Multifamily Waits to See if Vacancies Will Top 6% This Year
It is hard to make accurate predictions with such policy unknowns such as the nationwide moratorium on evictions.
Multifamily has been experiencing a softening of fundamentals, including a rise in vacancies, but overall, the vacancy rate just only now reached 5.2% (to put that into context national vacancies have been below 5% since the first quarter of 2012). The question to ask is, will that rate hold steady, or is this the start of an upward trend/?
The answer isn’t as straightforward as we’d hope. Generally, according to new research from Moody’s Analytics, occupancy has remained stable this year, despite political and economic uncertainty and a large decline in asking and effective rents. However, households with the means to do so are moving around, and the pandemic has ushered in an exodus in some large urban areas to the suburbs (or in some cases, somewhere else altogether.
Moody’s predicts vacancies will exceed 6% this year, but they will likely top out there in many markets—and some may even decline, depending on how quickly markets adjust to post-COVID life. And that number is still below the 8% record high the sector hit during the Great Recession.
The wild card, though, is federal policy, namely the nationwide moratorium on evictions, currently extended through March. However, the Biden Administration’s proposed $1.9 trillion stimulus plans also contains a nine-month eviction moratorium. “So this question—what is the more dominant driver of this key measure of performance? Policy or economics?—will likely bedevil researchers through this year,” the report states.
Vacancies are not the only metric the industry is watching, of course. Rents have slipped to record levels in certain markets like New York City. Asking and effective rents fell by 1.4% in the fourth quarter and 3% percent year-over-year, a new national record. (To add insult to injury, that decline is also about 150% as bad as those recorded in 2009 after the Great Financial Crisis.) This will be complicated somewhat by an uptick in new supply hitting the market. Around 37,000 units came online in the fourth quarter—a 30% pullback in supply growth but a significant amount of new units nonetheless, especially during an uncertain time.
However, 21 out of 82 markets surveyed by Moody’s recorded increases in effective rents in Q4—and the firm is predicting a return to positive rent growth nationally as soon as next year.