Growing divergence between rents in primary, secondary metros

Gateway markets see declines continue in October, while 18-hour cities enjoy resilient gains

Multifamily rent growth was flat for the third consecutive month in October, according to Yardi Matrix — but a deeper dive into data across the country shows more volatility than meets the eye.

Nationally, average rent in October was $1,463 — the same as it was in August and September, per Yardi’s October Matrix Multifamily National Report. On an annual basis, rents are down just slightly, decreasing 0.6% year over year.

However, each new month is heightening migration from large gateway hubs to secondary markets and beyond. The ongoing growth of that shift is deepening the rent decline in 24-hour cities and widening the rent growth gulf between them and their nearby 18-hour counterparts.

Take California, for example. As has been the case since the onset of the COVID-19 pandemic, the Bay Area and Los Angeles continue to bear the brunt of renters moving away. That loss of demand has been reflected in area rents, with San Jose rents falling 10.2%, San Francisco rents dropping 8.2% and Los Angeles rents decreasing 2.8% year over year.

Meanwhile, California’s secondary markets remain the beneficiaries of bigger city workers seeking respite from bigger city rents. Many employees of L.A. and Bay Area creative and information industries are taking advantage of increased remote-work flexibilities, choosing to relocate to cheaper urban markets like the Inland Empire and Sacramento.

The average rent in the Inland Empire ($1,669) is 23% less than the average Los Angeles rent. Similarly, Sacramento rent ($1,609) is on average 34% less expensive than that of San Francisco. Consequently, the Inland Empire (with rents up 6.0% year over year) and Sacramento (5.0%) lead Yardi’s top 30 market rankings for annual rent growth.

The same patterns continue to reveal themselves throughout the country. Las Vegas, Phoenix and Indianapolis — 18-hour cities close to larger gateways — are all enjoying year-over-year rent growth easily above the 10-year average mark of 2.5%. Other popular secondary cities with healthy tech industries, like Tampa, Atlanta, Charlotte and Raleigh are all seeing rent growth between 0.6% to 2.8% — a slightly lower range, though according to Yardi, that’s likely due to significant new supply in those areas.

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On the flipside, larger, often tech-based hubs like New York, D.C., Seattle, Boston and Chicago are experiencing persistent, significant rent declines from 2019. In the case of New York, rent has fallen 10.0% year over year; the other four cities are seeing their annual rent declines hew close to 5%.

Tertiary cities are also finding themselves benefitting from urban outmigration. Case in point: Rent growth in Boise, Idaho (8.1%); Huntsville, Alabama (6.8%); and Portland, Maine (6.5%) led all markets in October.

The question, then, is how long this trend of outmigration will continue, and whether these relocations are temporary or permanent. Many large tech companies, like Facebook, Google and Salesforce, have told their employees that they won’t need to return to in-office work until mid-2021 at the earliest. A winter COVID-19 resurgence could prolong that flexibility even further as office-based companies continue to adapt to the new, pandemic-driven norm.

Primary markets will not suffer forever, as Yardi noted in its report, but as it stands at the moment, they appear to be in for more emigration, along with the rent declines that come with it. Their recovery, Yardi said, “will depend on how much newly relocated individuals enjoy their adopted homes and cities and whether they choose to stay.”


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