erty. Apartments in these settings are generally surrounded by high- er-quality schools and have more spacious floor plans, top consider - ations of later-stage millennials with young families. A FEW LARGE MARKETS PRIMARILY RESPONSIBLE FOR ADJUSTMENT TO URBAN FUNDAMENTALS Nationwide almost 3,000 urban units returned to the market last year, though conditions from metro to metro were far from uniform. New York City was responsible for the bulk of negative absorption in the country, with a net dispensation of more than 15,500 downtown rent- als. San Francisco, Seattle-Tacoma, Boston and Chicago also returned a combined 10,000 units of urban apartments back to the market in 2020. Outside of those five major markets, demand for downtown apartments softened by a much lesser extent. The next 10 largest U.S. apartment markets by inven- tory recorded compounded positive net absorption of more than 11,000 units downtown. When rolled in with the rising availability of the larg- er metros, however, the national urban vacancy metric still jumped 250 basis points in 2020 to a more than two-decade high of 6.6 per- cent. Sluggish demand in key cities also pushed the downtown average effective rent lower by 7.2 percent last year, the steepest decline since 2009, to a six-year low of $2,400 per unit. While more near-term chal- lenges lie ahead for apartments in the inner cores of densely popu- lated cities, the long-term outlook remains promising. Many young adults still prefer the downtown lifestyle and will want to live in areas that are proximate to shops and ser- vices once they can fully reopen.

term demand drivers, like house- holds escaping from population density, and long-term momentum from suburban office absorption. In the urban cores of challenged gateway markets, buyers may realize value-add opportunities with bidding competition moderated. However, near-term hurdles in those met- ros are greater than in fast-growing Sun Belt metros, where capital is increasingly flowing into both urban and suburban properties.

Across the country nearly 160,000 suburban rentals were absorbed last year, 20 percent fewer than in 2019. Despite sturdier demand for subur- ban apartments than urban, vacancy ticked up 30 basis points national- ly to 4.3 percent and the average effective rent dipped by 0.6 per- cent to $1,479 per unit. New supply pressured fundamentals. Last year roughly 214,000 suburban rentals were finalized, up 34,000 units from 2019. The pipeline for this year is weighty as well, particularly in the suburbs of fast-growing Sunbelt markets. Dallas/Fort Worth will lead the country with more than 28,000 new suburban units this year. Hous- ton, Atlanta and Charlotte are sched- uled to add more than 10,000 sub- urban rentals each in 2021 as well. Alternatively, other metros with less competition from new supply posted notable suburban vacancy drops in 2020, including Riverside-San Ber- nardino, Sacramento, and Las Vegas. Some markets without strong in-mi- gration tailwinds are also undergoing significant internal suburbanization from existing residents. Indianap- olis and Columbus may be prime examples, with suburban vacancy in these metros contracting by at least 40 basis points while urban vacan- cy jumped by more than 250 basis points in 2020. MULTIFAMILY INVESTORS ADJUST STRATEGIES FOR 2021 Given current migration trends, first-ring suburbs with urbanlike amenities will be among the most favored locations for buyers. These inner rings benefit from both short-

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.


Made with FlippingBook Online newsletter