Multifamily rents fell to $1,457 in June, Yardi Matrix reported, dropping by $2 from May to continue a four-month trend of declines since the onset of the coronavirus pandemic.
Average multifamily rents have now fallen by $12 since January, as the rental market continues to be one of the hardest hit sectors of the housing sphere given that most job losses figure so far to be among hourly waged renters. Early signs suggest that renters are fleeing several densely populated urban markets, with landlords in many of the country’s largest apartment hubs slashing rents as a result.
Consider the Bay Area, for example. San Jose logged the steepest year-over-year rent decrease in the country, slicing 4.6% off rents from June 2019 to last month. San Francisco likewise saw a large decline, following its neighbor to the south with an annual decrease of 3.8%.
Similarly dense (and pricey) Los Angeles and New York also saw yearly declines, prompting Wells Fargo Securities’ Economics Group to observe that such markets have become representative of renter flight.
“Along with having large numbers of workers in the embattled hospitality and retail industries, these metros have a heavy concentration of workers in office-using industries (such as tech, media, and finance),” wrote Wells Fargo economists. “The sudden ability to work remotely has spurred an exodus of residents to the more affordable surrounding suburbs or other states.
“After all, why pay higher rent to live in an urban area, when the restaurants, bars and cultural amenities are closed?”
Of Yardi’s top 30 apartment markets, monthly rent growth in June was negative in 19. Short-term rent growth continues to plummet in tech hubs like Seattle (with rents down 0.4% since May), Austin (down 0.3%) and Phoenix (0.2%), perhaps reflective again of work-from-homers’ newfound freedom to select their living spaces without taking their commutes into account.
Meanwhile, markets like Dallas (where year-over-year rent growth is steady at 2.1%), Nashville (2.0%) and Charlotte (1.6%) are showing more resilience. Such areas were destinations for renters looking for affordability even before the pandemic hit. The same dynamic is playing out in California, where relatively cheaper, less dense Sacramento (2.2%) and the Inland Empire (2.9%) are also hanging tough.
Surging COVID-19 cases in the South and Southwest could spell further trouble for markets in those regions. While year-over-year rent progression remains barely positive in Miami, for example, short-term growth is trending negatively as reported instances rise and the international trade, hospitality and tourism sectors remain in rough shape. Austin and Phoenix, too, have seen the number of coronavirus cases rise of late, telegraphing further rent reductions ahead.
Yet another factor to add to the equation — and one that could hasten rent declines in the aforementioned southern markets — is incoming inventory. Miami, Austin and Phoenix all have large quantities of inventory due for delivery soon, adding to the growing imbalance between supply and demand. Miami, in particular, has seen a record number of units arrive over the past three years, Wells Fargo reported. The bank expects vacancy rates there and across the country to rise over the next year, fueling the slowdown in rent growth.