Apartment Developers Cap Off Year With Record Number of Completions

Despite the turmoil caused by the coronavirus pandemic, growing demand for apartments in cheaper, Southern cities in recent years corresponded with a historic year for apartment completions in 2020.

About 430,000 new units opened throughout 2020, the most completed in a single year this century. The wave of new apartments was also met by near-record demand. But similar to the demand, new construction was not evenly distributed throughout the country.

Mid-sized Sun Belt markets such as Charleston, South Carolina; Charlotte and Raleigh in North Carolina; Nashville, Tennessee; Orlando, Florida; and Austin, Texas, ranked as some of the top cities in the country for new completions as a percent of existing inventory. These cities and the Sun Belt region in general have benefited from strong population growth trends due to increasing employment opportunities and relatively affordable housing.

The greater South Florida area, including Miami, Fort Lauderdale and Palm Beach, also saw a surge in new apartment construction last year on a percentage basis. If all three cities were combined, the region would have ranked third in terms of nominal new deliveries last year, with nearly 17,000 apartments completed.

Only two non-Sun Belt cities ranked in the top 10 for completions as a percent of inventory: Boston, a traditionally undersupplied market, and Minneapolis, which boasts some of the strongest population growth in the Midwest.

Dallas-Fort Worth led the nation in terms of new multifamily construction in 2020. In total, the metroplex has added roughly 170,000 units since 2010 — a staggering amount of supply. For context, that represents about 6% of all supply added throughout the country in that time period, while the region holds only about 2.5% of the U.S. population.

New York, Los Angeles and Chicago all rank highly in terms of nominal completions, but the country’s three largest metropolitan areas were among the least-supplied markets last year as a percent of inventory.

In terms of performance, landlords in the markets with the heaviest supply pipelines generally struggled to push rents last year. Of the top 10 cities for supply, only Atlanta and Charlotte saw rents grow by at least 2%. Rents were essentially flat in Dallas-Fort Worth and Minneapolis and fell in all other markets.

Naturally, rents in areas that saw stronger demand held up better than those where demand was flat or negative. However, landlords in some high-demand cities such as Houston and Austin had to lower rents in aggregate to attract new renters.

Surprisingly, the South Florida cities did not suffer notable rent losses last year despite facing a sizable supply wave and a larger economic fallout due to the pandemic’s outsize impact on tourism-based economies. The region’s suburban areas were especially resilient, and while urban nodes such as Downtown Miami had to contend with elevated concession levels, asking rent losses there were marginal.

When analyzing neighborhood trends, there wasn’t one particular type of area, be it urban, suburban or exurban, that stood out as a clear favorite of developers.

Urban areas such as Southwest-Navy Yard in Washington, D.C.; Neartown-River Oaks in Houston; Central Fort Lauderdale and the downtowns of Chicago and Miami were among the most heavily supplied locales in the country in 2020.

But some suburban and exurban submarkets of the largest, and fastest-growing, Sun Belt cities ranked highly as well. That includes Houston’s Northwest and Bear Creek-Copperfield areas, as well as I-Drive in Orlando and the part urban-part suburban Southwest Fort Worth submarket.

Dallas-Fort Worth only placed one submarket in the top 10 for most completions, but had 11 different submarkets land in the top 100. That is a reflection of how spread out construction activity was in the region.

The massive difference in rent growth between the supply-heavy urban and suburban areas last year highlighted the weakness in urban demand, and the strength of suburban demand, that has been observed since the onset of the pandemic. While rent growth was generally weak in all of these locales, rents took the biggest hit in D.C.’s Southwest-Navy Yard; Houston’s Neartown-River Oaks; Downtown Nashville and Downtown Chicago. Those four urban areas have nominal asking rents significantly above their respective metropolitan area averages.

The less expensive, more suburban Northwest Houston, Bear Creek-Copperfield, Southwest Fort Worth and North Fort Worth submarkets all posted slight rent gains.

More recently, however, urban demand has begun to make a bit of a comeback. With the vaccine rollout picking up steam, urban areas have started to see some modest improvement — a welcome sign to landlords.

Does that mean urban properties will recapture some demand from the suburbs in 2021? With work-from-home at least partially here to stay, demand for new suburban apartments may remain elevated this year. But we likely won’t see the same scale of the urban-suburban divide as was observed in the months immediately following the onset of the pandemic.

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