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Urban Multifamily Dips In Q2 As Renters Look To Lower-Cost Areas

It’s earnings season, which means large multifamily owners and operators are beginning to release details of their financial performance during the second quarter.

Amid passable renewal rates and a lack of rent growth, some multifamily owners have reported that occupancy in urban multifamily assets fell during the second quarter, reflecting tenants’ shifting priorities in the face of the coronavirus pandemic. At the same time, developers of master-planned communities are setting new sales records, suggesting that the public health crisis and rise in remote work have inspired a more suburban, socially distant lifestyle.


AvalonBay Communities is an equity REIT that owns or holds a direct ownership interest in 295 apartment communities in 11 states and the District of Columbia, of which 19 communities are under development. Within its portfolio, occupancy in urban submarkets declined by 270 basis points from April to June. By comparison, suburban submarkets only fell by 50 basis points.

“Many renters are relocating, perhaps only temporarily, to lower-cost markets or submarkets, leisure areas or even back home with their parents,” AvalonBay Communities President and CEO Timothy Naughton said during the company’s second-quarter earnings call July 30.

AvalonBay Communities saw reduced demand from both corporate and student renters during Q2, as most temporary corporate assignments have been canceled, and higher education is adopting remote learning models and limiting on-campus activities.

Equity Residential owns or has investments in 304 rental apartment properties in urban or high-density suburban areas. Its assets are primarily located in Boston, New York, Washington, D.C., Seattle, San Francisco, Southern California and Denver.

About 45% of Equity Residential’s portfolio consists of suburban assets, which displayed more resiliency than their urban counterparts during the quarter. Occupancy dipped to a low point of 95.2%, before recovering to levels at or above the prior year, ending Q2 at 96.6%.

Of the company’s urban assets, 25% are in the Boston, Cambridge, Manhattan, Brooklyn and Downtown San Francisco markets. As of the end of July, those assets were only 91% occupied, reflecting the portfolio’s high use of concessions and rate pressure.

“I think the pandemic has put a lot of people on their heels about living in an urban environment right at the moment, especially in the summer,” Equity Residential CEO Mark Parrell said during the company’s second-quarter earnings call July 29.

Camden Property Trust owns interests in and operates 164 apartment complexes across eight states. Occupancy averaged 95.2% during the second quarter of 2020, compared with 96.1% during the same period last year. At the end of July, occupancy had improved to 95.5%.

Even without the economic impact of the coronavirus pandemic or the energy downturn, Camden was already facing the prospect of falling urban occupancy in Houston because of about 19,000 new units that are due to come online in 2020.

“The place where we see the most impact to that is in Downtown, Midtown area where a lot of the new deliveries are coming online,” Camden CEO Ric Campo said during the company’s second-quarter earnings call July 31.

Camden Property Trust Chairman and CEO Ric Campo

Record-low mortgage rates and the desire for space are accelerating the demand for single-family homes, which is evident in a spike in sales at master-planned communities, according to Naughton.

Sales of new single-family homes reached a seasonally adjusted rate of 776,000 in June, 13.8% above the adjusted May rate of 682,000 and 6.9% higher than during the same month in 2019, according to the latest update from the U.S. Census Bureau and the Department of Housing and Urban Development.

While it is up to a resident to disclose the reason for leaving an Equity Residential property, the percentage of people who move out to buy their own home typically sits at around 12%, Chief Operating Officer Michael Manelis said. That figure went down during the second quarter, largely because most people hit pause in April.

“I also believe in our markets, homes are really expensive to buy. So while kind of we're balancing the move-outs that are occurring, we're not seeing people run out to go buy the homes. We did see an uptick in D.C. and Southern California markets, but it was a small increase in that percent on a year-over-year basis,” Manelis said.

Suburban multifamily assets were already outperforming urban products before the pandemic, according to Naughton. That trend is likely to continue over the next few years, as millennials reach an age where they want to buy a home and raise a family.

“A lot of this is being stimulated by demographics and really being accelerated by what we're seeing in terms of interest rates,” Naughton said. “We're not seeing it yet with our residents. Reasons for [moving] actually went down, to purchase homes. But homeownership is going up nationally, and it has an impact on the overall renter pool that affects all of us as landlords at some level.”

Last month, Johnson Development Corp. Vice President Trey Reichert told Bisnow that sales were booming at the company’s Veranda master-planned community in Richmond, Texas. Low interest rates were one factor, but people are also seeking larger homes with remote work-friendly floor plans.

"I don't know if the pandemic is scaring them to that, but that's kind of what they're telling us, that they just wanted to get away from the city and enjoy the trails that a lot of our communities offer," Reichert said.

Camden Executive Vice Chairman Keith Oden said that with low interest rates, people that already intended to buy houses are doing so right now. However, the impact on Camden’s occupancy has not been significant.

“The single-family market, or move out to [buy] single-family homes went up slightly at the beginning of the quarter, but it flattened out and it’s still in [the] 14%, 15% range,” Oden said.

Oden said that despite the low interest rates, the demographic living in Camden properties includes plenty of single people who are choosing to remain in urban centers, regardless of the pandemic.

“They’re just not buying houses and so with that said, we haven’t really seen any increase in moving out to rent houses or buy houses,” Oden said.


The financial outlook for multifamily in the third quarter is more hopeful. Though bad debt is expected to remain elevated, the result of rental delinquencies, some landlords are aiming to resume renewal increases and anticipate an uptick in new leases.

Parrell said that in the short-term, people are less interested in living in dense urban centers because they are “not energized”.

“There will be a point where this pandemic will go away or be lessen and then these cities will open up, and there will be an opportunity for people to move back,” Parrell said. “I don't think work from home and urban living are inconsistent at all. I think when you're done working home, you're happy to wander off and do those exciting things if you like to do culturally and entertainment-wise in our markets. So, I guess, I'd tell you I am very confident in the long run.”

Campo said he doesn’t think that there will be a permanent shift to suburban markets or smaller cities, because at the end of the day, people have short memories.

“Once the pandemic is over, everybody gets back to work and they’re focusing on their lives," Campo said. "They’re going to do what they want to do and I think people do love urban environments. They love restaurants. They love going to the ballpark and when that comes back, they will engage that again.”

Contact Christie Moffat at