Class A Vacancies Rise and Rents Fall Amid Crisis

Health risks dampened performance of new deliveries, while demand in many urban centers fell, according to a report from Marcus & Millichap.
Chart courtesy of Marcus & Millichap

The coronavirus crisis boosted vacancies in high-end apartment properties across the U.S. as many residents fled urban centers, adding to the impact of a wave of construction. Class A multifamily vacancy rose 80 basis points to 5.7 percent between the first and second quarters of this year, driven in part by residents seeking lower-cost or more spacious homes, according to a new report by Marcus & Millichap.

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Class B and C vacancy rates also grew, but at a slower pace, with a variety of statewide eviction moratoriums helping to shore up occupancy among lower-income residents. Overlapping with the health crisis, roughly 23,000 more apartments opened in the first half of the year than in the same period of 2019 and new absorption was down 75 percent. Health risks have slowed the process of leasing new deliveries, weighing on short-term performance.

The average effective Class A rent fell 1.5 nationwide in the second quarter, 60 basis points more than the decrease in overall multifamily rents. The San Francisco Bay Area took the biggest hit, with Class A rents falling 6.2 percent since March and by nearly 3.5 percent in San Jose and Oakland.

Varying impact

Upscale rental units were more exposed to the trend of wealthy urban residents packing their bags during the pandemic. For example, some 420,000 people are estimated to have left New York City during March and April, representing 5 percent of the city’s population, according to a New York Times report drawing on smartphone data.

Cities focused on technology and tourism tended to see the largest annual declines in Class A rent, including Austin, Texas; Orlando, Fla.; Atlanta; Boston; Chicago; and New York City. On the other hand, lower-cost and less-dense metros such as Detroit; Columbus, Ohio; Nashville, Tenn.; and Philadelphia tended to see rising rents compared to the same period of 2019. Marcus & Millichap notes that movement away from coastal areas in California supported rent growth and stable occupancy in Class A properties in Sacramento and the Inland Empire.