Madison Place

Strong Quarter leads to Rent Jump for Multifamily in March

According to Yardi Matrix, the average multifamily rents rose by $6 to $1,407 on a year-over-year (YOY) basis in March. This development lead to multifamily rents having one of the strongest first quarters in a few years, with the 0.6% YOY and 0.8% quarter-over-quarter jump. Further, with rents posting a 0.4% month-over-month growth in March, an increase of 20 basis points over February was achieved.

During this period, 134 markets were surveyed with 114 showing flat or positive YOY rent growth. Additionally, 19 of the top 30 metros had flat or positive YOY rent growth in March.

Many of the western locations showed higher growth followed by markets in the southeast. This includes the Inland Empire (8.3%), Sacramento (7.3%) and Phoenix (6.9%), which posted the largest YOY growth. Tampa (5.0%) and Atlanta (4.7%) also posted strong YOY rent growth, benefiting from strong migration and limited new supply. For instance, completions in Tampa and Atlanta over the last 12 months totaled only 2.3% and 2.5% of inventory, respectively.

Yardi also reported that expensive coastal metros are beginning to bounce back, with New York (-13.6% YOY) and San Jose (-12.0% YOY) bottoming out. In fact, San Jose (0.9%) joined Sacramento (1.0%) in having the highest short-term rent growth in first quarter.

Twenty-six of the top 30 markets had flat or positive month-over-month rent growth in March. It was noted in Yardi that Raleigh, which dropped 0.9%, was an outlier among the strong Southeastern markets. The reason could be that 3.9% of stock has been completed in Raleigh during the last 12 months. Raleigh was second only to Austin, with the second most deliveries over the last 12 months.

While lifestyle rents have been hit the hardest during the pandemic, they rose 0.5% month-over-month during first quarter. Rents in renter-by-necessity apartments, which had been performing better during the pandemic, only increased 0.3%. Twenty-seven of the top 30 metros had flat or positive month-over-month lifestyle rent growth. Half of the top 30 metros also saw positive lifestyle rent growth.

Yardi reported that it expects things will continue to improve with the $50 billion of emergency rental assistance and other support to the housing industry that was included in the most recent federal aid package. “This funding is bound to have a positive effect on occupancy and rent growth throughout 2021,” a Yardi’s analyst’s state.

A recent report from Apartment List echoes Yardi’s sentiment about an improving rental market. In March, Apartment List’s national index jumped by 1.1%, which was its largest monthly increase going back to the beginning of 2017. That doubled historical growth in the month. In the previous three years, March’s year-over-year rent growth was 0.6%.

Recently, Apartment List’s index started growing ahead of seasonal trends. It saw improvement in both pricey coastal markets and smaller cities that have grown popular through the pandemic. The markets that saw the fastest declines in 2020 are starting to experience the most significant jumps in 2021.

Apartment Construction

Apartment Market Post Covid19

New reports show that rental units accounted for 96% of multifamily construction starts during the second quarter of 2020, which took additional market share from the condo market.

According to The National Association of Home Builders, quarterly data from the Census Bureau, noted that 76,000 rental multifamily started and with only 3,000 condo starts.

By comparison, apartment starts have been about 90% or higher since late 2014. Apartment starts hit the bottom in Q3 2005, when condo construction was booming. During that time, apartment construction hit 47%.

Rental multifamily starts traditionally have held more market share over condos. From 1980-2002, the average market share for apartments was 80%, according to NAHB.

While more apartments are going up, their square footage is staying down, according to NAHB. The average square footage of rental units during the second quarter of this year was 1,126, well below the pre-Great Recession peak of about 1,300. In early 2015, square footage reached a post-recession peak of 1,247 square feet.

Depressed dwelling sizes may not last long, according to NAHB, particularly in light of the new work from home trend.

Though apartments took more market share from condos, new construction has been reduced by 12% this year due to Covid19, according to RentCafe Blog. “The downtrend is mainly due to the slower pace of construction, as a result of a shortage of available construction crews, funding and permits, along with some temporary bans on construction projects in certain states,” the report said.

However, housing construction overall has been driving up lumber prices according to NAHB.  The price of lumber has shot up 110% since mid-April. It is estimates that these recent gains have boosted typical new single-family home prices and apartment prices by approximately $14,000 and $5,000, respectively.

Pricing of multifamily has so far, not been too affected by COVID-19. At least it hasn’t caught up to it yet.