Cities across the Sunbelt and Mountain West are experiencing the strongest tailwinds in the multifamily sector, as fewer job losses and fast-growing populations drive demand for quality rental products. 

A new report summarizing the multifamily investment forecast from Marcus & Millichap cites Atlanta, Austin, Charlotte, Dallas-Fort Worth, Denver, Nashville, Phoenix, Raleigh, and Salt Lake City as the top markets benefiting from what it calls “in-migration momentum.”

Similarly, cities showing “demographic tailwind” rank a notch behind the first group, but nonetheless show strong growth. They include Houston, Indianapolis, San Antonio, Seattle-Tacoma, Tampa-St. Petersburg, and Riverside-San Bernardino and Sacramento, two California inland metros drawing residents away from pricier coastal areas.

Areas struggling with what M&M calls “mild pandemic setback” include Midwestern markets like Cincinnati, Columbus, and Minneapolis-St. Paul, as well as the Miami-Dade and West Palm Beach markets, surprising additions to the list given Florida’s overall strong fundamentals.

Cities the firm thinks will face a protracted recovery include Boston, Chicago, Las Vegas, Los Angeles, New York City, Northern New Jersey, Oakland, Orange County, Orlando, San Diego, San Francisco, and San Jose.  But, the report cautions, these gateway cities “should recover in the longer term as they remain some of the most attractive places to live in the country.

Finally, a list of Midwestern and East Coast cities top the list of metros most likely to face “slow growth” in the wake of the pandemic. They include Baltimore, Cleveland, Detroit, Milwaukee, New Haven-Fairfield County, Philadelphia, and St. Louis. “A tailwind is that secondary and tertiary markets are increasingly luring residents, though these markets may not be the primary beneficiaries,” the report states.

Leaving aside the regional growth patterns, there are some commonalities in the asset class that investors must also consider.

A wave of first-time homebuyers, buoyed by low interest rates, pushed prices up and kept supply low last yearmeaning renters with tighter budgets were priced out and will likely continue to be renters in 2021. Multiple-bedroom apartments will likely be family favorites as remote work and schooling continues, particularly in suburban areas where floor plans are larger and costs are typically lower.

“In the short term, remote workers could take advantage of the flexibility and distance themselves from their office,” the report says. “Apartments in the suburbs will lure more of these tenants long term as well, with some firms likely to keep staff remote beyond the pandemic.”

Urban apartments are likely to face more struggles moving forward, owing largely to downtown and CBD offices and retail closures. But when (not if) the reopening of CBD workspaces, entertainment and services happens, the downtown multifamily sector will begin to recover.

Also, the pandemic has wrought different struggles for different categories of multifamily product: high unemployment in lower-wage workers weighs on Class C demand, though expanded unemployment benefits and government is bolstering the sector. Meanwhile, the Class A segment felt less job loss impact but saw fundamentals reshuffle when builds came online when few people were moving.

“Supply overhang could prompt operators in overbuilt areas to use concessions, though demand for upper-tier rentals should ramp up alongside economic recovery momentum,” the report predicts.

And for developers, “capital has built up on the sidelines and is ready to be allocated as the nation makes headway on combating the virus.”