Part 2: How Did Stabilized Properties Fare in April and May?

With most of the country now in some stage of economic re-opening, the lockdown phase of the COVID-19 response is, at least for now, behind us. The road back to pre-pandemic normalcy is likely to be a rocky one and uncertainty abounds. Before looking ahead, let’s take a look at how stabilized properties performed in April and May while much of the country was under some form of shelter-in-place policy.

Part 1 of this look focused on net absorption changes, while Part 2 will focus on rent changes.

All numbers will refer to conventional properties of at least 50 units. Stabilized refers to properties that are not in initial lease-up.

Market Size

Average effective rent was hardest hit in the largest markets around the country. In the 33 largest markets by multifamily capacity, average effective rent for stabilized properties declined 0.33% in April and May to end May at $1,488 per unit. One contributing factor was an increased reliance on rent concessions in the period. The availability of new lease discounts in these markets rose 7% during those two months to 17% of stabilized conventional properties. That increase was the largest of any of the four ALN market tiers.

ALN Tier 3 markets, the five dozen markets with between 25,000 and 74,999 multifamily units, were the other group out of the four tiers to lose ground in average effective rent. Average rent slid just more than 0.1% to end May at $1,001 per month. 14% of conventional stabilized properties were offering a lease concession to end May, up about 2% in the period.

Interestingly, there was almost no difference between average effective rent change overall versus just within stabilized properties for all four market tiers.

Smaller markets with less industry diversity like Lake Charles, LA and Bismarck, ND appear toward the top of the list for average effective rent declines, slides of 3.5% and 2.5% respectively. The worst-hit area was Midland – Odessa, TX. Here a confluence of factors including a dependence on energy jobs and a long overdue influx of new supply sent average effective rent tumbling 7.4% for stabilized properties in April and May. Travel destinations like Palm Beach and Honolulu also fell within the top 10 markets for effective rent loss.

Regional Look

The National Apartment Association (NAA) divides the country by state into 10 regions. In five of the 10 regions, average effective rent change for April and May was less than 0.25% in either direction. Four other regions suffered declines of at least 0.5% led by the 0.75% loss in the Great Plains and Mountain West states of NAA Region 8. Despite its small size, the Bismarck market largely drove this result with a 2.5% loss. The list of top employers in this area is dominated by state and local government and healthcare and energy employers. It is no surprise then that the area was so hard-hit.

Region 9

In the Gulf states of Region 9, average effective rent declined 0.5% in the period. As noted earlier, the starkest retractions were in tourism and travel destinations as well as smaller markets with a heavy reliance on energy jobs. Both Orlando and Palm Beach were among the worst performers with average effective rent declines of 1% and 1.7% respectively. Worse still, in Lake Charles, LA effective rent declined by 3.5% on average.

Region 10

In Region 10, which includes California and Hawaii, effective rent declined by 0.5% as well. Here, losses were driven by three specific markets. In California, the Los Angeles – OC area and the San Diego markets lost 0.7% and 0.8% in average effective rent respectively. Honolulu was the only area in this region to lose more than 1%, with a 1.4% decline in April and May.

Region 6

In NAA Region 6, Texas and New Mexico, about half of markets managed to achieve some rent growth in the period. As a whole, the region’s average effective rent declined by 0.5% as well though. The reason is there were substantial declines in three of 24 markets. In Austin, average effective rent fell by 1.2%. In Victoria, TX, an area with a high concentration of education and healthcare jobs, average effective rent fell by 1.5% in the period. Worst hit, in the oil-dependent Midland – Odessa, effective rent fell by more than 7% in April and May.

Takeaways

When it comes to effective rent growth in April and May for stabilized properties, there are a couple of groups that arise out of the hardest hit markets. Fast-growing markets like Austin, Denver – Colorado Springs, Nashville and Phoenix that are large but not among the biggest multifamily markets saw more pronounced retractions.

Another group of markets that performed worse for rent growth were mostly smaller areas that have a large share of energy and/or healthcare jobs or travel destinations like Orlando, Palm Beach and Honolulu.

Overall, 60% of markets around the county came in somewhere between -0.8% and 0.4% for stabilized effective rent growth in April and May. With the quarter just about to wrap up, we’ll soon have the added clarity of June numbers to see how specific areas are responding to the challenges of the day.