Data is King. 2020 presented a plethora of challenges to the multifamily industry. This Multifamily Innovation Conference – Atlanta (MICA) session, featuring David Kahn, Managing Analyst at CoStar Group, used data to define last year’s trends and unpack the opportunities for 2021 with a particular focus on the South and Southeast.
CoStar’s Michael Cohen also shared an outlook on the state of the U.S. economy and the national multifamily market.
Solid Absorption
Kahn said most of the South and Southeast markets are “killing it” when it comes to net absorption, particularly Dallas-Fort Worth, Atlanta, Houston, Phoenix, Charlotte and Denver.
He pointed to declines in supply that is under construction in Dallas, Atlanta, Houston and Austin.
“They are all building a lot less than they were a year ago,” he said. “They are still building a lot, but a lot less than they were last year, so there’s greater opportunity to raise rents in the near term as the economy keeps improving.”
Most of these markets’ daily rents are outpacing the national average since January 2020, leading to strong rent growth.
Individual Markets
Dallas is flat, but it’s outperforming national average over the past few quarters. Dallas has had the biggest supply wave of any market. Its net migration is up. Toyota, Charles Schwab and State Farm are bringing jobs there, so it can outperform the national averages over the next few quarters.
Houston is a consistent underperformer compared to national averages because there’s a big supply line underway. There is plenty of technology and other industries moving there and creating jobs, but first and foremost, it’s an energy market, especially oil markets. Rents have moved upward in the past few months, and supply is down, so there’s a chance for landlords to pare back some of the previous declines.
Austin is a small market, so it’s still pretty volatile. Lots of tech companies are moving there and it’s had great net migration. It had taken a hit vs. the national average, but now it’s moving ahead and is up 4 percent in 2021. Lots of supply is underway. The single-family home market there has only two weeks’ worth of listings, so apartment living is seeing more demand for those relocating to Austin.
San Antonio, slowly and steady, has been the best growth performer. There are a lot of government back-office jobs in that city and it didn’t get hit too hard from drops in tourism.
Atlanta was hard hit initially, but now it has kicked into a new gear. It had 19,000 homes scheduled to come on in 2021, but now that number is only 11,000. Google, Microsoft and Norfolk Southern are bringing jobs to the market, so owners here have free reign to raise rents.
Charlotte is performing similarly to Atlanta, but there’s a little less uptick. Charlotte is dependent on the financial industry (the bank Truist is relocating there). The pipeline here has moderated, but more homes are coming online than in Atlanta.
Raleigh is another small and volatile market. Like Austin, it loves the tech sector for employment and Google is establishing a presence here. Rent growth is starting to take off.
Nashville was hit hard by a past-year supply wave that’s not letting up. Alliance Bernstein, Amazon and Oracle (rumor) are coming to town and will lead to more modest gains. Overall, there’s still a lot to like about this market.
Tampa is an outperformer and is home to a diverse economy. It’s not just tourism. It has held up well, and rent growth there is among the best in the country right now. Supply is moderating.
Orlando obviously is very tourism-dependent, yet has hung in there. Rents are now moving upward, and are above the national average. The economic recovery is coming, and that will help Orlando.
Miami has been a big supply story because there was record supply coming in just as the pandemic began. Even still, it’s still pushing rents in the near-term. It relies on international migration.
Cohen described “Multifamily” as a recovery play. Vaccines are on the way. As that goes, so goes the economy.
Retail, grocery and workplace travel is increasing. People are more comfortable, and that translates to a faster job recovery – we’re well below the 14 percent unemployment rate we saw about a year ago. Jobs tend to translate to household formation. The GDP normal will return by end of 2021. The overall national savings rate – especially among the wealthy – is up, well above levels of the past.
Recreational travel and service spending will pick up. Suburban and rural led the housing industry in 2020 because of its affordable options and the ability for employees to work from anywhere.
Downtown markets are beginning to experience rises in asking rents, a product of concessions. About 50 percent of urban communities are offering concessions. The Southern and Western markets will continue to improve and outperform though 2024 due to affordability and a positive regulatory environment.
Here is the replay:
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