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Research Reflections
Apartment Market Pulse: Spring 2021

Optimism Springs Eternal

U.S. Apartment Market

Rising rental rates and rampant leasing activity during Q1 2021 indicated that the multifamily housing market is turning a corner. Pent-up demand driven by employment growth and the widespread distribution of the coronavirus vaccine was evident. Increasingly, more renters are becoming comfortable with moving to a new apartment home. According to RealPage, effective rental rates moved from $1,411 in Q4 2020 to $1,421 during Q1 2021. Lower-cost markets with limited apartment stock continued to thrive and outperform major markets. As reported by REIS, San Bernardino, Chattanooga, Memphis, Sacramento and Lexington recorded the highest effective rent growth levels during the first quarter. While gateway markets are starting to see hints of a bottoming pattern emerging, they are still among the nation’s laggards for rent growth. San Francisco, New York City, San Jose, Washington, D.C. and Oakland posted annual rent growth declines ranging from -6.6% to -14.8%.

Despite robust demand, apartment occupancy did not see any gains. Instead, occupancy levels inched down 0.1 percentage points to 95.5%. This signals that concessions offered by apartment owners attracted more existing renters than prospective renters. Properties tracked by Entrata reported that concessions were nearly 30% higher year-over-year as of February. According to REIS, Columbia, Greenville, Salt Lake City, Albuquerque and Knoxville were the leading markets with shrinking vacancy rates year-over-year. Markets that posted the greatest increases in vacancy included Washington, D.C., Charleston, Minneapolis, Raleigh and Louisville.

Similar to Q4 2020, apartment demand kicked off 2021 with repeated strong performance. RealPage reported that 353,453 annualized units were absorbed, far outpacing the 315,789 units that came online during Q1 2021. Sun Belt markets including Dallas (3,566 units), Miami (3,227 units), Austin (2,923 units), Orlando (2,593 units) and Phoenix (2,462 units) recorded the greatest absorption.

According to Census, the seasonally adjusted annual rate for multifamily construction starts in February 2021 amounted to 372,000 units, a decline of 27.6% percent year-over-year. Units completed increased slightly by 2.8% to 314,000 units. Multifamily building permits significantly increased by 24.1% to 495,000 units. The top-ranking markets for permits issued during February 2021 included New York (6,821 units), Austin (5,206 units), Los Angeles (3,562 units), Washington, D.C. (3,464 units) and Dallas (3,284 units). With 652,000 multifamily units in the pipeline across the U.S, competition for renters will continue to be fierce, particularly among the class A stock.

U.S. Capital Markets

Apartment deal volume began the new year at muted levels. As reported by Real Capital Analytics, closed apartment sales transactions during Q1 2021 totaled $25.1 billion, down 36.6% from the same time last year. Investors exchanged 154,000 units, 38.2% less than February 2020. Multifamily values remained steady; the average price per unit increased to $182,300, up by 4.9%. The average cap rate was 4.9%, down by 45 basis points. Garden-style asset sales totaled $17.9 billion during Q1 2021, while mid-/high-rise properties totaled $7.9 billion. Los Angles, Phoenix, Dallas, Atlanta and New York City were the top markets for deal activity during the first quarter. Morgan Properties and Olayan Group partnered together for a massive transaction, acquiring 14,414 units in 11 states for $1.7 billion from STAR Real Estate Ventures.

U.S. Economy

In March, the Employment Situation Report published by the Bureau of Labor Statistics (BLS) turned in its strongest performance since the height of last summer with 916,000 jobs added. Upward revisions to January and February translated into an additional 156,000-job gain. Pandemic job losses remained elevated at 8.4 million. Initial claims for unemployment also remained high by historical standards, but have begun to moderate somewhat, coming in below 750,000 for three consecutive weeks ending April 3.

BLS job openings data for February also revealed a revitalized labor market as states and jurisdictions began lifting restrictions amid increased vaccinations. Just under 7.4 million positions were available at the end of the month, a level that is in line with 2018-2019. Job openings in the healthcare and social assistance industry, as well as the leisure and hospitality sector, experienced the greatest monthly increases.

