Multifamily Fundamentals Strengthen in Q3: CBRE

Although absorption and occupancy rates increased since the second quarter, the market will still face increasing pressure through year's end, according to the latest Multifamily Figures report.
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Multifamily fundamentals such as net absorption and vacancy rates improved in the third quarter of 2020, according to the Q3 Multifamily Figures report prepared by CBRE. That good news is tempered, however, by the report’s conclusion market fundamentals will face increasing pressure through year’s end. That downbeat assessment stems from ongoing widespread joblessness as well as demand-dampening uncertainty resulting from COVID-19.

Third-quarter absorption totaled 90,300 units, which though down by 27.6 percent from a year ago was up by 300 percent over the preceding quarter. The overall third-quarter vacancy rate inched downwards by 16 basis points (bps) to 4.4 percent compared with the second quarter. And while average monthly rent fell by 1.6 percent to $1,694, the report noted the third quarter multifamily market held up better than anticipated, given that the renewal of enhanced unemployment benefits many counted upon never materialized.

Outpacing completions

Net absorption outpaced completions in the third quarter. Despite a modest year-over-year decline of 5.6 percent, completions remained high at 66,600 units in the quarter. Total completions year to date stood at 197,300 units, an increase of 5.3 percent over 2019.

Year-to date multifamily construction starts totaled 320,500 units through the end of August, rising 19.9 percent from the same period a year earlier. Starts slowed in the spring months, averaging 32,100 units per month in April and May. However, they climbed to a monthly average of 42,700 units in June, July and August. The under-construction total rose to an 18-year high of 699,200 units in August, a gain of 1.4 percent from July.

Data and chart courtesy of CBRE

Rebound ahead

The New York City metro area with 23,600 units, followed by Houston and Dallas with 17,600 and 14,600 units respectively, led the country in multifamily units completed in the third quarter. Other metropolitan areas that saw more than 10,000 units completed were Washington, D.C., Boston and Austin. Markets with negative net absorption for the four quarters ending in Q3 were Los Angeles (-7,800 units) San Francisco (-6,300), New York (-2,200), Honolulu (-1,300) and San Jose (-1,200). 

The overall vacancy rate has increased by 80 bps year-over-year, and is expected to increase again in fourth quarter due to seasonality. CBRE research projects a stabilization of the multifamily market in the first quarter of 2021, and a solid recovery through the year. Vacancy levels are anticipated to return to pre-pandemic rates by late next year.