The dominant story of 2020 across all markets continues to be COVID-19 and the fallout from both the virus and the response to it. The impact is being felt across the economy, and multifamily real estate is no exception. April was the first full month in which a majority of the country was locked down and provides a first full look at what that may look like for the apartment industry. We’ll use this space to highlight some markets that stood out in April.
All numbers below refer to conventional properties of at least 50 units. Only ALN Tier One markets will be evaluated here; these are the 33 largest markets by multifamily capacity.
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Of the 33 Tier One markets, 20 experienced an average occupancy decline in April. The silver lining is that many of the declines were less then 0.25%, with the largest being the San Francisco – Oakland area at -0.7%. Of those markets that managed a gain, none were larger than the 0.3% improvement in the Greater New York City area. When considered as a group, the average change at the market level in average occupancy during the month was approximately -0.2%.
Considering that the same average in April 2019 was 0%, and 0.2% in April 2018, this loss appears more like a continuation of a slight downward trajectory than a drastic drop. The same could be said for the number of markets to see a monthly retraction. This April it was 20 markets, last April it was 13 and April of 2018 was 9 markets.
A few other markets stand out. The Chicago market lost 0.6% in average occupancy in April and both Baltimore and Orlando lost 0.4%. Average occupancy in the Austin market dropped 0.25% after a 0.5% gain last April and now sits below 90% after closing April 2019 at 92%. Nashville is another market where this April’s change was especially pronounced. A 0.6% occupancy gain last April was followed up with a 0.2% loss this year.
Average occupancy for only stabilized properties across these 33 markets was unchanged in April, ending the month at just above 94% compared to the 92% average for all conventional properties.
One of the reasons monthly occupancy declines were not larger in these markets was a reduction in new supply compared to previous years thanks to construction delays. In 2018 and 2019, April deliveries were almost 20,000 units. This year, less than 14,000 new units came online in April. These delays were in some ways a silver lining because April demand fell sharply. The 33 Tier One markets absorbed around 7,500 units during the month – a far cry from the 24,000 units in April 2019 or 32,000 units in April 2018.
Despite still posting the highest number of newly rented units of any market, nowhere is this decline more apparent than in the Dallas – Fort Worth region. About 1,800 units were absorbed in April compared to 4,000 units absorbed in April of last year. Staying in Texas, the Houston market declined from roughly 2,900 newly rented units last April to less than 300 last month.
Ten markets suffered a net loss in rented units. California was the hardest hit with Los Angeles – Orange County area leading the way at 600 lost rented units. The Bay Area lost about 550 rented units and San Diego lost more than 300 units.
Amongst stabilized properties in these large markets, net absorption was negative. A net total of around 2,400 rented units were vacated – nearly 1,800 of these units were in Los Angeles – Orange County, San Francisco – Oakland and San Diego.
Average Effective Rent
After gains around 0.6% in 2018 and 2019, April average effective rent for this group of areas declined by 0.1%. 22 of the 33 markets retracted in some way, but three stand out. In Austin, average effective rent lost 0.6% during the month compared to gains of nearly 1% in each of the last two Aprils.
The Los Angeles – Orange County market also suffered a loss of 0.6% after being in the neighborhood of a 0.25% gain in both April 2018 and 2019. The Tampa region lost 0.5% in average effective rent last month. The area had been trending down, with a gain of 0.5% in April 2018 followed by a 0.2% increase last April, but last month’s change was more precipitous.
Rent growth for stabilized properties was impacted more negatively. The average monthly change across all 33 markets was -0.2%, double that of the overall rate of change. Additionally, 26 of the 33 markets suffered declines.
What is interesting about lease concessions is that there were some markets in which the availability of new lease discounts rose considerably in April and others where the average value of the discount rose considerably, but no market fell into both groups.
The availability of rent concessions rose by 15% in Sacramento in April, matched only by the 15% increase in the Boston area. Just behind that was Orlando with a 14% monthly increase. Two other markets that stood out were Austin and Nashville, each with an increase just short of 12%. The top three markets for availability were all in Texas. San Antonio led the way at 39%, followed by Houston at 35% and Dallas – Fort Worth at 28%.
The Kansas City market realized the largest monthly gain in the average value of the discount being offered after an increase of 13%. The average discount being offered in San Bernardino – Riverside and Cincinnati – Dayton each gained 11% in April. Similarly, Minneapolis – St. Paul and San Diego each added 10% to the average concession value.
Each of these sections could be their own newsletter, so for more detailed data on individual markets like occupancy, effective rent, concessions and more click over to our Market Reviews page and also be on the lookout at the ALN Blog for additional analysis.
For obvious reasons April was a rocky month for large markets around the country. Monthly performance was down across metrics, though not in every market. Average occupancy saw the least amount of movement, but one complicating factor is rent collections. April collections were better than expected, but May appears to be trending the same. However, the industry is not out of the woods yet with collections given the level of economic displacement that has occurred. There could be a loss of revenue at the unit level masked by occupancy figures if some significant portion of those residents make partial payments or no payments in coming months.
COVID-19 and the response to it has suppressed new supply as well as demand. The silver lining there is that a 33% reduction in April new supply helped offset the even sharper decline in net absorption. If construction deliveries resume a near-normal pace before demand recovers, occupancy and effective rent growth will be pushed further into the red.
Stabilized properties managed to hold their ground in terms of occupancy, but it came at the expense of rent growth. The decline in average effective rent for these properties was twice that of the overall monthly change.
April was certainly no picnic for multifamily, and May is likely to be even more challenging. As portions of the country begin partial re-openings, there may be some light at the end of the tunnel as summer approaches if all goes well. With so much still unknown, only time will tell.
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