The ramp up in vaccinations, the passage of the $1.9 trillion American Rescue Plan (ARP) and other strong economic indicators caused many economists and analysts to substantially increase their employment and GDP forecasts, most of which exceed 5% in 2021. Some of the larger investment firms are forecasting 2021 GDP growth in the 8% range, a rate of growth not seen since 1950. The Federal Reserve has one of the more optimistic forecasts for the labor market with a 4.5% unemployment rate projected by the end of 2021.

The number one risk to the economy, according to the most recent outlook survey from the National Association for Business Economics (NABE), is a variant of the coronavirus against which the vaccines are ineffective. It garnered an overwhelming 67% of responses, compared to the second and third highest risks: Slow vaccine distribution and fiscal policy inaction/policy gridlock, at 10% each. It is important to note that the survey was conducted prior to the passage of the ARP and that the greatest upside risk to the economy was a large fiscal stimulus program.


It will be a close race between vaccinations and COVID-19 infections, both of which were increasing in early-to-mid April. Even with rising cases, many jurisdictions are easing restrictions by increasing capacity at restaurants, shops and event venues and opening in-person learning to more students. The Transportation Security Administration reported the highest air passenger traffic since the pandemic began, with 9.5 million passengers passing through TSA checkpoints during the week ending April 17, 2021. Life is beginning to look more normal for many Americans and surges in optimism as well as pent-up demand are clearly revealing themselves in economic data.

As job growth becomes even stronger, an increase in household formations can be expected as younger cohorts leave family residences and workers become more mobile again. The continued run-up in house prices, low supply and increasing mortgage rates will temper the for-sale market, resulting in healthy demand for apartments, particularly in suburban locations in the South and West. While it appears that gateway cities have hit bottom, supply and demand imbalances will prolong their recoveries. And until rental assistance dollars are fully distributed, risks remain for small property owners and their residents.

April 26, 2021
Research Reflections
2021 Apartment Housing Outlook

The year 2020 was unlike any other in modern history, marked not only by a global health crisis but social unrest, a contentious Presidential election and a recession that drew comparisons to the Great Depression.  As the year came to a close, optimism about impending vaccine distribution and clarity over the election was outweighed by dire warnings from public health officials about expectations for rising infections and deaths through the winter months. 

The final jobs report of 2020 was a glaring reminder that the economic recovery may remain on shaky ground for months to come. Only 245,000 jobs were added in November, bringing the total jobs recovered to 12.3 million out of 22.2 million lost earlier in the year. Increased infection rates have typically led to business closures and/or capacity reductions, meaning the labor market will continue to struggle until the virus is firmly under control.  While vaccines will go a long way toward economic recovery, lack of public confidence in their safety may undermine their impacts. 

Although forecasts for the timing and duration of the recovery vary, one thing on which all economists agree is the absolute necessity for another round of fiscal stimulus. The CARES Act kept businesses running and consumers afloat and its impacts were crystal clear across many economic indicators. The V-shaped recovery has thus far been elusive, save for the for-sale housing market. The most likely outcome at this point appears to be K-shaped, translating into bifurcated conditions where lower-paying jobs and wages remain depressed and higher-paying jobs, with the ability to work remotely, thrive.

GDP forecasts for 2021 range from 3.0 to 4.1%, with expectations for it to return to 2019 levels by the end of 2021. The labor market, however, will take longer to recover with none of the forecasts included in this analysis expecting the unemployment rate to return to 2019 levels for at least the next two years. Some forecasters do not expect to see employment levels restored until the end of 2024, partially driven by permanent job losses on the order of 5-10%. 

The single-family housing market hit records across many indicators in 2020, so it should not come as a surprise that forecasts are calling for levels of starts not seen since 2006/2007. Forecasts for multifamily starts show a wider dispersion, but on average, are only slightly off levels seen in recent years. But topping 500,000 annual starts, which occurred at the end of 2019 and into 2020, seems highly unlikely in the near-term as permitting activity shows signs of moderating amid robust levels of completions.

The economic bifurcation of the economy bled into the apartment market as owners of smaller, older and Class C properties saw delinquencies rise while institutional owners generally had better outcomes. Similarly, but with some exceptions, properties in large urban cores experienced decreased rents and occupancy levels while suburban properties and those in smaller, more affordable cities performed well.

