Multifamily Absorption Mounts a Comeback
- Jun 02, 2021
Resident demand for multifamily is red-hot across the U.S. this year, with strong absorption extending into many of the gateway markets that saw an exodus of renters in 2020, an analysis of Yardi Matrix data shows.
Through the end of April, nearly 120,000 multifamily units were absorbed nationally in the 136 markets covered by Matrix. That puts the industry on pace for one of its best years since the Great Recession, and the industry should easily top the 270,000 units absorbed last year.
Demand in 2021 is led—not surprisingly—by Dallas, which has been at the forefront of population and employment growth for many years. Through April, the metro absorbed some 8,200 units. Other rapidly growing markets include Miami (5,700 units), Atlanta (5,400), Phoenix (4,600) and Austin (4,500). Nashville led in absorption as a percentage of total stock at 2.1 percent. Also scoring high in that metric are Chicago, Charlotte, and Miami (1.9 percent each) and Austin (1.8 percent).
Perhaps most encouraging, however, is the rebound in large, high-cost gateway metros where absorption was negative last year due to the pandemic. Chicago, for example, was second only to Dallas with just under 7,000 units absorbed through April, after posting negative demand (-1,800 units) in 2020.
Other gateway metros with strong year-to-date numbers are San Francisco, which has absorbed 3,400 units in 2021 after 2,200 units of negative absorption in 2020; San Jose, which absorbed 1,300 units after -2,000 last year; and New York City, which has absorbed 2,400 units through April after -16,000 in 2020. Also surpassing their performance are Washington, D.C. (4,500 units absorbed through April), Los Angeles (4,000) and Boston (3,100).
High-rent metros with large central business districts saw a wave of move-outs and little in-migration in 2020 as office buildings stayed largely empty. As vaccination programs sharply reduce the spread of the virus, cities are re-opening, and evidence suggests that residents are starting to return. Although recovery may take months or even years, positive demand is a welcome sign for apartment owners in urban markets.
Since 2013, when recovery from the Great Recession began in earnest, the U.S. has absorbed 283,000 multifamily units on average annually. The pandemic didn’t impact the overall number as much as was feared, given the downturn in the economy and the loss of as many as 20 million jobs, but it created a bifurcation, with demand concentrated in secondary and tertiary markets and suburban areas of large metros.
In 2020, absorption was positive in secondary and tertiary metros, at 2.3 percent of total stock; in gateway metros, absorption slipped 0.2 percent. Rent growth was highest in smaller, less-expensive markets. Tertiary metros saw rents grow 3.1 percent in 2020, compared to 0.4 percent in secondary metros and a 6.1 percent decline in gateways.
Those numbers are flipped somewhat in 2021. Year-to-date demand has been led by gateway and secondary metros, which have absorbed 1.0 percent of stock, with tertiary markets absorbing 0.6 percent. Rent growth still favors less expensive metros, however. In tertiary locations, rents have risen 2.0 percent year-to-date through April, compared to 1.6 percent in secondary metros and 0.1 percent in gateway markets. It appears that demand remains focused on properties with rents that are affordable for middle- and lower-income households.
The robust absorption numbers are reflected in apartment rent growth, which has rebounded strongly in 2021. Nationally, rents are up 1.6 percent year-to-date, reaching an all-time high of $1,417, according to Matrix.