Evolving Apartment Rental Market Conditions in Portland Maine

Headwinds Forecasted for Greater Portland Landlords

Market-rate apartment landlords in Greater Portland, Maine have enjoyed a favorable and enviable 10-year bull run that started around 2014, running through 2023. During that era, reasonable acquisition prices, favorable mortgage financing, abundant tenant applicants, healthy rental rate increases, and 100% occupancy prevailed. However, as we're now observing in Q2 2024, that delightful alignment of favorable factors seems to be in the rear view mirror. Instead we're now experiencing challenging acquisition or development prices, unfavorable financing, onerous regulatory burdens, fewer qualified applicants, flat asking rates, and more difficult lease-up's of newly constructed projects. Additionally, we're also beginning to see certain landlords offer meaningful asking price reductions and concessions as inducements to sign a lease. What's driving these shifts in the market?

The Shift in Apartment Rental Conditions

In our experience, these shifts began in approximately Q4 2023. Around that time, we began seeing (1) demand levels from applicants begin to subside, (2) markedly increased rental vacancy postings across the price spectrum, (3) lower conversion rates of applicants to tenants, and finally (4) reduced asking prices and concession offers. Another noteworthy trend we're observing is numerous new vacancies which were clearly former short-term rentals that are now being remarketed as long term rentals at reduced rates, thus increasing supply. Next on the subject of supply - and this is perhaps the biggest shift - there are at least five large new construction multifamily projects in downtown Portland, Maine [1] that are either complete, or about to reach completion. As these landlords now simultaneously ratchet up leasing efforts for these 700+ new units, we fully anticipate rent reductions and/or tenant incentives may likely be required to reach stabilized occupancy levels. There are also another 1,000+ Portland units that are in the pipeline, currently in the planning and design phases and those landlords will need to carefully decide whether to proceed in the current market conditions.

National Occupancy and Rental Rate Growth are Flat

According to both the "February 2024 US Rental Report" published by the National Association of Realtors, as well as the "National Multifamily Report - February 2024" published by Yardi Matrix, average asking rents nationally are -0.8%, the first year-over-year decrease since September 2009. Also, the average national vacancy has ticked up to approximately 5.5%, up 60 basis points year-over-year. Summarizing the other data contained within these reports, the report concludes that supply is up, occupancy has begun to tick down, and rents and demand are roughly flat. In other words, we're entering the phase of the real estate cycle where there's a more balanced rental marketplace.

Municipal Regulatory Burdens are Mounting

Cities such as Portland and South Portland are increasingly squeezing landlords with sizable real estate tax increases, onerous and controversial rent control ordinances, increased enforcement of building codes and other administrative burdens. Landlords and their property managers are now having to manage the mounting burdens of regulatory compliance with these municipal ordinances together with adhering to rent control limitations, inflicting a one-two punch to landlords in terms of both reduced revenues as well as increased costs of ownership. Alas, the cities purport their new found ordinances are rendering a more equitable, affordable and safer marketplace for apartment consumers, but in actuality they are largely achieving the opposite. Given that rent control is literally an existential threat to their businesses, Portland Maine apartment landlords and developers have been forced to take defensive measures in order to be sustainable.  As for the economics of rapidly rising rents since 2020, it's truly inflation - intentional debasement of the US Dollar by the Federal Reserve by excess money creation - that's at the root of the apartment and cost-of-living affordability problem in Maine and nationally, not landlord greed.

The Next Phase of the Market Cycle

Summing this all up, we're undergoing changes to the Greater Portland rental market; the above trends and statistics seem indicative of a rental marketplace moving into the next phase of the market cycle - balance soon to be followed by oversupply. As an experienced Property Manager we're astutely taking note and incorporating this critical data into our leasing and management strategies. Whether you're an apartment landlord, developer, tenant, municipal public official, or affiliate professional - we welcome hearing from you soon.

-LUX Residential [cursive signature please]

FOOTNOTE:

[1] Portland multifamily projects slated to be completed and brought online in early 2024 include the Armature (171 units), Nightingale (143 units), Aucocisco (263 units), Solterra Apartments (55 units), Phoenix Flats (45 units), and others. Data from https://mainebiz.biz.

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