Forecasts for apartment fundamentals for predominantly institutional-grade properties indicate a bottoming of the market in late 2020 and into 2021. On an annual basis, rent growth is positive albeit muted while occupancy rates post slight declines before ticking up in 2022. New supply forecasts range from 300,000 – 400,000 units in 2021 as construction delays because of the pandemic and downturn cause timelines to get pushed into next year. Apartment owners and operators are preparing for a challenging 2021, budgeting for declining revenues and increasing costs, both on the operating side and for capital expenditures. 

Although overall market fundamentals are expected to be weak in 2021, there are numerous tailwinds for multifamily demand on the other side of the pandemic. The single-family market was far more under-supplied than the multifamily market prior to the pandemic. Increasing costs of materials, particularly lumber, and the feverish pace of demand will put further downward pressures on single-family supply, which are already at historic lows by some measures. The growing gap between home prices and rent growth means renting will be a better option in many areas, although low mortgage rates will continue to be a draw to homeownership. With some 26.6 million 18 to 29-year-olds living with their parents, according to the Pew Research Center, pent-up demand can be expected once this cohort enters the job market and/or attains more solid financial footing.

Finally, friendlier immigration policies from the next administration could be an additional source of demand, as immigrants are a strong renter cohort. According to the Joint Center for Housing Studies, 83% of immigrant households who have been in the country for fewer than 5 years were renters and that figure stayed elevated at 70% for those who immigrated 5-10 years earlier and 57% for those in the country for 10-20 years. 

Longer term, the impacts of the COVID-19 crisis could fundamentally change ownership structures for rental housing, further exacerbating affordability issues. According to CoStar, more than one-third of 1- and 2-star properties, sometimes referred to as “naturally occurring affordable housing,” are owned by individuals. Without the advantage of scale and other resources that larger companies benefit from, these owners are more susceptible to financial strain than other market segments and are less likely to be able to contend with increasing delinquencies.  In fact, a survey of low- and moderate-income housing providers conducted by the National Leased Housing Association in October found that 89% of owners had already experienced revenue declines averaging 12%. These individuals provide housing for residents who tend to be lower-wage earners, have been disproportionately impacted by the pandemic and who could see additional financial hardship without more fiscal stimulus. With the gap in rents of 4-5-star properties (newer, more amenity-rich) and 1-2-star properties averaging 57%, losses of this type of stock because of potential foreclosures could be detrimental to affordability in the United States.


Paula Munger is Assistant Vice President, Industry Research & Analysis for NAA.

January 1, 2021
Apartment Market Pulse
Summer 2020: Weathering the Storm Amid Uncertainty

U.S. Apartment Market

During the second quarter, the COVID-19 pandemic significantly impacted key apartment fundamentals as a result of stay-at-home orders and historical unemployment rates. Nonetheless, despite rapid changes to the multifamily housing sector, the downturn is expected to be short-term and offset by pent-up demand.

Occupancy rates fell to the lowest level since Q2 2017. U.S multifamily occupancy posted a decrease of 0.6 percentage points year-over-year to 95.3 percent, as reported by RealPage. Although vacancies increased because of job losses, resident retention has climbed to historically high levels. Many residents are choosing to shelter in place and renew in their current apartments. According to CoStar Group, among markets with 100,000 or more units, New York City, Sacramento, Northern New Jersey, Inland Empire and San Diego posted the highest occupancy rates.

U.S effective rent averaged $1,415, up by 1.0 percent annually but trailing the first quarter of 2020 by 1.0 percent, the first quarterly decline since 2010. Lower-priced suburban markets with limited new supply led the nation in rent growth. Given that remote work grants the flexibility to relocate, many renters are choosing affordability and more space over proximity to the office. As reported by CoStar Group, Inland Empire, Sacramento, Phoenix, Norfolk and Columbus ranked highest in rent growth.

On an annualized basis, nearly 303,700 units came online during the second quarter, far outpacing demand. Apartment demand was significantly subdued; only 177,007 units were absorbed, the lowest level since Q3 2013. As the country shifts to reopening the economy, pent-up demand for apartments is likely to absorb new inventory. Dallas, Washington, D.C., Houston, Atlanta and Denver were the nation’s leaders for apartment demand.

