Gateway Markets Should Start to Recover Apartment Losses This Year

In the apartment sector, gateway markets have suffered the harshest blow during the pandemic. In large metros, apartment vacancy rates surged and in response, rent rates plummeted—but this year, the tide will likely turn. Research from Freddie Mac expects the apartment market to take the first steps toward recovery this year.

New York and San Francisco had the most severe decreases in occupancy and rent. Rents fell by more than 10% in both markets last year, and vacancy grew by 1.1% in San Francisco and 1.5% in New York. These two markets also suffered steep decreases in employment, with New York suffering 10.4% job loss and San Francisco job loss totaling 7.6%.

Smaller metros like Washington DC and Miami had less dramatic losses and rent and occupancy. Washington DC rents fell by 6% in 2020 and Miami rents dropped 4.1%, while the vacancy rate increased by .8% and 1.2%, respectively. Job losses were also less severe in these two markets, down 4.8% and 5.1% respectively.

In the larger gateway markets, apartment losses will slow this year—and in some cases there will be the beginning steps toward a recovery. In San Francisco, Freddie Mac expects rents declines to slow from -13% in 2020 to only -3%, and the vacancy rate is expected to remain flat, decreasing by only 30 basis points. In New York, rent decreases will slow from 10.2% to 2.9%, with vacancy decreasing by .3%. While these are still losses, they are a significant improvement over 2020.

Smaller metros, on the other hand, could continue to see challenging apartment fundamentals. Freddie Mac predicts Washington DC rents will decrease another 4.9%, the highest rate of rent loss in the country, and vacancy is expected to rise .9%, also among the highest in the nation. These fundamentals peg Washington DC as the bottom-ranked metro for apartments in 2021. The silver lining: employment. Freddie Mac also predicts Washington DC will have stable employment next year, with no gains or losses.

Miami, however, is a similar story to the larger gateway markets. Rents will decrease by a more moderate 2.4% and the vacancy rate will decrease .3%, on par with New York.

Overall, national apartment rents have told a more positive story. An end of the year report from Apartment List shows stabilized rent trends at the end of the year, with rents down only 1.3% year-over-year. However, the report also shows rapid rent decreases in San Francisco, New York and even Seattle. The report also shows that 27 of the largest US metros are experiencing faster rent drops than in surrounding suburbs. In suburban markets, apartment rents increased .5% in 2020.