While the public health outcomes of COVID-19 remain the top priority, March was the month in the first quarter where the economic impact of the US response really began to be felt. As ALN Apartment Data comprehensively tracks data on a monthly basis, we are able to drill down to see the changes in metrics quickly across the US. Although all multifamily performance differences between the month of March and the previous two months cannot be laid at the feet of COVID-19 or the response to it, certainly it was a factor.
With that in mind, let’s take a look at some markets where the difference in metrics like average occupancy and average effective rent was most stark. All numbers will refer to conventional properties of at least 50 units, and comparisons will be made between overall Q1 2020 results and where markets stood at the end of February.
Part One of this topic can be found here, Part Two will be limited to ALN Tier One markets, which are the 33 largest multifamily markets in the US by unit count.
Some early reporting seems to indicate a general reduction in resident movement over the last few weeks, whether measured by prospective leasing appointments or by move-out notifications. However, the situation certainly varies across markets. The top five large markets for average occupancy decline in the month of March are listed below.
- Cincinnati – Dayton (-0.7%)
- Orlando (-0.54%)
- Austin (-0.51%)
- Nashville (-0.51%)
- Chicago (-0.47 %)
While these average occupancy declines are fairly significant given the short amount of time in which they occurred, the declines should not just be attributed to COVID-19. The common thread that runs through these markets is the high volume of new units delivered in March relative to the first two months of the year. March new supply totaled 62% of the combined new units delivered in January and February in the Orlando market, and it was the only area of these five to have a value below 100%. Chicago, for example, added less than 200 new units combined in January and February only to deliver about 1,000 new units in March.
Average Effective Rent
The five markets to struggle the most in March with average effective rent growth are listed below. What becomes immediately clear is the difference in effective rent performance for March in these markets compared to the smaller markets identified in Part One. The fifth-place market from that list saw a much larger average rent decline than did the first-place market on this list. Also, all five of the smaller markets experienced rent retractions in March, while only two of the large markets did – and by the slightest of margins.
- Boston (-0.08%)
- New York City (-0.02%)
- San Diego (0.01%)
- Las Vegas (0.12%)
- Portland (0.12%)
The main cause for the average occupancy declines outlined above appears to be the timing of new units entering the market. Lease-ups are not instantaneous, and the bulk of new supply entering the market in one month of the quarter will obviously impact occupancy performance in that month.
The story with average effective rent in these under-performing large markets is less about retractions, as with the smaller markets, and more about a declining rate of growth. Interestingly, 58% of the 33 Tier 1 markets managed to outperform January and February with March rent growth. 41% of the remaining markets around the country were able to do the same. Similarly, though 16 markets nationally experienced average effective rent retractions in March, only two of those were Tier One markets. And, even in those two markets, average rent was flat if you simply round differently.
The impact of COVID-19 and the response measures taken will undoubtedly have an effect on multifamily performance around the country in the upcoming months. Caution should be taken when attributing lackluster first quarter performance, or March performance more specifically, to COVID-19.
Looking ahead, if more residents begin struggling to make rent but cannot be evicted, these ‘zombie tenants’ will not show up as occupancy losses even though they represent income losses. Furthermore, as properties become less aggressive with rents, either by slowing the growth in asking rent or by increasing concessions, the added pressure of a still-active construction pipeline will make it more challenging to stem losses in effective rent.
For more detailed information on specific markets, check out ALN’s complimentary Market Review reports.