Apartment rents in the urban core markets are starting to fall as the effects of the pandemic set in. Class B and C rents were the first to struggle with rents and rental collections, but the trend has spread towards larger buildings. New data from Real Page shows rents in the US top 50 markets are down 1.7%. This is the first time since 2010 that rents in these markets have fallen. For comparison: National rents only fell by 0.2% in the same period.
Suburban rents exceed the urban core. During the pandemic, rents in the suburbs actually rose 0.4%. This trend is not necessarily new. Suburban rents have exceeded city rents in recent years. Urban markets tend to be more expensive than suburban markets, and younger tenants often inhabit apartments in these markets. As a result, urban markets have been harder hit by the economic destabilization caused by the pandemic.
The move to lower asking rents came after the occupancy rate fell in the second quarter. The occupancy rate in the urban core remained stable at or above 95% in the last economic cycle. In the first half of the year, the load factor fell by more than 100 basis points. In the urban core, the occupancy rate is now 93%. Interestingly, occupancy also fell in the suburban markets, albeit to a lesser extent. Nevertheless, the suburbs still have to record the same decline in asking rents.
The Downtown / University submarket in Austin led the urban core in rent reductions, falling 8.4%. Downtown San Francisco and Downtown Los Angeles rounded out the top three on the list, with rents falling 7.8% and 6%, respectively. In general, expensive gateway markets and markets with active new construction have seen the largest drops in asking rents. As a result, the list included four markets in California, which saw strong rental growth prior to the pandemic, and markets like Boston, which are both expensive and heavily supplied.
Austin was really the only anomaly on the list; However, the Real Page report notes that at times over the past decade this has been both a high developing market and a high performing market, and as a result, rental rates have risen and fallen sharply. In 2009, apartment rents fell by 13% – the steepest decline in history, while rents rose by 14% in 2011. These fluctuations have become typical of the market. Additionally, the downtown / university area is the most expensive neighborhood in Austin and is trending with the other markets.
The rental collections for apartments have also continued to decline due to the pandemic, which also caused landlords to lower asking rents. According to the National Multifamily Housing Council's Rent Payment Tracker, rental income fell 2.4% in September, and fewer renters made a full payment in mid-September than in mid-August.