Increasing Rent, Occupancy Rates Spark Hope of Multifamily Recovery
Some multifamily landlords are becoming more optimistic about a steady recovery from the pandemic as rising rent and occupancy rates in their buildings reflect some of the strongest rental rate growth and rent collection rates nationally in more than a year.
Sean Burton, CEO of Los Angeles-based multifamily developer and investor Cityview that focuses largely on the Western United States, said that, throughout the bulk of his company’s portfolio, the need to offer concessions has either slowed or stopped. The company has also been able to increase gross rents, albeit slowly, in most of its markets.
“It’s been a great bright spot, because rents have been going the wrong way for nine months,” Burton told CoStar News.
The sentiment echos a national trend for apartment rental rates that increased 2.1% at the end of March from a year earlier, a figure that is well above seasonal trends and about 100 basis points ahead of the average first-quarter gains in 2017, 2018 and 2019, according to CoStar Group. Meanwhile, about 79.8% of U.S. apartment renters made full or partial rent payments as of April 6, a 1.9% increase from the year-earlier period, according to trade group National Multifamily Housing Council.
These fundamental improvements could mark a turning point for a national apartment market that struggled throughout much of 2020 with declining demand, falling rental rates and absorbing new multifamily construction. Furthermore, apartment landlords in big cities and downtown cores suffered from many residents’ flight to the suburbs, while suburban landlords still weren’t immune to the challenges of the vast unemployment and job insecurity that faced their residents.
That trend seems to be beginning to change now as economies begin reopening and vaccine rollouts accelerate. New data from CoStar Group shows that, across suburban and urban property types, the pace of apartment rent growth now on an annualized basis would eclipse an average year’s rent growth by more than 4%.
The industry is by no means out of the woods yet. Rent collection this month is still slightly below the 82.9% of renters who had made either full or partial rent payments by April 6, 2019, before the pandemic. That indicates that there’s far more room for improvement for owners.
Even so, this April’s 79.8% rent collection figure is above the more typical collection rate since March last year, according the NMHC trade group. It is also not far from the 80.8% collection rate in June last year, which was the best month for rent collection since the health crisis began.
Cityview focuses on large and emerging markets on the West Coast, with the bulk of its projects in Los Angeles, San Diego, San Jose and other California cities that had benefited from the region’s tech boom but have largely struggled in the pandemic.
Its properties in the Bay Area are experiencing particularly strong growth, though that’s largely because of the steep drops those markets weathered in 2020 when many residents sought cheaper and more spacious housing elsewhere.
“We see a lot of people moving back to the Bay Area in anticipation of being back in their offices,” Burton said, citing Silicon Valley tech giant Google’s recent decision to partially open its offices in April.
In Los Angeles, Burton said the company’s portfolio is 97.25% occupied, a higher-than-average figure for Cityview, he said.
Karlin Conklin, principal and executive vice president at Investors Management Group, said the company is seeing a similar recovery. The company, which has closed $1 billion in multifamily investments since 2010, owns and manages 3,900 apartment units across the nation.
But rather than focusing chiefly on raising rents, Conklin said the company is devoting more resources to maintaining and even raising its portfolio’s overall occupancy, which typically has a bigger impact on overall income.
“Overwhelmingly, the properties are looking better. They are looking healthier,” Conklin told CoStar News. “But it is truly more about occupancy.”
Much of the Woodlands Hills, California-based company’s properties are located in strong Sun Belt markets like Atlanta, Georgia, and Raleigh, North Carolina, so those regional economic recoveries have spilled into their respective multifamily markets, she said.
“We are 100% bullish on multifamily,” Conklin said. “We know that we are starting to inch out of this pandemic, but we are nowhere near the other side yet.”