COVID-19 Downturn Fuels Q2 Falloff in Multifamily Demand

Net absorption plummeted to the lowest second-quarter level in 11 years, according to the latest CBRE Multifamily Figures Report.
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The second quarter is usually strongest in demand for multifamily housing. But that was not the case this year, when net absorption plummeted to the lowest Q2 level in 11 years, only 21,100 units. This was among the findings of CBRE’s Multifamily Figures Report for Q2 2020, which termed the COVID-19 economic malaise a drag on apartment demand.

The fact net absorption in the quarter was positive indicated the multifamily market fared better than some anticipated, given headwinds exerted by the pandemic and the faltering economy, CBRE reported. Key to that performance were stimulus programs at the state and federal level, which assisted apartment residents in affording their rents. CBRE added net absorption is anticipated to trend negative for the remainder of this year.

During the quarter, the apartment vacancy rate inched higher by 30 basis points vis-a-vis the first quarter, reaching 4.6 percent. An average month’s rent dropped to $1,720, a 1.4 percent reduction. Investment volume totaled $160 billion.

Overbuilding risk

Completions were higher in both the first half and second quarters of 2020, compared with year-earlier numbers. They stood at 129,100 in the first half and 78,300 units in Q2. In the year ending Q2, New York City and Dallas topped the country in the number of multifamily units delivered, with Houston rounding out the top three. As a measure of overbuilding risk, the completions-to-inventory ratio of 4.9 percent in Austin was particularly high. Omaha, Neb., and Orlando, Fla., were next, with 3.9 and 3.7 percent respectively. The net absorption in Austin for the quarter was 76.6 percent of deliveries. Absorption matched completions for the quarter in Omaha. Orlando’s net absorption was 61.6 percent of deliveries in Q2.

Rent growth

Of the half dozen major U.S. regions, the Midwest enjoyed the greatest number of markets with quarter-over-quarter rent growth. Minneapolis and Chicago were the only outliers with rent declines, both tallying declines less severe than national average. The Pacific region suffered most quarter-over-quarter rent declines. Sacramento, Calif., the Inland Empire, Portland, Ore., and Seattle performed better than the national average and larger California markets.

CBRE forecasts market fundamentals will remain under increased pressure in the second half of the year as a result of much higher than normal unemployment. The report’s authors foresee a stabilization of the multifamily market by the first quarter of next year, and predict steady improvement in market fundamentals thereafter.

Last month, CBRE assisted both the buyer and seller in the sale of a Tampa property.