Secondary market rents are growing as rent growth is varying across markets as the divide between gateway and secondary metros continues to increase with the pandemic, according to the October report from Yardi Matrix.
“With each passing month, outmigration from large gateway markets to secondary and tertiary tech hubs is amplifying. At this point, the apparent winners are markets in close proximity to large gateways but with significantly lower costs of living,” the report says.
- Multifamily rents were flat for the third consecutive month in October, but the national numbers appear misleading, as the sector is experiencing an ever-increasing divergence between outperforming and underperforming markets. On a year-over-year basis, rents fell 0.6 percent nationwide.
- Secondary and tertiary markets are performing the best, as high costs and limited community amenities drive outmigration from gateway markets. The Inland Empire (6.0 percent), Sacramento (5.0 percent), Las Vegas (3.9 percent) and Phoenix (3.8 percent) lead our top 30 markets, with each market benefiting from migration out of the Bay Area and Los Angeles.
- Not surprisingly, New York (-10.0 percent), San Francisco (-8.2 percent), Washington, D.C. (-3.7 percent), Boston (-3.1 percent), Chicago (-2.9 percent) and Los Angeles (-2.8 percent) all fell at or near the bottom of our rankings.
For example, the average rent in Sacramento is 34 percent less than in San Francisco. The report says even tertiary markets with a strong tech presence, such as Boise, Idaho and Portland, Maine, are attracting people from expensive coastal markets.
“As many workers, especially those in creative and knowledge-based industries, enjoy increased flexibility to work remotely, many individuals are weighing the costs and limitations of gateway markets versus the benefits of smaller cities and are choosing to relocate.
‘‘Demand remains strong, as gateway residents are not only moving to nearby secondary metros but also relocating to other tech hubs in the Sun Belt and Southwest.
“Primary markets will not suffer forever, but their recovery will depend on how much newly relocated individuals enjoy their adopted homes and cities and whether they choose to stay,” Yardi Matrix says in the report.
Short-term rent growth was flat in October
Rents were flat month-over-month in October for the third consecutive month, the report says.
“However, secondary markets made significant rent gains, with the Inland Empire, Las Vegas, Sacramento and Phoenix all increasing 1.0 percent or more on a monthly basis. These markets tend to outperform during fall and winter months, as they are not susceptible to seasonal weather that slows renting in northern markets, but this year’s performance is even better than normal, as migration into these markets continues to increase.”
Rents are falling in gateway markets, “as some analysts predict five years of outmigration has been accelerated into the past six months,” the report says. The trend toward suburban submarkets and smaller markets has hurt the denser urban cores of the major markets. “Some secondary markets—including Seattle, Austin and Minneapolis—are also getting squeezed on both rent and occupancy, specifically in their urban submarkets,” the report says.
Help for apartment owners?
“There will likely be another round of government stimulus, but given the divided Congress, the total package will be less than if the Senate had flipped Democratic. (A runoff election in Georgia on Jan. 5 will determine the winners of two senate seats).
“For apartment owners and operators, additional stimulus and unemployment benefits paid to residents will help cover housing costs, especially in the workforce housing sector, where job loss is most concentrated.
“As the pandemic grinds on, there does appear to be hope for an economic recovery on the horizon, although there may be a few more months of pain in the near term,” Yardi Matrix says in the report.
About Yardi Matrix:
Yardi Matrix researches and reports on Multifamily, Office and Self Storage properties across the United States, serving the needs of a variety of industry professionals.Yardi Matrix Multifamily provides accurate data on 18+ million units, covering over 90% of the U.S. population. Contact them at (480) 663-1149.