Apartment Demand Improved Across the Board in the Third Quarter

Apartment demand returned in full force in the third quarter. Multifamily net absorption, or the difference between move-ins and move-outs, improved in nearly every metropolitan area last quarter. And though some cities still ended up in the red, even most of the country’s laggards were able to stem the tide somewhat.

Reasons for that broad-based improvement last quarter include pent-up demand, a prolonged leasing season and an economy that continues to recover from the pandemic.

With rents falling across most of the country, apartment demand was likely also buoyed by relatively discounted prices. With rents dropping, opportunistic renters looking to decouple from roommate situations, or looking for larger apartments to accommodate a home office amid widespread remote work, had the opportunity to take advantage of discounted rents and increased concessions. Government data on household size and household formation often lags, so a fuller picture will be understood once that data becomes available.

But much like transaction volume and rent growth, absorption wasn’t uniform across the country. Some familiar places ranked at the top of the list for strongest net absorption in the third quarter, with relatively affordable, fast-growing Sun Belt areas continuing to attract renters in droves.

Dallas-Fort Worth led the country once again in the third quarter with more than 7,000 units of net absorption. That marks the second consecutive quarter the metroplex topped the nation after it registered about 5,500 units of net absorption last quarter.

This is nothing new for Dallas-Forth Worth, as the metroplex was second to only New York in terms of nominal net absorption last decade, with about 140,000 net move-ins in the 2010s.

Dallas-Fort Worth accounted for 6.5% of the move-ins recorded in the entire country last quarter, despite being home to only 2.2% of the nation’s population.

The region’s quick recovery is a welcome sign for apartment owners, as Dallas-Fort Worth is still working through a significant supply wave. Roughly 25,000 new units have opened in the metroplex over the past 12 months, and the area is home to the second largest construction pipeline in the country with more than 30,000 units under construction.

Following Dallas-Forth Worth in order are Atlanta, Houston and Denver, which all ranked the same as they did last quarter. But each of those locales saw an increase of around 1,000 units of net absorption in the third quarter. Other Sun Belt leaders include Phoenix; Charlotte, North Carolina; and San Antonio, Texas.

A few surprising cities for net absorption were the tourism-heavy metropolitan areas of Orange County, California; Orlando, Florida; Nashville, Tennessee; and Las Vegas. All four markets were disproportionately affected by layoffs in the leisure and hospitality sector, but were able to recover some lost ground last quarter.

The cities that posted the weakest net absorption in the third quarter were largely the same as those in the second quarter. New York, Chicago and San Francisco lagged, as office workers that typically drive apartment demand in those cities continued to take advantage of remote work and liberal work-from-home policies.

But most areas did start to see some improvement. Los Angeles, which saw roughly 4,500 units of negative net absorption in the second quarter, came in slightly positive in the third quarter. San Jose and Seattle also saw notable improvement last quarter.