Inside Multifamily’s Migration Patterns

It’s important to understand why people are moving, not just where, according to Michael Stein of Pensam.

Michael Stein

The multifamily landscape is shifting as hybrid and remote work models are becoming the norm and allowing city dwellers to move to more suburban areas.

Multifamily owners and developers are adapting quickly as multifamily housing growth has posted some of the strongest gains over the last two years, and overall occupancy and net effective rents last year were well above pre-pandemic levels.

Fortunately, the upward trajectory for multifamily is expected to continue as macro-economic conditions such as rising median home prices and interest rates trend toward a housing shortage, and strong fundamentals will keep investors engaged. Trends now indicate a unique opportunity for multifamily developers to increase housing availability where people want to live.

Where are people being drawn?

As for migration patterns, U.S. Census statistics show that neighborhoods receiving the most influx are predominantly falling in Idaho, Utah, Montana, Arizona and South Carolina, which have seen a percentage population gains of 2.9 percent, 1.7 percent, 1.7 percent, 1.4 percent and 1.2 percent, respectively, between 2020 and July 2021. Migration has been a net benefit to several multifamily markets such as Boise, Idaho, where asking rents rose 33.6 percent.

Migration patterns, however, are not always correlated with increased economic prosperity or a desire to spend on new housing, as the U.S. largely saw workers nationwide moving to states that offer a lower cost of living and/or lower asking rents.

While some families and individuals moved to other cities and states for reasons of economic hardship, those states with “hot” housing markets tended to gain. Florida’s red-hot housing market was largely being driven by multifamily. Overall, the state ranks second (after Texas) in terms of population growth, seeing roughly 211,000 incoming residents between 2020 and July 2021. This aligns with the marked rise in rents since March 2020, with rents in Naples increasing 48.9 percent, Sarasota 48.3 percent, Tampa 34.3 percent and Fort Myers 33.6 percent.

As a high point, Q4 2021 was noted as the best quarter recorded in multifamily history at nearly $150 billion nationwide, nearly double than the previous quarter. At the time, apartment vacancy rates dropped to 4.8 percent—down from the pandemic peak of 5.4 percent in the first half of 2021. The numbers dropped further to 4.7 percent in Q1 2022.

Much of the market growth was centered in Sun Belt regions, with Jacksonville, Tampa and Palm Beach in Florida topping national charts. What this means for 2022 is that developers and owners must maintain a close eye on where people are migrating and why. The tenuous nationwide balance exists between rent levels, population growth and job creation, and will likely continue to shift as renters and homeowners make more decisions on longer-term housing needs.

Today, rents are up approximately 17 percent and median home prices are up approximately 15 percent over the last year. As vacancy rates in rentals continue to diminish, multifamily housing development is set for unprecedented opportunity in meeting increased demand for housing needs. Capital providers can look for unique opportunities to serve this market, as strong multifamily fundamentals and potential for growth bode well for investment opportunities in an otherwise uncertain rising interest rate environment. Multifamily remains an attractive investment proposition.

Michael Stein is founding partner of Pensam, a diversified multifamily investment firm.

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