The strong results for the multifamily industry seen in the first three months of this year continued through June. The upcoming July edition of the ALN monthly newsletter will cover mid-year results in more detail, but the general nationwide numbers are certainly worth highlighting.

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

New Supply and Net Absorption

Despite various supply chain and labor issues this year, just less than 190,000 new units were delivered through the first six months of 2021. This level of new supply was nearly 40% higher compared to the same period last year and was also considerably more than the approximately 160,000 new units delivered through the halfway mark of 2019.

Whereas new supply significantly outpaced apartment demand last year, that dynamic has reversed this year. More than 330,000 net units were absorbed through June, easily surpassing both last year’s COVID-affected mark as well as that from 2019. In the five years that ALN has been fully nationwide for data collection, the second-best net absorption figure was about 210,000 units from the first half of 2018. The net result of this year’s supply/demand relationship was a 1.2% average occupancy gain to close June at 93%.

Average Effective Rent and Lease Concessions

As would be expected based on such robust demand, average effective rent growth has been substantial so far this year. The average unit ended June leasing for $1,437 per month after a 6% increase through the first half of the year. Though receding concessions have played a part, it should also be noted that average asking rent rose by 5% in the period – a reflection of increased confidence on the part of operators. At the halfway point of 2020, effective rent growth was only 0.5%, and this year’s gain is fully double that from the same portion of 2019.

As already mentioned, the other part of the picture is a continued draw down in lease concessions. Since the start of the year, discount availability decreased by 30%. As of the end of June, about 14% of conventional properties were offering a lease concession. This is just a hair above the 13% of properties offering at the end of June in 2019 and represents a continued downward trend from the 2020 peak. The average discount package value has also declined from the beginning of the year, though not to the same extent. An 8% decline brought the average value to just under four weeks off an annual lease. This decline constitutes real improvement, but the average remains considerably elevated compared to the three weeks off an annual lease average from the midpoint of 2019.

Takeaways

After a rough 2020, the new year got off to a very good start in the first quarter of 2021. The strong performance has only continued, and at the halfway mark of the year both apartment demand and effective rent growth were at levels not seen in years. As we move through the third quarter, a portion of the calendar that is traditionally a good one for multifamily, it remains to be seen if the torrid pace of absorption and rent growth can continue. It should also be mentioned that while it is encouraging to see such strong rent growth, further gains at a similar pace are likely to exacerbate affordability issues – particularly for residents outside the Class A space.

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