by Richard Thurtle
It’s no news flash that the rental market has changed dramatically over the last couple of years. The lines of people at property inspections hoping to find a property for lease and the subsequent flurry of rental applications and bidding wars to secure a property are a distant memory. In its place, is a market with lower median rental prices, higher vacancy rates, and competition for tenants, not properties.
Yes, it’s a market skewed towards the tenant, but how is that playing out across the market?
“There’s no doubt there have been fundamental changes in the marketplace,” said Richard Thurtle, Principal of One Management.
“Prospective tenants inspect properties expecting to make an offer on the ‘going rent’ rather than diving for the closest rental application form.
“Where we saw people outbidding one another to secure tenancies before, it’s been replaced by negotiation for a lower-than-asking price.
“Sitting tenants (those with existing leases) are far more savvy, too. They know the lay of the land and that the property up the road, just like theirs, was just re-let for a lower price. They’re not shy about demanding a similar decrease in their weekly rental at renewal time,” Richard said.
As a result of this dynamic, there’s plenty of communication on rental prices going on with owners.
“Back a year or so, there was two markets - one with people were taking on new leases at far lower prices, but another slice of the market that was still wearing the weekly rental of the previous market conditions,” said Richard.
“There are very few of those scenarios remaining in the market now. Most have renegotiated to reflect the current market conditions and the playing field is level once more - albeit at a lower median price.
“We’re frequently talking with owners as we approach a re-letting to establish what room we have to move (or how much we may have to move) in light of the market.
“While we work hard for our tenants, our primary relationship will always be with our owners, and so we work to achieve the maximum income for them at any letting or reletting,” said Richard.
The result of all these negotiations and renegotiations is that the wild, downwards swing in the rental market is tapering off. Re-lettings may have seen dramatic movements in the median prices but with these now factored into the market, the next round of rent reviews is likely to be flat or with only a minor further correction
In a market that is generous with properties and low on tenancy applications, there can be a tendency to be less rigorous with screening rental applications.
“There’s certainly that temptation,” says Richard, “but the consequences of being lax in screening has a far greater downside than the upside of getting someone into a property.
“Just recently we recommended the rejection of an applicant to an owner desperate to let their property after finding the applicant had a track record that wasn’t favourable when it came to paying the rent.
“That’s tough news to break when you think you’ve finally have secured a tenant. It’s no fun for us either, but we know the potential ramifications of ignoring such obvious warning signs as well,” Richard said.
In a nutshell, the attitude of tenants is more demanding, the attitude of owners more concerned, and the attitude of property managers more conscientious!
“There’s plenty of cause for disappointment out there right now if you’re an owner and that makes for many delicate conversations,” says Richard.
Given the demands that tenants can make, there’s reasonable concern as to how owners will continue to finance their property on lower incomes or make improvements when they’ve been in negative income territory for many months.
There is little doubt: the market is in a holding period. While the violence of the downswing may have abated, there’s no reason to assume that it won’t move further - just not as harshly. Holding on in a holding period is no joy for an owner, but with few other options on the table, it’s a case of bunkering down, locking tenants into secure, if not lower, rental agreements, and hanging in there.
The times may well have changed for owners but, like another song says, all the good times we had will happen again!