Boston, Santa Monica, and Tallahassee lead a growing list of cities whose multifamily markets are beginning to crack, with the percentage of loans with occupancy under 80% increasing substantially over the last year. 

A new report from Trepp notes that signs of “fraying” are beginning to appear in the apartment segment across some major US markets. Boston leads the way with 28% of properties with multifamily loans with less than 80% occupancy, followed by Santa Monica (22.78%), Tallahassee (15.38%), San Francisco (14.62%), Seattle (11.02%), Kansas City (9.88%), Memphis (9.33%), Cleveland (8.82%), Marietta (8.11%), and Oklahoma City (8%).

At this point in the year, Trepp says, most borrowers have submitted net operating income and occupancy for their CRE loans for 2020. And while some markets have done quite well, others are showing weakness.  The firm examined data for more than 22,000 properties involving CMBS private-label loans and Freddie Mac loans and noted that of that total, 4.8% posted 2020 occupancies of less than 80% by property count.

“Whether this weakness translates into higher delinquencies down the road will determine how strongly the US economy rebounds later this year and what percentage of workers return to the office for a full workweek,” Trepp’s Manus Clancy writes in the report. “This is not the ‘retail apocalypse’ or a step towards the 25% delinquency rate in the hotel space over the last year. But savvy CMBS investors will keep an eye on this going forward for signs of distress in those markets that have seen a meaningful uptick in vacancies since the beginning of COVID-19.”

On the flip side, the “winners”those with no multifamily loans with less than 80% occupancyinclude Phoenix, Orlando, Minneapolis, Lakewood, Colo., Aurora, Colo., Omaha, Tacoma, North Hollywood, Union City, NJ, and Van Nuys, Calif.  In these regions, Trepp analysts note, property values likely remained stable during the pandemic “and may have even increased given the demand for yield and still relatively low Treasury rates after the recent jump in yields,” the report notes. 

In terms of rent growth, the Inland Empire and Sacramento are showing the top gains, with rents up 7.6% and 6.4%, respectively. A recent Yardi Matrix also shows those markets are among the top three for occupancy growth year-over-year, while rents in cities like New York, San Jose, and San Francisco remain compressed.