Escape From the Urban Center: Rents Plummet on Urban Apartments

 From National Real Estate Investor:

Thousands of apartments stood empty in August 2020 that had been occupied only a few months before in urban cores across the country, including in previously white-hot markets like San Francisco and New York.

Desperate owners have been dropping rents and offering eye-popping concessions and optimizing on-site amenities in attempts to lure tenants. But it’s not nearly been enough to offset the trend of residents relocating to more spacious and less expensive markets as well others, including many young renters, who have lost jobs and moved back home to live with their parents.

In addition, as the economic chaos caused by the coronavirus cuts into the demand for apartments, developers continue to finish new luxury apartment towers downtown that are fighting to attract the renters that are left.

San Francisco and New York City are not the only damaged downtowns. Core urban markets across the U.S. are suffering from higher vacancy rates and bigger cuts in rental rates than suburban areas in the same metropolitan areas.

“Downtowns are getting hit the hardest. All of the top six markets had negative downtown absorption,” says Andrew Rybczynski, managing consultant for CoStar Advisory Services. “We’ve seen strength in two areas: the suburbs and cheaper commuter markets near major metros.”...

Some commentators are focused on urban renters who are leaving some downtowns to go to suburban areas or smaller cities. However, others point to job losses as having done more damage than outmigration. This is especially true in the most expensive multifamily markets.

“That movement from the urban core to the suburbs is only occurring in substantial numbers in a handful of locations, namely New York and San Francisco,” says  [Eric Willett, CBRE’s Director of Research.

Job losses are especially hurting the young adults who filled many apartment properties in urban core areas. “Lots of these young adults have gone home to live with mom or dad, or they now are staying with still-employed friends,” says Willett. Young adults are an important part of the mix of renters in urban downtown neighborhoods. “Far more of them have suffered job losses than their older counterparts.”

In other cities, new renters are still filling apartments in the urban core—but not enough to occupy all the new apartments that developers have opened. “Downtown Houston did not have out-migration. They have positive demand. But because of new supply, vacancy rates are up and rents are down,” says [Jeanette Rice, Americas head of multifamily research for CBRE].

-RW