In a year of constant uncertainty and economic volatility when most sectors of the economy faced significant uphill battles, the multifamily market remained notably consistent. While investment totals generally dwindled, mostly due to a lockdown-affected second quarter, property values have actually gone up in a large number of markets. Amid significant change, we looked to identify a list of smaller markets that have shown resilience in market fundamentals, with some of these actually showcasing growth at a time when most gateway and high-profile secondary markets have struggled.
While the health crisis caused significant disruption in growth levels in rent and occupancy, as well as notable contractions for the job market, the metros on this list have shown resilience. With one exception, these markets reported an unemployment rate equal to or lower than the national average in September—with the highest one at 9.4 percent and the lowest at 3.9 percent. Additionally, developers completed more than 7,500 units in the 10 markets on this list, 57.3 percent of the 13,131 units that came online in all the 32 metros on our radar. What’s more, of the almost 55,000 apartments underway throughout the 32 metros, 52.1 percent are in the works in the 10 markets on this list.
What follows are summaries of performance for the second half of this list. Stay tuned for Part II, offering insights on the top five of our top 10 emerging multifamily markets.
|Rank||Market||Price per Unit||Units Completed||Units Under Construction||Unemployment Rate|
10. Knoxville, Tenn.
Knoxville enjoyed the fruits of an accelerating economy prior to the current volatility, attracting a highly skilled workforce and better positioning it for the effects of the downturn. The metro’s population rose 6.6 percent between the 2010 Census and July 2019, with most new residents coming from smaller cities in Tennessee. In the 12 months ending in September, Knoxville only lost 9,700 jobs, thanks to increases in the construction, business and services, and education and health services sectors. That’s equal to a 2.4 percent decline, proof of the metro’s resilience. The unemployment rate stood at 4.8 percent in September, a 160-basis-point uptick year-over-year and far below the national average.
With positive employment and demographic trends also came increases in development activity, occupancy and average rent. Developers completed some 1,900 units over the past two years, almost as many as in the previous three years, and were working on nine properties totaling more than 1,500 apartments in September. And as the pace of completions rose, so did the average occupancy rate, up 60 basis points year-over-year through September, to 96.6 percent—more than 200 basis points above the national rate. While national rents dropped 0.6 percent year-over-year through October, Knoxville’s average rate increased 4.4 percent to $1,072.
9. Birmingham, Ala.
Birmingham continues to be a fast-growing multifamily metro, thanks to its strong automotive, life sciences and manufacturing industries, which in pre-pandemic times helped keep the unemployment rate among the lowest in the country. More recently, as most markets its size took a big hit from the health-induced economic volatility, the metro’s jobless rate more than doubled year-over-year through September to 6.3%. That’s still 140 basis points below the nationwide rate. In the 12 months ending in September, Birmingham lost almost 30,000 positions, with two sectors—leisure and hospitality and information—reporting double-digit losses. The overall contraction was equal to a 4.3 percent decline.
But as residents living within city limits continued to relocate to neighboring states or metros, Huntsville is expected to surpass Birmingham’s population in a decade. This trend, coupled with the effects of the pandemic, resulted in a 70-basis-point drop in the metro’s average occupancy rate year-over-year through September to 94.2 percent, 30 basis points below the national rate. While developers only completed some 400 units year-to-date through September, there were still more than 2,500 apartments underway in Birmingham, which placed the metro within the top 10 for units under construction.
8. New Orleans, La.
Coming in at No. 8 is New Orleans, which has seen an incredible improvement in its multifamily fundamentals in recent pre-pandemic years. By diversifying its economy following the devastating effects of Hurricane Katrina, the metro significantly increased its population, adding more than 75,000 residents between the 2010 Census and July 2016, thanks in part to the low cost of living and doing business. However, between 2017 and 2019, metro New Orleans only added some 200 residents, with a decline in 2019 for the first time since Hurricane Katrina, as the cost of housing rose and people migrated to smaller and cheaper areas.
The occupancy rate hasn’t been significantly impacted by this trend, surpassing 94 percent for the entire period of slowdown in demographic growth. While the average rent rose 1 percent year-over-year through October to $1,024, the average per-unit price surged more than 90 percent, to $85,598 year-to-date through September, compared to the same period of 2019, as investors focused on less established markets. As a result, New Orleans ranked third for per-unit price increase among the metros on our radar. Additionally, the metro ranked fourth for units completed over the first nine months of the year, as developers delivered five communities totaling 1,179 units.
7. Des Moines, Iowa
Metro Des Moines’ population rose 15.3 percent between the 2010 Census and July 2019, according to estimates, with a slowdown in growth in recent years. New supply came online at a faster pace over the past decade compared to the previous one, with an increase of more than 150 percent, to 13,000 units. As a result, the metro’s occupancy rate remained steady at roughly 93 to 94 percent throughout the period. Year-over-year through September, it declined 10 basis points, but with a nationwide eviction moratorium underway, the effects of the current economic crisis have not yet been felt in full.
With the second-lowest unemployment rate from the markets on this overall list, at 4.8 percent in September, the Des Moines job market was better positioned to deal with the health crisis’ consequences. And while it lost 22,800 positions in the 12 months ending in September, that’s a decrease of only 6.1 percent, well below the national average, with many larger markets reporting double-digit losses. And although the average rent stood at $964, unchanged year-over-year through September, Des Moines’ price-per-unit saw a 50 percent increase year-to-date through September compared to the same period last year, reaching $69,125 (though that’s still the lowest for the markets on this list).
6. Savannah-Hilton Head, Ga.
Benefiting from its location, the metro has seen positive demographic trends over the past decade, with new residents coming in from neighboring markets and states, attracted by its lower cost of living and diversified economy. This resulted in an increase of 13.2 percent from the 2010 Census to July 2019, according to estimates. Savannah-Hilton Head posted an average rent of $1,179 as of October, up 1.6 percent year-over-year although still almost a quarter below the national average of $1,464. Its occupancy rate saw a significant uptick in pre-pandemic times but declined by 20 basis points year-over-year through September to 93.9 percent, 60 basis points below the national rate.
Because part of its economy is tourism oriented, the COVID-19 crisis and ensuing economic uncertainty have undeniably impacted the metro’s job market, with the leisure and hospitality sector contracting by 19.9 percent in the 12 months ending in September. However, the overall unemployment rate stood at 6.7 percent, 100 basis points below the national average, as Savannah’s professional and business services sector rose 13 percent, adding 2,700 positions. In spite of recent hardships, the small metro’s multifamily fundamentals remained strong, with more than 1,200 units completed year-to-date through October—ranking third among the metros on our radar for multifamily deliveries—with an additional 2,654 units still underway.
To determine a potential list of some of the country’s emerging markets, working with Yardi Matrix data, we first filtered out all MSAs with 2 million or more residents. Then we decided on a series of significant data points that would separate the best-performing markets from the rest. We looked at the increases in the average per-unit price for transactions closed year-to-date through September compared to the same period of last year, at how the employment market performed year-over-year, as well as the number of units completed over the first nine months and the number of apartments underway as of September. We then compared the resulting 32 markets based on their performance for these data points and eventually assigned them a final score. The lower the final score, the higher the metro’s rank.