Recent reports show that the multifamily sector continues to perform well - except in densely-populated urban areas. Urban apartment rent prices fell, and vacancy rates rose across the nation in Q3 in response to the continuing pandemic.
What’s behind this drop in urban apartment rent prices? And can the multifamily sector survive in our nation’s cities?
Urban Apartment Rent Prices Continue a Downward Trend
As we near one year since the pandemic started in the U.S., multifamily property owners and property managers continue to feel the sting. Urban renters are leaving their apartments in record numbers, leaving thousands of empty units across the nation.
Even the hottest markets like San Francisco and New York City have seen dramatic vacancy increases year over year. Property owners and property managers are struggling to secure new tenants. Some are dropping rent prices, increasing amenities, and offering unprecedented concessions to draw in renters.
In San Francisco, urban apartment rent prices are down 31% compared to last year, the most significant drop for any city in the country. But San Francisco isn’t the only place struggling. From coast to coast, vacancies are on the rise in urban core areas.
What’s Causing Tenants to Leave Cities?
Several factors are impacting the exodus away from urban apartments and toward suburban areas.
First, job loss and economic uncertainty force many city-dwellers to leave their expensive downtown apartments and seek more affordable housing. Some young professionals are moving back home, unable to afford urban apartment rent prices.
Second, more Americans than ever are working from home. Our homes are now our living spaces, offices, classrooms, restaurants, and entertainment areas. Similarly, the downtown social scene – restaurants, bars, nightlife, and entertainment options – aren’t open or are severely limited due to health restrictions. Without a need for a short commute, and with nothing anchoring them to the city, tenants choose to move to suburban multifamily properties or single-family homes that offer more space.
Third, there’s a worldwide health crisis. We know the virus spreads in tight, highly-populated spaces. Therefore, some renters are moving simply out of concern for themselves and their loved ones. Apartment lobbies, elevators, and other close quarters mean urban apartment-dwellers could have increased exposure.
Finally, when the Federal Reserve cut interest rates early on in the pandemic, that triggered many mortgage lenders to drop rates in turn. Right now, mortgage rates are some of the lowest in recent history, making this the ideal time to purchase a home. Home sales are up about 21% over the same time period last year, making this the biggest housing boom we’ve seen since 2006. For those urban renters looking for more space, the dream of homeownership might finally be a reality.
Urban Multifamily Building Projects Continue
Even as urban apartment rent prices fall and vacancies rise, developers continue building in downtown areas. Despite the economic slowdown, multifamily construction in the nation’s largest market continues. However, most are luxury apartments, and they’re now competing for a small pool of available tenants. As a result, urban luxury apartments are offering concessions to entice tenants. Consequently, Class B and Class C properties will have to follow suit if they hope to maintain occupancy.
Multifamily Property Management Amid a Crisis
Investors, owners, and property managers face a challenge as tenants leave the urban core for more affordable and spacious living. We don’t know what the future holds for multifamily properties in these markets, which understandably has CRE professionals on edge.
Multifamily property management is just another challenge we must address during the COVID-19 crisis. We must adapt to the circumstances, offer incentives to current and potential renters, and maintain a healthy environment for both tenants and staff. Even as urban apartment rent prices continue to fall, there are ways to increase occupancy and continue to make your business successful.
There’s reason to hope. Some projections see a brighter future ahead for the urban multifamily sector. Once we learn to contain the virus and slow its spread, experts say the economy will rebound. And that’s great news for investors and property managers, if we can just hang on until then.
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