New construction for apartment buildings battled interruptions brought on by the COVID-19 pandemic. Multifamily permitting totaled 368,000 units (seasonally adjusted annual rate) in June, declining by 15.2 percent since the same time last year, according to estimates by the U.S. Census Bureau. New York City, Seattle, Dallas, Houston and Austin were the top-ranking markets for multifamily building permits issued. Construction starts for apartments recovered in June after facing challenges in April and May. Apartment construction starts reached 350,000 units, down by 2.5 percent annually. The number of multifamily units under construction fell 4.8 percent to 654,000 units.

U.S. Capital Markets

Investment activity in the apartment market was quiet during the second quarter as investors are choosing to take a wait-and-see approach. U.S. real estate deal activity has slowed across all property types; however, apartments remain the preferred asset. According to Real Capital Analytics, closed apartment sales transactions during Q2 2020 totaled $11.3 billion, falling to the lowest levels in a decade. Despite the pause in deal velocity, the average price per unit sold stood at $176,452, an annual growth of 6.5 percent. Investors traded more than 70,900 units, with cap rates averaging 5.3 percent, down 25 basis points compared to Q2 2019.

All major metros tracked by Real Capital Analytics posted a decline in sales volume. The largest decline in year-over-year quarterly sales occurred in Los Angeles, Houston and Seattle; each metro saw a drop in volume by over 80.0 percent. On the converse, deal activity in Denver and San Francisco experienced the least amount of interruption.

REIT and private capital was down marginally during the second quarter, declining by 2.9 and 2.0 percentage points, respectively, compared to 2019. Cross-border acquisitions of U.S. apartments increased by 2.6 percentage points, led by Canada and South Korea.

U.S. Economy

After experiencing its largest decline in history in April (20.8 million jobs), employment regained some ground in May and June, adding 2.7 and 4.8 million jobs, respectively. The leisure/hospitality, retail and education/health sectors were the big winners in June as restaurants, bars, shops and doctors’ offices opened and/or expanded their services. The Bureau of Labor Statistics’ Establishment Survey was based on the payroll period which included June 12, so the effects of the end-of-month surge of COVID-19 cases in states such as Florida, Texas, Arizona and California were not reflected in June’s job report.

The closely watched weekly unemployment claims report painted a more troubling picture as it remained elevated at more than double the pre-pandemic level week after week. By July 4, initial claims for unemployment registered in the 1.4 to 1.5 million-range for four consecutive weeks. Claims for the Pandemic Unemployment Assistance Program, which covers workers not eligible for traditional unemployment insurance benefits, have been trending upwards since mid-June, totaling 1 million for the week ending July 4.

Personal income jumped 10.8 percent in April, thanks to stimulus checks and additional unemployment insurance provided for in the Coronavirus Aid, Relief, and Economic Security Act (CARES), before falling 4.2 percent in May. Still, on a per-capita basis, personal income remained 5.2 percent above pre-pandemic levels as the fiscal stimulus initiatives continued to make many workers more than whole.

In the face of uncertainty and an economy that may continue to struggle, consumers set aside money to cover potential financial hardships. The personal savings rate, which averaged 7-8 percent during the past several years, soared to 33 percent in April, the highest level since the data series began in 1959. It has since dropped to 23.2 percent in May as consumers began making purchases again, but remained elevated.

Forecasts for Q2 Gross Domestic Product (GDP) from selected sources range from a high of -14.3 percent annualized by the New York Federal Reserve Bank to -38.9 percent by The Conference Board, whose baseline forecast scenario is a Double-Dip Recession with unemployment rates staying above 9 percent through 2021. Moody’s Analytics is forecasting a 33.2 percent decline in GDP with unemployment rates falling under 9 percent by the end of 2021. The persistently wide ranges in forecasts highlight the uncertainty of a second wave of the novel coronavirus and the timing in which it might occur.


With COVID-19 cases higher in some states than they were in April and May—originally anticipated to be the peak—the pandemic is far from contained in the United States. Until consumers and businesses alike hear some good news about containment, treatments and vaccines, fits and starts can be expected to plague economic activity.

Between consumers’ savings and additional income, it should come as no surprise that rent collections being reported by several property management firms for institutional-grade properties remained strong through July. But the combination of dwindling savings and the supplemental federal unemployment insurance expiring at the end of July bodes poorly for rent collections in September and beyond.

August 7, 2020