Multifamily Investment Sales Broker at Marcus & Millichap
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Randolph Taylor
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Over the past year, many of us at RealPage have referred to the date as Tom Hanks Day, since it’s when America’s Dad shared that he and wife Rita Wilson had contracted the virus. It’s also when the NBA shut down pro-basketball play and when the World Health Organization first classified what was happening as a global pandemic.

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As with so many things, then, the U.S. apartment market entered a fundamentally different period one year ago today.

Starting on March 12 and then proceeding through most of April, many apartment renters froze in place. Searches for new accommodations dropped drastically from year-earlier levels, and new-resident lease signings plunged. At the same time, retention of existing renter households at initial lease expiration soared to record heights. Said bluntly, people stopped moving and hunkered down.

One year later, key stats for the apartment market are in much better shape than what was initially feared back in March 2020.

Demand Is Robust

After apartment leasing activity took a giant hit in Spring 2020, people began to move around once more around mid-year. Apartment demand soared in the 3rd quarter and held well above what’s seasonally normal as 2020 drew to a close. By the end of the year, absorption of market-rate units in the country’s 150 largest metros was up to roughly 296,000 units, only a hair under annual results in 2017 through 2019.

Demand remains above the seasonally typical volume in the first few months of 2021. More than 30,000 units were absorbed in January and February, a time period when cold weather normally limits the net increase in occupied apartments to just a handful of units.

With demand proving stronger than many expected, U.S. apartment occupancy has avoided any damage. The February 2021 average occupancy rate of 95.4% for the U.S. is basically unchanged from the February 2020 figure of 95.5%.

Renters Are Paying (Mostly)

Unprecedented layoffs in March and April 2020 triggered fears that many households would no longer be able to pay their rent. That didn’t happen, at least not in the professionally managed apartment properties sector of the rental housing stock.

According to National Multifamily Housing Council research – to which RealPage contributes data – the share of households meeting their rent obligations ranges between 93% and 95% for each month since the initial U.S. outbreak, in most months off no more than 2 percentage points from year-earlier results.

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While a now-improving economy might suggest that the worst is behind us for missed rent payments, there’s still some downside risk. Households suffering financial stress certainly need the rental assistance that is part of the Biden administration’s American Rescue plan. However, RealPage analysts have concerns that forgiveness of back rent owed could lead households to deprioritize meeting their rent payment obligations.

Pricing Power Is Mixed

Effective asking rents for new-resident leases generally dropped as COVID emerged, sliding a little in most locations but much more in select spots, especially expensive gateway cities.

How you feel about today’s pricing power is influenced by where you are, since there’s a huge spread in the results between the country’s top and bottom performers. Annual rent growth is great in metros like Riverside, Sacramento, Phoenix, Tampa, and Atlanta. On the other hand, the hole remains deep in New York and the Bay Area, and there’s also lots of work to do in Seattle, Boston, Washington, DC, and Los Angeles.

In the latest stats, month-over-month rent growth proved very solid during February. Markets that had displayed momentum previously are continuing to do quite well, and green shoots are beginning to show up in the places that had taken the biggest pricing hits earlier.

We’re Still Building

Lots of apartment product remains on the way. Ongoing construction coming into 2021 totaled roughly 583,000 market-rate units, and this year’s scheduled deliveries reach just over 400,000 units, surpassing annual additions delivered throughout the past few years.

The activity has cooled off a little over the course of the past year, with both starts and new multifamily building permit approvals down by 10% to 15%. Still, that’s a minor dip compared to what happened in the 2008 to 2009 recession, with the numbers remaining high by long-term historical standards.

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Developers remain eager to build in the suburbs, especially across fast-growing Sun Belt areas. While there’s less capital available for urban core construction, don’t write off that segment of the stock. Conversations about building more downtown towers are in process, as a project that gets going in the immediate future is likely to be delivering in a much-improved leasing environment.

Property Trade Volumes Are Coming Back

Information from Real Capital Analytics shows a moderate decline in the nation’s apartment sales volume during 2020, mainly reflecting that trades paused during the summer months. There was a brief period when many took a wait-and-see position, holding off until some clarity on valuations could be established. However, sales came roaring back during the final quarter of 2020, and the typical sales price – about $176,000 a door – basically didn’t move from its pre-pandemic level. Cap rates even compressed by another couple of ticks during the course of the year.

The stack of capital available for apartment investment remains huge, probably even bigger than it was pre-pandemic as some money that had been designated for other types of real estate now could go to apartment buys. Anyone on the sidelines waiting for fire-sale prices on distressed assets appears to be out of luck, with maybe the exception of a few small properties with mom-and-pop owners.

