After generally weathering the 2020 storm better as a group than the largest markets, secondary markets got off to a hot start to 2021 as well. However, since the end of the first quarter, the largest markets have taken center stage. The shift has not been due to secondary markets cooling off, but rather due to some of the laggard primary markets joining the recovery. As a result, in terms of over-performing their pre-pandemic 2019 results, the largest markets have led the way over the last handful of months.

As always, numbers will refer to conventional properties of at least 50 units.

Tier One Markets Overall

ALN assigns every market around the country to one of four tiers based on the size of the area’s multifamily presence. Tier One markets are the largest 33 in the United States. Net absorption from the end of the first quarter through July across these 33 markets was approximately 240,000 units. This level of demand equaled 115% of that seen in the same portion of 2019 and five times that of the same period of 2020.

For context, net absorption among Tier Two markets from April through July was 84% higher this year than in 2019. Nothing to sneeze at to be sure, but not quite the 115% increase in the largest markets. As previously mentioned, apartment demand suffered a much more pronounced slide in Tier One markets in the early days of the pandemic compared to Tier Two. That adds some perspective to the gaudy number posted by the largest markets this year, a number that particularly reflects the movement of people back into the large cities as jobs returned to the office and public amenities re-opened.

Specific Tier One Markets

There were many Tier One markets already outperforming not only 2020, but 2019 as well in the first quarter of this year. Others got off to a slower start, including some that may have been a surprise. Phoenix was one example. After net absorption of around 3,900 units in Q1 2019, the area managed only about 1,700 net units in Q1 2021. That has been followed up by more than 7,600 net absorbed units from April through July compared to less than 1,900 in that portion of 2019.

Another example was the Denver – Colorado Springs region. Net absorption of approximately 1,600 units in the first quarter of this year fell well short of the 5,100 net units from Q1 2019. Since the close of March however, the areas added 10,000 net rented units compared to only 6,000 in the same period in 2019.

Other large markets got a lot of attention for their struggles last year. In particular, the expensive coastal markets like New York and the Bay Area of California. New York continued to struggle in the first quarter of this year, with net absorption totaling barely 1,500 units after managing 5,700 net units in the first quarter of 2019. Since the end of March, the market has absorbed approximately 12,000 units – comfortably beyond the 8,400 net units from 2019.

Lastly, San Francisco – Oakland. The area was one of the hardest hit in 2020, suffering negative annual absorption, an average occupancy loss of almost 5% and an average effective rent loss of more than 8%. Unlike the other specific markets mentioned here, the Bay Area actually started its rebound with the turn of the calendar. First quarter net absorption of more than 2,100 units was roughly double that of Q1 2019. Demand has only strengthened since. Nearly 10,000 net absorbed units from April through July dwarfed the 3,000 units from 2019 and led to robust gains in occupancy and rent.

Takeaways

Though secondary markets continue to perform well, it has been the largest markets that have over-performed most in terms of demand since the close of the first quarter. For those areas that began 2021 with strong demand, that has persisted. The difference in recent months has been some of the markets that continued to stumble in the opening quarter have finally seen the demand wave that much of the country was already experiencing.

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