From the standpoint of investor demand, the apartment sector remains at or near the top of the class, rivaled only by industrial. Market-level fundamentals, though, point to a sector in recovery rather than a champ that simply shrugged off the economic battering from the pandemic.
A new report from Yardi Matrix says that apartment demand rebounded in the third quarter in many metros, “a good sign for the industry after a weak first half that was caused in large part by the fallout from COVID-19. The rebound helped to stabilize the multifamily market and prevented asking rents from declining as much as would have been expected considering the historic decline in economic performance in the second quarter.”
First-half absorption was strongest in Dallas, with net absorption of 7,700 units; Denver (4,700); and Atlanta (3,500)—all markets that have grown rapidly during the past decade, Yardi Matrix says. “Demand was down from cycle peaks but still positive.”
Metros with the most negative absorption included Los Angeles (-2,300), San Francisco (-2,100), Chicago (-2,100) and Miami (-750). Although absorption remained positive in the New York City region, it tapered considerably during the July-August period, while Phoenix and Charlotte actually saw more absorption from January through August than New York, despite being far smaller.
Absorption trends are driven by a host of factors, including the timing and extent of the shutdowns in each metro, according to Yardi Matrix. New York, New Jersey and California were among the first to order residents to shelter in place and are reopening in phases.
Conversely, metros in states such as Texas, Florida and Arizona were slow to implement precautions and have not closed businesses as thoroughly as states with gateway metros.
Looking at rent growth metrics, the study of 17 million apartment units in Yardi Matrix’s database demonstrates that rent growth so far this year has been closely tied to the overall expense of apartments by market. Metros with higher average rents generally saw negative growth, while rent growth in less expensive metros was modestly positive or flat.
“That is consistent with renters being more budget-conscious at a time of economic hardship,” the report states. “Higher-end units have had the largest decreases in rents and occupancy post-COVID-19.”
The recent rebound, Yardi Matrix says, “demonstrates the resilience in apartment demand, although it’s too soon to say how long it will last if the economy suffers a setback from a second wave of infections during the winter. Multifamily performance will decline if unemployment remains high and consumers feel uncertain about their prospects.”
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