Despite an improving economy and stronger than normal demand during an unusually long leasing season, the coronavirus pandemic weighed further on apartment rents in the third quarter. At the national level, quarter-over-quarter rent growth was essentially flat, with rents falling only 0.1%.
That’s not to say rents didn’t show movement during the third quarter. According to CoStar’s daily rent series, asking rents rose through July before gradually drifting downward in August and September. In all, asking rents revealed a familiar pattern — seasonal effects started putting downward pressure on rental rates, returning the market to some sense of normalcy.
But the effects were certainly not uniform throughout the country.
The consequences of remote work and traditional migration patterns to less expensive areas have started to affect rental rate growth. Cities that benefit from proximity to more expensive areas tended to see the largest increases in rent last quarter. Las Vegas, as well as the Inland Empire and Sacramento in California and Phoenix and Tucson in Arizona, were all toward the top of the list. These cities are relatively inexpensive locales that sit near many of the nation’s priciest metropolitan areas.
Norfolk and Richmond in Virginia also ranked highly, owing to proximity to Washington, D.C., as well as stable government-heavy employment bases.
In Atlanta, industrial job growth is boosting demand for workforce housing and giving owners of mid-priced properties an opportunity to push rents at an accelerated pace.
Markets with healthy distribution sectors, a bright spot during the pandemic, also performed well. Indianapolis and Memphis, Tennessee, rank as some of the strongest markets for rent growth over the past few months. Atlanta and Jacksonville, Florida, also benefited from growing distribution sectors.
At the other end of the spectrum, rents fell in many expensive coastal markets last quarter. Many of those cities were hampered by weak, or even negative, net demand.
Northern California’s Bay Area, in particular the tech hubs of San Francisco and Silicon Valley, continues to show severe rent losses, with San Francisco posting rent losses of 6.5% and San Jose seeing rent losses of 5.1% in the third quarter.
Those losses brought San Francisco’s year-over-year figure to minus 10.5% as of the end of the third quarter. For perspective, the recent decrease in San Francisco rents was nearly double the losses incurred during the Great Recession and were roughly equal to those seen in the aftermath of the dot-com bubble. No other market in the country has seen such significant rent drops over the past year.
Next on the list are expensive Northeast Corridor markets Boston, Washington and New York City. These are also some of the worst performing markets from a jobs perspective. Furthermore, these cities all have a high share of office-using employment, and with most office workers still in work-from-home situations, there is less of a need for these workers to live closer to work amid the public health crisis.
Supply-heavy markets, such as Austin, Texas, and Nashville, Tennessee, have also seen rent losses in spite of strong demographic trends and job markets that have held up relatively well compared to the national average. Most rent losses are concentrated in the urban core, where rent premiums are extreme. That has weighed on the ability of landlords to push rents.
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