Operations Continue to Evolve

Apartment operators had to move fast to adapt to the changes that COVID brought to day-to-day practices on-site and in the back office. After addressing safety issues for both employees and residents, the first moves often were to introduce or expand virtual leasing capabilities and to address rent payment options.

Lots of changes continue, as operators are assessing how their resident profiles are evolving and how the needs and preferences of their customers are shifting. The use of technology to move processes offsite is accelerating, and many operators are taking a hard look at expenses and how those costs might be trimmed.

Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor
Latest posts by Randolph Taylor (see all)

 

Apartment leasing appears to be on the rebound.

The indicator showed signs of improvement in the third quarter, according to a new report from RealPage, and other recent data also showed healthy activity in the space, possibly pointing up the beginnings of recovery for the second half of 2020.

Greg Willett, chief economist at the real estate technology and analytics firm expressed cautious optimism. “While the US economy has a long way to go before it’s fully healed, there’s enough job production to allow new household formation to return in some areas, so apartment demand is back,” he said in prepared remarks.

Occupied apartments climbed by nearly 147,000 units, outpacing absorption in the second quarter by more than four times. Even more promising, demand in Q3 increased by 8% year-over-year.

This research comes on the heels of AppFolio data that also found improvement in apartment leasing after the first six weeks of the pandemic, following a sharp decline during the early days of COVID-19’s arrival in the US.

“At the outset of the pandemic, as people adjusted to stay-at-home orders and physical distancing mandates across a number of states, our early data suggested a significant decrease in lead volume,” said Stacy Holden, industry principal and director. “However, after about six weeks, leasing activity largely rebounded to expected levels. People still want to move to places that meet their needs.”

Societal trends, such as the surge in both working-from-home and remote learning, also drove leasing up. “With many people having had the ability to work remotely this year, the need to live close to the office may have diminished for some,” she explained.

Still, other metrics for recent apartment activity paint a mixed picture.

US effective asking rents as of the third quarter are off 1.2 percent from the rates seen a year earlier, according to RealPage. More recently, the ApartmentList reported that rents have dropped in nearly half of the nation’s top 100 markets.

 

Source: GlobeSt By Rayna Katz | October 02, 2020, at 07:18 AM

Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor
Latest posts by Randolph Taylor (see all)

About six weeks into the pandemic, leasing activity returned to normal levels, but the leasing process has changed.

The pandemic immediately impacted apartment leasing activity, but about six weeks into the pandemic, leasing activity rebounded to normal levels. Quarantine, distance learning, and work-from-home policies encouraged people to move to more accommodating homes, driving leasing demand. However, the leasing process has changed since the onset of the pandemic, and those changes—virtual leasing—will take longer to return to normal.

“At the outset of the pandemic, as people adjusted to stay-at-home orders and physical distancing mandates across a number of U.S. states, our early data suggested a significant decrease in lead volume,” Stacy Holden, industry principal and director at AppFolio, tells GlobeSt.com. “However, after about six weeks, leasing activity largely rebounded to expected levels—there are geographic differences as the timing of the impacts of the pandemic vary, but people still want to move to places that meet their needs. In fact, one could argue that the experience of quarantining at home for so many months has led many renters to seek out their next home, eager to get a change of scenery or something better suited for their new normal.”

In addition to changes in lifestyle, like work-from-home and remote learning, which created demand for larger spaces, many people also had the flexibility to move further away from work to more affordable markets. This trend, again, drove leasing activity. “With many people having had the ability to work remotely this year, the need to live close to the office may have diminished for some,” says Holden. “Without it, it may have encouraged some people to find homes in less densely populated areas, outside of urban centers, ultimately increasing leasing demand in the suburbs and decreasing it in major cities. Additionally, urban areas that are home to many colleges and universities are seeing increased vacancies due to students not coming physically back to school this semester.”

However, it is more challenging to lease units today than it has been in the past. “Pandemic or not, vacancies will always occur. The problem is not that units are sitting on the market without movement—the demand is still there in many regions—the problem so far is that it is simply harder to move the leasing process forward in a remote reality,” says Holden. “But in any case, now is the time for property managers to prepare their operations to succeed in any market conditions.”

This change in the leasing process has been more of a disruptor than the abrupt drop in leasing activity at the start of the pandemic. “Leasing has always been an in-person process, so the shift to physical distancing is a major disruptor to the way the industry has historically converted leads into new residents,” says Holden. “This is the biggest trend in leasing during the pandemic—a monumental shift to conducting leasing activity virtually. It is also a trend that we actually anticipate remaining for the long term, given the flexibility and convenience it provides prospective residents and leasing agents alike.”
Source: GlobeSt.com By Kelsi Maree Borland | September 22, 2020, at 02:00 PM