The U.S. apartment market has been flipped upside down during the COVID-19 pandemic, with developers completing smaller, more expensive units in cities while renters march toward older, bigger and cheaper digs in the suburbs.
In a new video, John Affleck, CoStar vice president of market analytics, said demand for larger apartments in the suburbs is outweighing demand for all the new studio and one-bedroom units in city centers. In downtown San Francisco, for example, asking rents are now down 16% from their March peak, he said.
“Rents in other tech hubs like Austin, San Jose, Seattle, Boston and Washington, D.C., have also fallen" for apartments in downtowns, he said. “The urban amenities that have enticed renters to pay $3,000 or more per month to live downtown remain largely closed — along with most offices. Without the commute to worry about, the suburbs of these markets must look increasingly attractive, offering more space for less money.”
The spring leasing season, usually the most important for landlords, was largely lost to the COVID-19 shutdown. There seems to be lots of pent-up demand, according to Affleck, but mostly in the suburbs.
“Virtually all the take-up has been for suburban product, where availabilities have returned to normal August levels,” said Affleck. “But [downtown] availability just keeps rising, and now stands above 8%, easily the highest level on record for stabilized product.”
According to CoStar, searches for new units on the company-owned Apartments.com are up significantly. But the short-term prognosis is grim for new rentals.
“Our baseline forecast anticipates demand to weaken further for several reasons. First, the $600 per week in additional unemployment benefits provided by the CARES Act expired at the end of July, and Congress has thus far failed to pass another round of stimulus,” said Affleck. “Second, demand tends to weaken in the second half of the year — a seasonal artifact that an extended leasing season may prevent."
He added that other factors include "record low mortgage rates will entice many high-earning renters to buy homes.”