Apartment demand rebounded in the nation’s gateway markets in 2nd quarter, after fundamentals in these regions suffered throughout much of the past year.
U.S. apartments saw a burst in renter demand in 2nd quarter 2021, logging higher absorption than the nation has seen since RealPage began tracking the market back in the early 1990s.
While the Sun Belt markets – areas that have proven resilient throughout much of the COVID-19 pandemic – accounted for a sizable portion of the nation’s recent demand comeback, gateway markets also logged notable apartment absorption. This recent performance in gateway markets countered the declines these more expensive markets saw throughout much of the past year when deep job losses and population declines resulted in rising vacancy rates and price cutting measures.
Los Angeles/Orange County
The California market Los Angeles/Orange County absorbed over 12,000 apartments in 2nd quarter, marking the second strongest showing in the nation, after only Dallas/Fort Worth. This quarterly tally accounted for roughly half of the annual demand volume of over 23,880 units, the nation’s third-best performance after Dallas/Fort Worth and South Florida. This recent performance in Los Angeles/Orange County was quite a turnaround after this region logged annual net move-outs in 2020’s 2nd and 3rd quarters, as the job base dwindled and residents left the area for less pricey locales. At the same time, construction levels remained elevated in this area, especially in the Los Angeles urban core.
Solid 2nd quarter demand made up for previous losses, pushing occupancy in Los Angeles/Orange County to 96.6% as of June, a rate that is back in line with the national average after falling to a low of 95% in June of last year. Apartment operators responded to rebounding occupancy by pushing rents by 3.5% in the year-ending June. While still only rising at about half the level of the national norm, rent growth in Los Angeles/Orange County is quite a change from the price cuts that got as deep as 5.1% not long ago in October of 2020.
Chicago absorbed over 10,000 apartment units in 2nd quarter, making up for some net move-outs seen earlier in the pandemic and taking annual demand to over 7,300 units. Apartment occupancy climbed 110 basis points (bps) in the past year to stand at 95.6% in June. While still behind the national norm, that is the strongest performance Chicago has seen since August of 2019. In the year-ending June, effective asking rents grew 2.3%. While this performance was still well behind the national average, it was the first time Chicago saw the return of rent growth since annual price cuts started back in May 2020.
In the South Florida markets of Miami, Fort Lauderdale and West Palm Beach, apartment demand came in at roughly 9,710 units in 2nd quarter, pushing annual demand to 24,120 units, the second-biggest volume nationwide following only Dallas/Fort Worth. Annual apartment demand in this region never did fall into negative territory but did soften to just 3,960 units as of 2nd quarter 2020. Occupancy growth in the past year was some of the best in the nation, growing 240 bps to 97.1% as of June. Rent growth was also a top national performer, with prices hiking 11% in the year-ending June.
Washington, DC absorbed over 8,100 apartments in 2nd quarter, accounting for most of the market’s annual demand volume of over 9,750 units. While apartment demand here never did fall into negative territory, it did fall well behind concurrent completion volumes, which are some of the most aggressive nationwide. Occupancy has rebounded slightly, hitting a few ticks ahead of the five-year average at 95.8% in June. While annual rent growth in Washington, DC seems insignificant at just 0.1%, this was the first time price increases returned after rent cuts were the norm for this market for since May 2020.
The three Bay Area markets of San Francisco, San Jose and Oakland logged sizable quarterly demand for 7,920 units, making up the bulk of annul demand of 8,380 units. The return to solid demand was especially significant for the Bay Area, which was one of the worst-suffering markets during the deepest declines of the COVID-19 pandemic. At its worst, annual net-move outs in the Bay Area got as deep as 5,530 units in 2020’s 3rd quarter. The return of positive demand pushed occupancy up to 95.1% in the Bay Area in June. While that figure is a bit behind the region’s five-year average, it is well ahead of the low point of 93.6% logged as recently as February 2021. The Bay Area is one of only a handful of regions in the nation where rent change has not made it back to positive territory just yet. Prices were cut 5.9% year-over-year as of June, though that is notably better than the double-digit rent cuts the region was seeing just a few months ago.
New York – another expensive gateway market where apartment fundamentals were hard-hit by the COVID-19 pandemic – saw a significant rebound in demand in 2nd quarter, when over 7,000 apartment units were absorbed. While healthy quarterly demand made up for some of the net move-outs seen earlier in the pandemic, however, annual absorption remained negative, with a loss of over 25,000 units, on net. While demand boosted occupancy to 95.9% as of June, well ahead of the low point from February, this rate was still 100 bps below the year-earlier showing. Thus, New York is the only major market where occupancy is still down year-over-year. Rents are also still being cut on an annual basis as well, but cuts of 8.4% are much better than the annual declines that got as deep as 15% not long ago in March 2021.
In the April-June time frame, Seattle absorbed nearly 5,900 apartment units, accounting for a sizable portion of the 7,260 units of demand seen in the year-ending 2nd quarter. This annual showing was close to hitting the market’s five-year norm, and nearly matched concurrent supply volumes for the first time since 1st quarter 2020. Seattle apartment occupancy climbed to 96.1% in June, notable progress from the recent low of 93.8% logged at the end of 2020. Seattle didn’t see rent cuts get as deep as what was seen in the Bay Area and New York in the COVID-19 era, but this market has also yet to pull itself out of price decline. As of June, effective asking rents were down a modest 0.3% year-over-year. This is the mildest annual decline this market has seen since operators turned to price cuts in July 2020.
To learn more about the data behind this article and what RealPage has to offer, visit https://www.realpage.com/.
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