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Winter 2021: The Resilient Apartment Sector Enters an Uncertain Year

U.S. Apartment Market

After exhibiting signs of revitalization during Q3, the apartment market ended 2020 with a mixed performance. Both occupancy and rents descended, yet absorption stood closer to pre-pandemic levels. Difficulties from the coronavirus pandemic and typical seasonality challenged market fundamentals. As reported by RealPage, U.S. occupancy dropped slightly by 0.2 percentage points year-over-year to 95.6%, although returning to the same rate as Q1 2020. Occupancy declines varied also from market to market. According to REIS, Lexington, Albuquerque, New Haven, Dayton and Wichita were among the strongest markets for occupancy growth year-over-year. Meanwhile, Washington, D.C, Louisville, Fort Lauderdale, Fairfield County (Conn.) and Raleigh saw the highest increases in vacancy.

Rental rates further declined as properties competed against each other for the shrinking pool of renters. Effective and asking rents averaged $1,383 and $1,453, respectively, both falling 1.4% since Q4 2019. Comparing 2020 to 2019, rent growth fell by an astonishing 3.1%. The robust drive toward smaller markets persisted given that many renters have chosen to migrate away from major markets. According to REIS, Lexington, Memphis, Chattanooga, Las Vegas and Sacramento ranked highest for rent growth. Major East and West Coast markets such as San Francisco, New York City, San Jose, Washington, D.C. and Oakland continued their downward trends for rent growth. However, there is optimism that the rollout of the vaccine and subsequent economic boost will restore multifamily demand for some gateway markets. RealPage projects that rental rates will likely return to pre-pandemic levels by the end of 2021, and then begin to increase by the end of 2022.

Apartment demand delivered a remarkably solid performance during the fourth quarter given the challenges of 2020. The fourth quarter brought total annual absorption to 344,380 move-ins, higher than the 2019 quarterly average of 279,494 move-ins. RealPage reports that Dallas, Atlanta, Houston, Phoenix, Denver and Charlotte led the nation for apartment demand during 2020. New construction totaled 296,115 annual units, below the 2019 quarterly average of 325,801 units. Since many delayed projects from 2020 are near completion, more than 403,600 units are expected to come online during 2021. 

According to the U.S. Census Bureau, the seasonally adjusted annual rate for multifamily construction starts in December 2020 amounted to 312,000 units, a considerable decline of 40% year-over-year. Alternatively, total deliveries increased by 5% to 422,000 units. Multifamily building permits decreased 7.8% to 437,000 units. The top-ranking markets for permits issued during 2020 included New York (40,283 units), Houston (15,796 units), Austin (18,799 units), Los Angeles (15,796 units) and Dallas (15,133 units).

U.S. Capital Markets

Multifamily investments rallied at the end of the year. According to Real Capital Analytics, 6,945 properties totaling 325,345 units sold during the quarter for $55.4 billion. This was a considerable improvement in activity from the previous quarter. However, the fourth quarter still revealed a decline of 27.1% in investment sales activity compared to Q4 2019. The average price per unit increased to $188,477, up by 2.6%. The average cap rate was 5%, down by 113 basis points. Garden-style asset sales totaled $36.2 billion during Q4 2020, while mid-/high-rise properties totaled $19.2 billion. Dallas, New York City, Los Angeles, Atlanta and Phoenix were the leading markets for deal activity during 2020. Radco Companies pulled off the biggest deal of the fourth quarter. The real estate developers sold four properties to Sunstone Properties Trust, Phoenix Realty Group, Bridge Investment Group and TruAmerica Multifamily totaling 1,656 units for a combined $242.8 million. The properties that were traded are garden-style assets located throughout Florida markets.  U.S. Economy

Although GDP rebounded nicely in the fourth quarter, the labor market continued to struggle. After job declines numbering 227,000 in December, just 49,000 jobs were added in January. That leaves 10 million jobs lost to the pandemic, half of which are expected to be permanent, according to Moody’s Analytics. The retail trade and leisure/hospitality industries have been disproportionately impacted during the pandemic. During the past three months (November-January) leisure/hospitality has shrunk by 587,000 positions as total non-farm payroll employment across the U.S. increased by 86,000. The unemployment rate in January dropped to 6.3% due both to the job additions as well as a decline in the number of people in the labor force. 

Weekly filings for unemployment also showed no signs of a turn-around, with initial claims consistently above the highest pre-pandemic levels. As of mid-January, approximately 17.8 million people were filing for some sort of unemployment benefit compared to only 2.1 million a year prior.

The good news heading into February was that COVID-19 cases and hospitalizations were down, while the bad news came by way of new variants spreading, some of which may be vaccine-resistant. As with many indicators throughout the pandemic, there is a wide range of variance among sectors and geographies. The Moody’s/CNN Business Back to Normal Index tracks 12 high frequency data series plus monthly employment figures, using February 29, 2020 as the baseline for “normal.” At the national level, the daily index ranged between 81 and 82 for nearly a month as overall activity died down after the holidays and inclement weather kept many indoors. The discrepancies and activity were evident in state-level data, with Florida operating at nearly 92% of normal levels while New York lagged at 70%. It is important to note that while uncontrollable factors such as weather affected the Index, so too did various levels of state and local restrictions, vaccine distribution, COVID-19 cases and basic demographics.


The vaccine rollout, despite its many limitations, along with the $900 billion stimulus package passed at the end of 2020 brought optimism to business leaders, economists and analysts. Many organizations, including the Board of Governors of the Federal Reserve System, lifted their GDP forecasts and lowered their unemployment rate forecasts for 2021 and 2022. There seems to be little doubt, however, that the first quarter of this year—perhaps extending into the first half—will be challenging as the virus remains largely uncontrolled.

