The multifamily sector defies expectations and fundamentals continues to exhibit record-high increases.
- Rent growth continued unabated in February, with a 15.4% year-over-year increase in the average asking rent; rent growth will likely fall behind the pace established since March 2021 eventually, but demand shows no signs of a slowdown.
- Occupancy rose another 120 basis points in the 12 months ending in January, with growth especially strong in Texas and Florida metros.
- Renter-by-Necessity segment outpaced Lifestyle units in short-term rent growth.
- The single-family rental sector marked a big jump in rent growth in February, up 14.9% year-over-year; occupancy remained flat.
Demand Overpowers the Seasonal Pattern—Rent Growth Marks New Record
The average national asking rent rose $10 to $1,628 in February, bucking all expectations of a slowdown. The increase represents a solid 15.4% year-over-year gain, and up a full percentage point over January. It’s anticipated that rent growth will fail to match the rates that started in March 2021, but demand will persist.
Miami ranked highest in rent growth, up 27.0% year-over-year through February. Overall, eight of the top 30 metros posted asking rents increases of 20% or more, and 90% of the markets posted double-digit rent gains. New York’s lead in occupancy boosted rents, up 17.6%. Even the bottom-ranking metros posted significant rent improvements: San Francisco (9.0%), Kansas City (8.1%) and the Twin Cities (5.3%).
Housing Shortage Boosts Occupancy, Even in Gateway Markets—Are Workers Returning?
This prolonged rent growth reflects the nation’s housing supply, exposed by the pandemic to an overwhelming demand. The occupancy rate highlights it even further as, in January 2021, just 13 of the top 30 markets had rates above the 95.0% threshold, but at the start of 2022 just two of the top 30 were below that mark.
Occupancy picked up in markets hardest hit by the pandemic, such as New York (2.9%), San Jose (2.8%) and Chicago (2.6%), but was strong in high growth/high-supply metros such as Nashville (2.3%) and Austin (2.1%). The weakest performance was recorded in Phoenix, Sacramento and the Inland Empire (-0.2%) and Las Vegas (0.1%), but all these metros had consistent rent growth due to already high occupancy, boosted by renters relocating from overpriced locations.
Short-Term Rent Changes Turnaround—Working-Class Segment Takes the Lead
The national average asking rent increased by 0.6% month-over-month in February, maintaining the pace from last month. The largest increase in rents in February since 2015 has been $4. RBN rents (0.8%) outperformed the Lifestyle segment by 20 basis points.
Miami (1.5%), Orlando (1.1%) and Orange County and Dallas (both 1.0%) led in month-over-month rent growth. Twin Cities (0.2%) and Baltimore (0.1%) closed the ranking.
New Work-Live-Play Model; New Migration Trends Reshuffle Multifamily Markets
As we enter the third year of the pandemic, it has become apparent that workspaces and living quarters have new meanings. The work-from-home model proved to employers that productivity doesn’t have to suffer and opened new opportunities for employees while improving work-life balance. The shortage of qualified labor gives office workers more bargaining power when establishing work agreements. According to surveys, a significant number of workers would quit if forced to return to an office full time and estimates say that the number of remote workers is expected to rise to roughly 25% from 10% pre-pandemic.
Remote work has and will continue to have a meaningful impact on the multifamily market as workers will continue to use the chance to move to smaller, lower-cost metros, turning them into challengers to primary markets. The scenario is already reflected in the migration data: According to the U.S. Census Bureau, in the 12 months ending in July, migration trends pointed to states in the South, Southwest and Mountain West, led by Florida (221,000 added residents), Texas (173,000) and Arizona (93,000). States with gateway metros lost the most population: California (-367,000) and Illinois (-122,000). Despite the population loss during the pandemic, gateway metros will continue to attract residents, but tech-focused secondary markets will continue to grow, too.
Robust Demand for Single-Family Rentals Fuels Rent Growth
The asking rent for SFRs posted a significant jump in February, up 14.9% year-over-year. Meanwhile, occupancy rates remained unchanged. Asking rents grew by 20% or more in seven metros, led by Orlando (53.5 percent), Miami (36.5 percent), Tampa (27.6 percent) and Toledo (21.7 percent).
The sector is boosted by several factors, including the rising house prices, the growing competition from institutional investors and the increasing preference for suburban housing. According to Redfin, in the final quarter of 2021, the share of single-family homes purchased by investors rose to an all-time high of 18.4 percent, with the Sun Belt as their preferred area.
Read the full Matrix Multifamily National Report-February 2022