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National Multifamily Demand Dramatically Increases in Q3; Big Cities Surging
By The ArborCrowd Team
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Multifamily Investments
Big cities are experiencing a substantial resurgence in renter demand after being hampered by the COVID-19 pandemic in 2020.
Expensive rents coupled with the effects the virus had on work and recreation forced many residents to relocate from the big metro areas to more affordable parts of the country. However, renters are returning to big cities in droves.
Most of these cities are experiencing double-digit rent growth, according to Zumper's October 2021 rent report. New York, which absorbed 24,800 units during the third quarter of 2021, earned the top spot among all U.S. metro areas, according to RealPage, Inc. This surpassed Dallas-Fort Worth's 19,000 units as well as Los Angeles, Houston, Washington, D.C., and Chicago, which absorbed more than 10,000 units each. RealPage defines absorption as the change in the number of occupied apartments.
Due to the resurgence of apartment demand in big cities, nationwide apartment absorption figures in the third quarter reached an astounding 255,094 units, which was the largest quarterly result since this metric was first recorded in the early 1990s, according to RealPage.
This pace of absorption is meaningful for several reasons including:
It represents a nearly 75% increase from the absorption of 146,517 units reported during the same period in 2020.
It surpassed the average annual absorption level of approximately 250,000 units achieved from 2010 to 2020 — in just one quarter.
For the 12 months ending in Q3, 597,354 units were absorbed, which easily outperformed the prior peak set with the 12 months ending in Q3 2018 of roughly 380,000 units.
Young Adults, Record Home Prices, and Supply Constraints Help Boost Multifamily Rental Demand
The unprecedented absorption rates are being fueled by the surging demand for rental housing, which stems from various factors, such as:
Young renters returning to cities
Limited supply of homes
The unaffordability of for-sale homes
When the pandemic began in 2020, droves of young adults left their city apartments and moved back home with their families. Many of these young renters are once again looking to rent their own apartments, according to The Wall Street Journal. Bolstering this decision is the availability of more reasonably priced apartments in traditionally high-priced big metros, which is also attracting recent college graduates.
Another byproduct of the pandemic was the shrinking of housing inventory and increase in housing prices. As people realized they would be social distancing for an indefinite period in which they would be working from home, many decided to buy homes affording them more space and privacy.
The demand was so great that 74% of new homes sold during the 12-month period ending in September 2021 were still under construction or haven't been started yet, according to the Census Bureau. Adding to the supply constraints, many homeowners aren't listing their homes for sale because they are afraid it would be difficult to find a new house, according to The Wall Street Journal.
This lack of inventory has also caused the acceleration of home prices across the country. The median sales price of new homes hit $408,800 in September, an 18.7% increase from a year earlier, according to the Census Bureau. The low inventory and jump in home prices made homeownership out of reach for many, causing them to become or remain renters.
These factors suggest that there may continue to be pressure in the for-sale housing market for the foreseeable future, potentially resulting in a tailwind for investment in the multifamily real estate housing market and the continued high demand for rental units. Institutionally operated single-family rentals (SFR) and build-to-rent (BTR) communities in particular stand to benefit from increased renter demand as they provide the space and privacy that homes can offer, and amenities on par with luxury rentals.
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