Apartment leasing volume soared in the third quarter as the multifamily sector witnessed a strong resurgence in demand amid the national economic recovery.
Over 146,500 apartment units were net leased during the quarter nationwide, which more than quadrupled the 34,000 units recorded in the second quarter, according to a report by RealPage, Inc. The real estate technology and analytics firm also reported that the leasing volume was 8% higher than the third quarter of 2019, before the COVID-19 pandemic caused widespread economic uncertainty and roiled global financial markets.
In the midst of the coronavirus outbreak in the first and second quarters, new apartment leasing suffered as state and local governments issued “stay-at-home” orders to limit the spread of the virus, which resulted in tenants canceling appointments to view new units and brought moving plans to a halt.
There were fears that the multifamily real estate industry would suffer from increased vacancy as many people faced dire financial straits and sought alternative living situations, or others fled dense multifamily properties with smaller unit sizes for more spacious and secluded homes. While it is true that demand has exploded for single-family rentals, the third quarter apartment leasing data suggests that multifamily properties are certainly still a very desirable option for tenants. As we’ve pointed out many times before, the multifamily sector has proven to be one of the most resilient asset classes, and that resiliency is once again on full display.
The apartment occupancy rate in the third quarter was 95.6%, which was up from 95.3% in the prior period, and slightly below the 96.3% registered in the third quarter of 2019, according to RealPage. And while there were expectations of increased delinquency, the reality is there has only been a slight drop off in monthly rent collections from last year since the pandemic began.
Federal stimulus aid from the Coronavirus Aid, Relief, and Economic Security (CARES) Act played a big role in keeping the apartment sector rolling during the pandemic. The first round of federal relief included a $1,200 stimulus check ($2,400 for married couples and an extra $500 per child), an extra $600 weekly in unemployment benefits, and Paycheck Protection Program loans for affected businesses to keep employees on their payrolls. Thanks to the stimulus relief, many people were able to meet their financial obligations, including paying rent.
And although the last stimulus checks were mailed out months ago and the federal government has yet to pass a new relief bill, the economy has slowly recovered as businesses reopened and millions of people returned to work. The country’s unemployment rate, which climbed to a Great Depression-like 14.7% in April at the height of the pandemic, has plummeted to 7.9% in September, according to the U.S. Bureau of Labor Statistics (BLS). Due to microeconomic supply and demand dynamics, some markets around the country have been returning to growth trends that existed before the pandemic even faster than the rest of the nation.
For example, Dallas, Atlanta, and Houston, three metropolitan areas in the Sun Belt region, which had been experiencing tremendous population and job growth prior to the pandemic, led the way in demand for apartment units in the third quarter, according to RealPage.
Dallas in particular led the nation with approximately 9,000 net leased units in the quarter, which more than doubled the previous quarter’s 3,800 units. The recovery of Dallas’ economy has also outpaced the country as the metro area’s unemployment rate was just 7.5% in September, according to the latest available BLS data. Rents in Sun Belt and Midwestern cities have been improving faster than the rest of the country as well, according to USA Today.
Despite the strong third quarter leasing results, the U.S. apartment sector is not out of the woods yet. The national median rent suffered the largest monthly percentage drop in three years in August and experts expect rents to continue to soften. Additionally, concessions to attract tenants, such as free rent, are up. However, the return of strong apartment demand is a positive result for the future of the sector, and is indicative of generally solid fundamentals despite the COVID-19 pandemic.