Data Reveals America’s Urban Exodus

Image courtesy of Yardi Matrix

The coronavirus crisis has fueled a significant exodus from densely populated gateway cities, dealing a sharp blow to the apartment industry in those markets, according to a presentation on day two of the National Multifamily Housing Council’s 2020 OPTECH Virtual Conference.

U.S. Postal Service change-of-address records filed from February through July indicate that Manhattan lost 110,978 net residents, while Brooklyn saw a net decrease of more than 43,000. San Francisco, Los Angeles and Chicago lost anywhere from roughly 26,000 to 31,000 residents each, the data compiled by Yardi Matrix and MYMOVE shows.

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The Midwest and Texas gained new residents during this time, which also saw significant movement out of urban cores and into the suburbs, explained Jeff Adler, vice president of Yardi Matrix, during a session with other multifamily market analysts.

“Because economic activity and the ability to congregate and be face-to-face got locked down in dense, urban areas—which also happen to be the most expensive places to live—we saw a very rapid and very meaningful movement” out of dense, urban areas, he noted. Suburban rings around major international gateway cities, and less densely populated cities and areas, gained residents.

Multi-layered migration

Jeff Adler, vice president, Yardi Matrix. Image via NMHC’s 2020 OPTECH Virtual Conference

A deep dive into the data suggests there were at least two layers of movement that affected the multifamily market differently. Within the metropolitan areas, the pandemic accelerated migration out of the urban cores and into the suburbs. Many residents would likely have made the move within the next five years or so for child-rearing and demographic reasons, but the virus compressed that process into six months.

This layer of movement affected two-bedroom apartments the most. At the same time, young people paying high rents to live in exciting downtown areas decamped to the places they had originally come from after lockdowns took away most of their nightlife and social options. These moves tended to put a dent in demand for studios and one-bedroom apartments.

Adler noted that multifamily operating results have “tanked” in the urban cores of major cities such as Manhattan, Boston, Washington, D.C., Chicago, Los Angeles, San Francisco, Miami and Seattle, with absorption weak in the first half of 2020 and occupancy falling by 5 percent to 8 percent or more in those markets. The same period also saw declines in rents on new leases, renewal rents and retention rates, particularly in the upper end of the market.

Smile growth

Image courtesy of Yardi Matrix

On the other hand, cities that might have been expected to suffer more, such as metropolitan Las Vegas or Orlando, Fla., have performed well during the crisis, while fundamentals have actually improved in suburban areas such as Long Island, N.Y. Net absorption as a percentage of stock was 0 percent in gateway markets in 2020 through August, but 1.2 percent in secondary markets and 0.8 percent in tertiary markets.

The Southeast, Southwest and Western markets—generally, the so-called “smile” states—have outperformed other regions of the country, with net absorption registering at 1.0 percent, 1.1 percent and 0.8 percent in those geographies, compared to 0.5 percent in the Northeast and 0.4 percent in the Midwest.

Based on October data, Adler said, markets such as California’s Inland Empire and Sacramento, Phoenix, Indianapolis and Tampa, Fla., are all seeing rental increases. “It’s tied to what has been occurring so far in terms of de-densification and the work-from-home or work-from-anywhere movement,” he said.

“You’ve seen places that were beforehand the urban core—bulletproof, high-rise, downtown, international gateway cities—have been hit the most, and then other markets and asset classes have done well.”

“To the extent that network effects grow in cities like Austin, Dallas, Raleigh, Atlanta and Nashville, that will mitigate the draw of urban gateway cities,” Adler added. “But there will still be a draw. If you look over a longer time frame, three to four years, then I think the urban cores of the gateway cities do come back. But it will be a bit of slog until that time.”