OAHU’S RENTAL MARKET
PART 1 OF 2
Two-part series focusing on investment opportunities
NEXT SUNDAY:
Tax-free method to upgrade your portfolio
Isle areas with a universal appeal have strong rents
BY LISA SCONTRAS
Custom Publishing Group
As the credit markets tighten, foreclosures increase and home
prices remain high, the on-again, off-again world of residential rentals has
entered the same suspended animation the housing sales market is experiencing
with no clear direction of where it’s headed.
Island rental market fundamentals are holding steady despite
some supply and demand peculiarities. Supply is down, which would normally
increase demand. But demand is also lower.
"There are neighborhoods where demand has fallen or supply has
increased, but the opposite also exists."
"It’s a strange market," says Myrna Matsumoto, vice president of
the property management division at Prudential Locations and 34-year veteran in
the industry. "We are seeing less prospective renters in the market and less
vacant listings, although these fewer vacancies are taking much longer to fill."
The decrease in demand —which accounts for the increased days on the market
before a unit is rented — she thinks could be a result of more young adults
moving back in with their parents to keep housing costs down. More "affordable"
rental projects is another factor Matsumoto cites as affecting demand of market
rentals, and ultimately influencing market rents.
Island landlords are exercising caution by pricing their rentals
competitively or even slightly under the competition to avoid prolonged down
time.
"Seems the prospective renters are watching the market and jump as they see
rents dropping."
While there might be several properties all on the market in line with other
comparable units, Matsumoto says that they may get very few calls, if any, at
first.
"However, when one of these property’s rent is lowered by $200
or more, we are flooded with inquiries and the unit rents within a few days,"
she says.
Average Oahu rents are slightly down from last year and 2006,
but 10-year figures show an average of an 83.5 percent increase overall — from
$945 per month in April of 1998 to $1,733 in March of 2008. Apartments, which
rented for $818 in 1998, jumped to $1,506 in 2006, $1,572 in 2007, and then down
to $1,508 in March.
Townhomes which typically rented for $1,008 in 1998, were up to $1,780 in 2006,
$1,670 in 2007 and at $1,652 last month. Rents of single-family homes that
averaged $1,240 in 1998, rose to $2,275 in 2006, to $2,216 in 2007 and were at
$2,163 last month.
"Typically, when sales are down, rentals are also down because
of the influx of vacant units from sales that roll over to become rentals,"
Matsumoto explains. "It’s not uncommon for a decline in the sales market to be
followed by a slowdown in the rental market."
Rental trends also mimic sales in that they are neighborhood specific. Matsumoto
adds that rental vacancy rates, number of rentals and average rents depend on
where you are on the Island.
"There are neighborhoods where either the demand has fallen or the supply has
increased, which puts a downward pressure on the rents — but the opposite also
exists," she says. "For example, in the Kaka‘ako/Ala Moana area, there are 39
percent fewer units available for rent, which has helped drive asking rent
prices up by 13 percent."
Areas with a universal appeal like Hawaii Kai continue to have strong rents. A
Realtor can help identify areas which are prime investment opportunities.
But not all areas will see growth. In some neighborhoods, the
number of days that a unit is vacant is much longer than others. In these areas,
property managers strongly recommend taking slightly less rent is more cost
effective than trying to recapture the loss of income when a unit is vacant for
an extended period of time.
Overall, Matsumoto says the slump in housing together with low
interest rates may make conditions ripe for investing in the rental market. As
long as you don’t expect rents to cover all the operating costs right away, when
rents continue to rise — as they historically do —rental property can provide
you with cash flow down the road.