The rental housing industry also remains bifurcated with many of the market indicators discussed in this report mainly reflective of larger, institutional-grade, professionally managed properties that overshadow the plight of small, independent owners. Without more assistance from government and other entities to help cover rent shortfalls amid eviction moratoria, these owners could be forced out of business. And should the economic recovery slip, these impacts could easily bubble over into larger segments of the market.

Paula Munger, Assistant Vice President of Industry Research and Analysis and Leah Cuffy, Research Analyst are both from NAA.

February 24, 2021
Apartment Market Pulse
Divergent Performance During the Pandemic

U.S. Apartment Market

Although apartment fundamentals in the second quarter revealed the economic effects of the Coronavirus pandemic, solid demand during the third quarter signaled the beginning of a recovery. According to RealPage, national occupancy fell by 0.6 percentage points year-over-year, albeit improving by 0.2 percentage points since the previous quarter. Job growth and pent-up demand fueled leasing activity. REIS reported that Buffalo, Albuquerque, Lexington, Dayton and Wichita were the strongest markets for occupancy growth year-over-year.

National effective rent during the third quarter averaged $1,417 per month, a decline of 1.9 percent compared to Q3 2019. Lower-priced markets persisted in outpacing major markets. According to RealPage, rent growth leaders included secondary markets such as Riverside, Sacramento, Virginia Beach, Greensboro and Memphis. Gateway markets like San Francisco, San Jose, New York City, Boston and Los Angeles continued to experience steep rent decreases.

Annual completions of 323,921 units outpaced the 197,462 units absorbed during the quarter. Although this marks the second consecutive quarter supply outweighed demand, the gap is begging to close. In September markets with the highest completions included New York (29,337), Houston (15,811), Austin (14,945), Dallas (11,405) and Miami (11,392).

Census reported the seasonally adjusted annual rate for multifamily construction starts in September was 390,000 units, a significant decline of 22.2 percent compared to the same time last year. The number of multifamily permits also weakened, decreasing to 390,000 units from 501,000 units from the year prior. Deliveries, however, increased dramatically by 79.1 percent to 480,000 units compared to September 2019.

U.S. Capital Markets

Multifamily investments have also begun to show signs of a recovery in Q3 2020. According to Real Capital Analytics, closed transactions for apartment property sales totaled $23.3 billion. This represented a 50.2 percent decrease year-over-year yet improving by 17.0 percent since Q2 2020. The average price per unit stood at $163,485, falling by 6.7 percent. Although price appreciation has slowed since the beginning of the pandemic, investors are still realizing the values of apartments despite decreasing rents and reduced transaction volume. Investors exchanged nearly 147,535 units, a 50.3 percent decline from the previous year. The average cap rate was 5.3 percent, down by 27 basis points. Individual property and portfolio sales volumes were down 52.6 and 37.9 percent, respectively, compared to the previous year.

U.S. Economy

After dropping by a record 31.4 percent in Q2 2020, Gross Domestic Product (GDP) rebounded in Q3, increasing 33.1 percent but only recovering 75 percent of the losses. Consumer spending was responsible for most of the gains while trade and government spending, with no new stimulus packages and state and local government output declining, negatively impacted GDP.  

The employment picture continued to improve, but the pace of growth has started to slow. With 638,000 jobs added in October, the U.S. remained 10 million jobs behind February’s level. The unemployment rate fell by one full percentage point to 6.9 percent. Initial claims for unemployment remained persistently high, averaging 784,000 per week in October, above the highest pre-COVID level. Continuing claims for unemployment have been on the decline, however, some of which is attributable to re-entrants into the job market, but much of it a result of expiring benefits.

Labor market conditions varied widely by geography and sector, with a 10-percentage point difference in unemployment rates among the 50 largest metropolitan areas and Washington, D.C. Cities that rely on tourism and convention business as well as entertainment still had double-digit unemployment rates as of September, with Las Vegas (14.8 percent) and Los Angeles (13.6 percent) at the bottom. Half of the top 10 metros for low unemployment rates were in the Midwest. Kansas City and Oklahoma City were tied for the lowest unemployment rates at 4.9 percent.

As for sectors, winners and losers were often in the same sector, such as transportation/warehousing and retail trade. Employment in transit/ground passenger transportation was down 24.4 percent year-over-year while courier/messenger jobs ballooned by 14.1 percent. Similarly, in retail trade, employment in building material/garden supply stores was up 7.2 percent while employment in clothing/accessories stores contracted 24.3 percent.

The single-family housing market has led the recovery with many indicators breaking records as they returned to pre-pandemic levels, exhibiting a V-shaped recovery and then some. The National Association of Home Builders’ Index has seen record highs month after month in builder confidence in current and future conditions. Both new and existing home sales surged immediately after lockdowns were lifted in the spring and have stayed elevated through October, while prices for existing homes have witnessed double-digit growth for three consecutive months, according to the National Association of Realtors. With housing supply at an all-time low and increased costs for materials and labor both impacting prices, prospective buyers may soon be shut out of the market, dampening the feverish pace of growth. 


Recent news about COVID-19 vaccines potentially being available to the most vulnerable populations by the end of the year bodes well for a stronger recovery in 2021. However, without additional fiscal stimulus, more business failures can be expected in addition to eroding household balance sheets, particularly for the millions who remain unemployed and face expiring benefits in the coming months.

The outlook for the apartment sector will vary widely by asset type and especially geography. Higher-end apartments in large coastal cities have already taken a hit on rents and occupancy and continued weakness can be expected until there are large-scale re-openings of businesses and services. More affordable properties in smaller cities and suburban locales should fare better in the short-term, but again, a lack of fiscal stimulus could easily upend that expectation.

December 7, 2020