In another sign that the multifamily housing sector in gateway markets has bounced back, major U.S. metros led the country in absorption of apartment units through the first three quarters of 2021, according to Yardi Matrix.
Gateway markets — New York City, Los Angeles, Chicago, San Francisco, Boston, Miami, and Washington, D.C. — had 108,000 units of positive absorption from January through September of this year, per Yardi. This equated to about 3.8% of the aggregate apartment stock in these cities, compared to 3.2% in all metros nationwide.
Large cities in general are faring well as secondary markets have seen absorption of 3.7% thus far this year. Tertiary markets also had solid absorption of 2.2%.
The turnaround in gateway cities comes after these markets saw negative absorption throughout the early stages of the COVID-19 pandemic, with many renters leaving for nearby areas with less expensive housing options. Consider that, in 2020, absorption in gateway markets was at -0.3% of all apartment stock, compared to 1.9% for the U.S. as a whole and 2.4% in secondary and tertiary metros.
Yardi data confirms that while demand saw a backtrack on a broad scale, it remained within relatively typical levels in the rest of the country but plunged in gateway markets. This year, the trend has reversed course in a notable way, with home-sale prices proving to be unattainable for many potential renters-turned-buyers and several companies recalling their workforces back to on-site work.
Although this process remains ongoing and has slowed due to the COVID-19 delta variant, residential areas of gateway cities are returning to normal more rapidly than their commercial counterparts. But restaurants, entertainment venues and recreational options are returning and enticing many back to city life.
Dallas led all metros in nominal absorption during the first nine months of this year with 31,458 units absorbed, followed by Houston at 24,891. Every gateway city except Boston appears in the top 10 of this metric, led by Washington, D.C., at 20,845 units and New York at 19,583 units.
When ranked by absorption as a percentage of stock, however, Boston (4.6%) had a strong showing, as did Miami (6%) and the Bay area neighbors of San Francisco (5%) and San Jose (5.2%). The Bay Area rebound, Yardi noted, is especially promising given that many of its residents work in the tech industry, which thus far has shown that it may be more flexible in allowing employees to work remotely moving forward.
Interestingly, across all gateways, the city with the smallest share of absorption relative to overall stock is New York, which is home to many financial-services companies that have indicated plans to bring most of their workers back into offices when health concerns subside. Absorption figures in these cities bear watching, particularly once companies elect to bring employees back on-site en masse.