to encourage panic or to suggest you sell your condo – it is just about understanding the market dynamics and, in this case, the strong supply increase in the vicinity has made it harder to produce the same leasing metrics as were achieved before. Your property can perform better than the average if you position your property for success by understanding how the market changed last year combined with a keen understanding of how to compete for a quality tenant at the time your property goes back on the market – and utilizing our guidance together we will better your odds for success when the time comes. We are pleased that over the last ten years we have has consistently given our clients the edge in reduced vacancy time while delivering higher than average rents. But what we are more interested in is year 11- 2016. Internally we are modifying some leasing procedures (as we always try to do) to improve our performance further.
Even if your property is in the “upper echelon” of rental homes, there have been some market shifts that apply to you. You may have a big home or elite townhome in a neighborhood that is desirable and your home has a great combination of modern upgrades or maybe a stunning lake view. The rental market in 2015 has been different in this price range too for several key reasons.Supply shift: While the demand/interest for a quality home is still healthy, there have been more choices (increase in supply) of high-end homes for rent in our marketplace in 2015 than in recent years. The quality of the excess supply is also high (it is nearly impossible to rent a home for over $3000/month now if the kitchen doesn’t have granite, if the master suite doesn’t have good closet space or its own remodeled bathroom, etc) there are more quality choices for tenants on the market so while they can be picky, it gets to be more competitive for landlords to land those tenants. We saw extended days on market for listings across the board this year – and one of the major reasons is the increase in inventory of quality properties (not just more rental properties, but more of the rental properties were cleaner, fresher, shinier, and otherwise at a higher presentation standard).Market Absorption: Along with the supply shift, the “market absorption” of the demand base has also changed. The demand is still there, here below you will find some examples of how it has changed:
- Exxon Mobil (who used to have their U.S. Head Quarters in Falls Church near the Dunn Loring Metro/near Fairfax INOVA Hospital) moved their U.S. HQ to Woodlands, TX. The Exxon Mobil employees centered around the former Falls Church HQ transferred to Texas in Spring/Summer 2015. This has had a major impact on the high end rental market in 2015. Every summer our marketplace would normally receive an influx of 25-50 new Exxon Mobil execs looking for homes seeking a 2-4-year lease term in the $3000-$6000/month range between Ashburn and Arlington. While missing the influx hurt a little bit (that represented 25-50 high end rentals that didn’t get absorbed this summer), the transfer of existing Exxon tenants out created 70-100 more luxury rental vacancies, AND also the more-permanent Exxon Mobil execs that had owned homes in Northern Virginia (and those of which for whatever reason decided to rent out their high-end home instead of sell it) also added inventory to the elite-rental market between Ashburn and Arlington. This single corporate move really affected the local rental market by removing some of the demand and adding to the supply which shifted the luxury rental market by 150 to 200 property surplus. Not big numbers when we are talking about a major Metropolitan area like DC, but remember, most of this change was in a micro-economic impact region of luxury home rentals in this triangular area between Great Falls, Chantilly, and Arlington which did have a major impact on that sub-market (as well as the sales market for those execs that sold instead of becoming landlords).
- Embassy pricing and location shift: Every year McGrath Real Estate works (not exclusively, but as a preferred agent for) the Canadian Embassy and the Australian Embassy and their officers assigned to work at the Pentagon on joint-military programs or at the embassy as diplomatic staff. For the last twelve years our office has worked with a dozen to two-dozen different officers each year. In recognizing that McGrath Real Estate does not have an exclusive agency relationship with these embassies, even if we are a preferred broker, this means that in any given year there are between fifty and seventy new officers seeking accommodation in the DC region as leasing-demand represented just through these two embassies. In the summer of 2015, the housing allowance the Canadian Embassy allowed their officers was down 10-15% compared to years prior. Six years ago we represented a Canadian military attaché ranked as a General and also the Canadian Rear Admiral and they were allotted a housing allowance of $6000/month for rent. This past summer, we represented another Canadian Embassy Admiral and his housing allowance was cut back to $5400/month – this spending cut on housing was consistent across the board for their officers. So, while we experienced that the demand was still there from the embassy tenant market pool, the price range that this market segment absorbed was lower in 2015 than in previous years.
Most foreign embassies select their housing before the school year and they are out of the market by the end of August. The exception tends to be embassies representing countries in the Southern Hemisphere (Australians, New Zealanders, etc) who typically move in the months of December thru February. In working closely with the Australian Embassy officers, we have learned that over the next three years they are tripling the size of their diplomatic and military staff delegated to Washington DC (demand shift up!). Worth noting: Most Aussies (except higher level officials) are going to have an allowance of around $3500 to $4000/month. The higher-level officials are closer to $5400/month but there are much fewer in that market segment. Also, most embassies want their officers inside the beltway (within 15km of their work location). The idea here is that the embassy tenants out there representing a “piece of the demand pie” in our region have stiffened their budgets for their own reasons and that affected the absorption of high end homes that used to draw from that target market when embassy budgets allowed it – this caused a negative version of the “trickle-down effect” on rental housing prices.
A REVERSION TO OPTIMISM
There is still healthy demand across the Washington DC region for rentals. The demand and supply has just shifted at a micro-economic level based on housing-type and location as well as in certain demand segments. Tenant expectations have changed over time as well (see our “Picky Tenant” article in this newsletter). What will not change is this: whatever the market brings in 2016, we will seek to understand it, translate it and position your property to better perform within it than it would have if you had chosen any other property manager. That is our commitment to you and that is the value for which you employ us to produce. When we report to you at the end of 2016, we expect to report that we lead our industry for the 11th consecutive year in “Days on Market”.