Things are rapidly improving in multifamily pricing power. But even though such major urban areas as New York City, San Francisco, San Jose, Chicago, Seattle, Boston, and Washington D.C. have seen quick improvement on the ability to raise and maintain rents, markets with less urban concentration are doing better and big cities aren’t back to 2019 levels.
Zelman conducts monthly surveys of all aspects of multifamily. “They are relationship based as opposed to most surveys that send out a blast to as many as they can,” Dennis McGill, Zelman director of research, tells GlobeSt.com. “It tends to be fairly data rich.”
The firm doesn’t disclose the number of individuals or organizations reached, but according to McGill, the survey represents more than 1.5 million units. “For context, if you took the seven largest apartment REITs, they’re not part [of the survey] but they collectively own 400K, 500K,” he says. “It’s diversified across more geographies and price points than the public REITs would.”
Seasonally adjusted revenue growth was 4.9%, with much leasing during the spring and early summer. “That’s the strongest we’ve seen since August 2015 and it’s the second strongest since our dataset started in 2011,” says McGill. “You’ve now seen that seasonally adjusted rate accelerate over the last six months.”
The big catalyst, according to the data, was younger people who had moved back in with their parents again moving out. Although jobs and hiring also had some effect, “you had a lot of young adults who were employed but who moved back home to ride out the pandemic,” McGill says. “Now we’re seeing a lot of moving out again all at once rather than seeing this being smoothed out over time.”
Although pricing power has been on the rise, with demand supporting it, as more units also come back on the market supply will balance out. “We tend to think you’ll see a deceleration in pricing power” as that happens, McGill adds.
Zelman suggests that operators first not try to push hard on increasing rents and, instead, cut back on incentives. Also, “we see operators not pushing as hard as renewal rent increases as on new move-ins,” he says. They don’t want to lose the existing tenants. “Especially with this regulatory environment where somebody stops paying rent and hides behind the eviction moratorium.”
“But once somebody moves out and that’s available, you can push as high as you want,” says McGill, depending on the market.
The delinquency rate, at 2.8% in June 2021, was a significant improvement than the 3.5% of June 2020. Still, it was 1.9% in June 2019.
“The more suburban the multifamily asset is, the stronger the rent growth has been,” McGill says. “If you look at June 2021 versus March 2020, you have the most urban assets down about 4% or 5%. Most suburban assets are 8% or 9% higher. The supply side really isn’t going to change much in a short period of time.”