Landlords Vie for Renters in Soft Market : Apartments: Incentives are often offered as the vacancy rate increases by varying measures throughout the county.

By ANDREW LEPAGE

Nov. 3, 1992 12 AM PT

TIMES STAFF WRITER

The same maladies--the recession and growing unemployment--that plague San Diego County’s economy have created a renter’s market where landlords compete aggressively for a dwindling number of financially stable tenants.

An exodus of unemployed workers from the county and the tendency of more families to double up in one apartment to save money are the two main factors that rental property owners, managers and real estate brokers point to to account for the stagnant rents and vacancy rates.

Countywide, the average vacancy rate at apartments surveyed in October was between 7% and 8%, up from 6.2% in the fall of 1991, said Phil Huffman, President of the San Diego Apartment Assn. A vacancy rate over 5% is generally considered a soft market, or one that is likely to favor renters at the expense of landlords, observers say.

Vacancy rates have jumped more dramatically in some isolated communities, according to a recently completed apartment association study.

In North Park, for example, vacancies among apartments surveyed were 9.8% this fall, up from 7.7% last spring. In East San Diego, vacancies shot up to 13.5% from 8.6%. In Oceanside, the rate rose to 15.4% from 8.6% over the six months. Most other communities showed only slight changes.

Market Profiles of San Diego, a real estate research firm, said the countywide vacancy rate as of September was 4.9%, about the same as the rate a year before.

The apartment association bases its statistics on a vacancy survey of about 30,000 rental units, most of which are in small complexes. Market Profiles of San Diego, a real estate market research firm, bases its rental vacancy statistics on surveys of more than 110,000 units countywide at 885 large apartment complexes.

Meanwhile, rental rates have either held steady or dropped, and landlords countywide are having to wait longer and offer more incentives--commonly a month’s free rent--to fill empty apartments, said Alec Deaton, president of ADD Realty, a San Diego-area rental and management firm with dozens of properties throughout the city.

“Rents in general have not increased per se, and overall I’d say they’re going down,” Deaton said.

Because rents and vacancy rates have been largely stagnant for the last five years, potential buyers have shown little interest in apartments as investments because they offer little potential for appreciation, experts say.

“Countywide, my feeling with rents is that they have remained flat or that they are dropping, maybe by 2 or 3%” in the last year, Huffman said. “We’re also seeing more (rent) incentives than we did six months ago.”

“Owners are more worried about keeping occupancy levels high” than increasing rent, said Huffman, who owns or manages four apartment buildings. “I, for instance, have not raised my rents in the last year . . . just trying to keep the buildings full.”

At the same time, apartment owners say it’s tougher to fill vacancies with financially qualified applicants today than a year or more ago. “A sign of the times,” says one property manager.

About 55% of the county’s 2.5 million residents rent their homes, the county apartment association says. Of those, slightly more than half live in apartment units priced under $600 a month, Huffman says.

Market Profile’s survey shows the average rent in the county was $662 a month as of September, compared with $659 a year earlier.

“If you crank in inflation and the incentives owners are offering, I’d say the effective rent is less than a year ago,” said Chuck Hoffman, president of ACI Investments, a San Diego-based brokerage firm:

Rents will only increase when the economy improves, consumer confidence rises and more people move out on their own instead of doubling up with other tenants, Hoffman said.

“You won’t see anything happen (to rents) for a year,” Hoffman said. “I expect they’ll firm up in 1994, and maybe we’ll see an increase in 1995.”

So how long will the renter’s market last?

Inevitably, real estate experts maintain, rents will rise only when demand exceeds supply, or when population growth outstrips the number of new units coming on the market. San Diego’s population continues to grow, but more from births and less from new residents, which in the past generated most of the demand for San Diego’s apartments.

Apartment construction here has slowed to a trickle:

In September, for example, apartment construction permits issued countywide totaled just 21, in two Escondido projects, according to a recent report by John Burnham & Co. of San Diego.

For the first nine months of this year, 225 new units worth about $14 million were recorded in the county, according to the Burnham report. That’s down 58% from year-ago totals of 563 units worth about $34 million.