Among the theses that emerged during the course of the pandemic was that suburban apartment properties have outperformed their central-city counterparts over the past 12 months. The truth, says RCLCO, is more nuanced.
For a start, RCLCO says, “It’s more complicated in America than to assume an entire central county is urban and other places in the surrounding counties are suburbs.
“To address this archaic designation, RCLCO has developed a place-type framework that organizes neighborhoods according to density and prevailing housing types at the census tract level, rather than relying on jurisdictional boundaries. Significant parts of places like Plano, TX, Reston, VA, and Bellevue, WA are all very urban places despite being in ‘suburban’ counties.”
Nationally, RCL says, it’s true that “suburban” apartments outperformed urban ones in 2020, though rents have stabilized and begun to show an uptick in 2021. Yet, it’s important to remember that suburban apartments were also impacted by the pandemic, just not as much as their urban counterparts.
It’s also worth looking at total occupied units, as opposed to occupancy rates. “Even New York City saw an increase in total occupied units during 2020,” says RCLCO.
“Net positive absorption, albeit moderate, suggest the issue is not that everyone left the city, it’s that not as many new people moved in to soak up the new supply that delivered. This bolsters the thesis that the central city distress is likely to be short lived and that there is a demand boom ahead (particularly as jobs and household formations return and some deliveries are delayed).”
At the height of the pandemic, the urban neighborhoods with the greatest occupancy rate declines were those where “many residents were likely affluent renters-by-choice – meaning they could easily afford to relocate, or buy, when having more space and greater privacy during the pandemic became an overnight priority.
“This trend reflects the performance of locations where residents have housing choices and office jobs that could more easily transition to remote work,” RCL says. “This holds true even in places like San Francisco and San Jose, which have experienced the steepest urban rent declines of any metro area.
“Cynically, the Zoom-enabled renters paying top-of-the-market rent had the option of moving to their parents’ vacation home in Sonoma County, while the essential and service-oriented force remained in the city. Some of those upscale renters will relocate permanently to lower-cost alternatives like Dallas or choose to stay in wine country, but a lot of them will be back.”
Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism.
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