ECONOMIC MOMENTUM CATALYZING MULTIFAMILY SECTOR. In a clear illustration of the state of the recovery so far, the multifam- ily sector posted one of its strongest periods of performance in the sec- ond quarter. Over 218,000 apart - ments were absorbed in the April through June timeframe, a record going back to at least 1993. The surge cut the national vacancy rate to 3.8 percent, nearly in line with the 2019 low of 3.7 percent, while effec - tive rents climbed above pre-pan- demic levels. The strong increase in renter demand was driven by multiple factors, including employ- ment growth and household forma- tion. More than 1.7 million jobs were added in the U.S. during the months of April through June, spearheading the strongest quarter of household formation in nearly 20 years. Many who were previously jobless found a sustainable source of income, which enabled them to move into their own residence after living with family or friends during the pandemic. DOWNTOWN APARTMENTS STRENGTHENING AS YOUNG ADULTS FIND JOBS. Many recent college graduates were unable to find employment last year when the pandemic disrupted hiring activity. Some were able to fulfill remote roles, which may have prompted them to live with family or friends through the health crisis to save on expenses. Now, as compa- nies are beginning to bring workers back into the office and ramping up hiring, more of the younger genera- tion are accepting jobs and relocat - ing. This is a tailwind for apartment demand, especially in urban areas as people in their 20s often prefer the downtown lifestyle and near- by amenities. The allure of living

downtown has been revived by the reopening of shops, entertainment venues, and attractions. These trends were exemplified in the sec - ond quarter when the urban cores of major markets combined to record 40,000 units of absorption, the larg- est quarterly total dating back to the beginning of this century. INVESTORS FOCUSING ON OUT- PERFORMING SUNBELT MARKETS, PRESSURING CAP RATES. Many people are prioritizing qual- ity-of-life and cost-of-living con- siderations when deciding where they want to live, which is bolstering relocations to the Sunbelt. Phoenix, Dallas-Fort Worth, Atlanta, Houston and Las Vegas each recorded in-mi- gration of at least 35,000 people last year. The additional residents are boosting apartment performance in these metros, garnering the atten- tion of more investors. In Phoenix, vacancy cratered to a historic low of 3.2 percent in the second quar- ter, which produced an eye-catch- ing 16.6 percent year-over-year jump in the average effective rent. Similarly, vacancy in Las Vegas fell to a decade trough of 3.3 percent, resulting in a 13.9 percent rent climb year over year. Other metros with annual rent growth exceeding 12 percent include Riverside-San Bernardino, Tampa, Sacramento and Jacksonville. Many commercial real estate investors are following migration trends and concentrating on sec- ondary and tertiary markets in the Sunbelt, which is expanding the buyer pool and intensifying compe- tition for assets. The average price per unit of transacted apartments grew by more than 10 percent over the past year in Phoenix, Columbus, Jacksonville, Atlanta, Las Vegas and

Pittsburgh. Nationally, the average price grew by half that amount at five percent annually to $171,000 per unit for trades priced $1 million and above. The average cap rate, mean- while, dropped to 5.1 percent, which is the lowest measure in more than two decades and down 100 basis points from 2013. On the other hand, price growth is lagging in some gateway metros like San Francis - co and New York City. The recovery of these markets has turned the corner however, and opportunistic investors remain active. •

John Chang serves as the National Director of Research Services for Marcus

& Millichap. He is responsible for the production of the firm’s vast array of commercial real estate research publications, tools and services. Under his leadership, Marcus & Millichap has become a leading source of market analysis, insight and forecasting, and the firm’s research is regularly quoted throughout the industry and in mainstream business media. John oversees a team of dedicated real estate research professionals who produce the firm’s more than 1,000 annual market research publications and conference presentations. These detailed reports, analyses and presentations integrate economic and financial market trends with insights on all major commercial property types including: Hotels, Industrial, Manufactured Housing, Multifamily, Office, Medical Office, Retail Multi- Tenant, Retail Single-Tenant, Self-Storage and Seniors Housing. John is a seasoned industry analyst who has been quoted in numerous publications and is an active member of the NMHC Research Foundation Advisory Committee, the ICSC North American Research Task Force and the NAIOP Research Foundation. He regularly presents at a wide range of conferences and events hosted by industry- leading organizations such as the NMHC, NAIOP, ULI, CCIM, ICSC, SSA and numerous others. John joined Marcus & Millichap in April 1997 as a Research Manager in the Seattle office. After holding executive marketing and e-business positions with premier residential real estate firms in the Pacific Northwest, he rejoined Marcus & Millichap in November 2007 as the head of its Research Services division. John was elected as Vice President in 2010, advanced to First Vice President in 2013 and promoted to Senior Vice President in 2018.


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