2 South Florida Counties Rank High Nationally for 2Q Multifamily Rent Declines

Two South Florida counties are in the top five nationally for rent declines in the second quarter when the coronavirus pandemic sent unemployment rates soaring, especially in the region’s hard-hit tourism market.

Multifamily investment continues to be attractive, even through the pandemic. However, with mass job losses across the country and severe economic dislocation, multifamily market fundamentals have shifted, and along with them market performance has changed as well.

A new report from Moody’s Analytics REIS ranks the top five and bottom five markets for multifamily investment based on quarterly rent changes.

Nationally, both asking and effective rents fell 0.4% in the second quarter. In some markets, rents declined substantially. San Francisco effective rents fell 3.3% in the second quarter, the largest quarterly decline since 2001 when the terror attacks and the dot-com bust overlapped, according to the report.

Unsurprisingly, San Francisco is also at the top of the list for the worst performing rental markets in the country with an overall rent decline of 2.7%.

Rounding out the worst performing apartment markets were Westchester and Fairfield counties in New York and Palm Beach and Miami-Dade counties.

While San Francisco has seen the most substantial decrease in rents, the remaining markets are closer to the national trend. Westchester and Fairfield rents decreased 0.8%, Palm Beach rents declined 0.7% and Miami-Dade rents were down 0.4%.

The top five markets for rental growth are Lexington, Kentucky, Knoxville, Tennessee, Phoenix, Nashville and Minneapolis. All five metropolitan areas, ranked in order of improvement, saw rent growth through the COVID-19 pandemic.

Lexington had 5.9% rent growth, while Knoxville hit 4.9%, Phoenix 4.6%, Nashville 4% and Minneapolis 3.7%.

The second-quarter drop is seen as only the beginning of declining rents. According to a report from CBRE, both occupancy rates and rental rates are likely to decline through the end of the year.

The report predicts multifamily will bottom out in the fourth quarter with an 8.1% decrease in rental rates and a 3.1% increase in vacancy rates. Vacancies are expected to fully recover within a year, and a full rent rebound is expected in early 2022.

These predictions assume the virus will be contained by the end of the year. If the outbreak carries into 2021, the market could see more hardship.

Despite these trends, multifamily remains one of the most attractive asset classes for investment. The same CBRE predicts multifamily performance will make the asset class among the fastest to recover.

Investors are continuing to wait cautiously. In addition to uncertainty around rents and leasing, the election will play a crucial role in apartment investment decisions.

Berkadia’s 2020 Mid-Year Powerhouse Poll predicts multifamily investment activity will not return to normal until 2021 because the impacts of the pandemic have not yet been realized. Investors also hope for more government relief, making the election even more important to real estate than in previous years.