Apartment Rents Take a Dive in Urban Core Markets

Apartment rents in urban core markets are beginning to drop as the impacts from the pandemic set in. Class-B and class-C rents were the first to struggle with rents and rent collections, but the trend has trickled up to larger buildings. New data from Real Page shows that rents have declined 1.7% in the top 50 markets in the US. This is the first time since 2010 that rents in these markets have decreased. By comparison, national rents have only dropped .2% during the same time.

Suburban rents are outperforming the urban core. During the pandemic, rents in the suburbs have actually increased, up .4%. This trend isn’t necessarily new. Suburban rents have been surpassing urban rents for the last several years. Urban markets tend to be more expensive than the suburban markets, and younger renters often occupy apartments in these markets. As a result, urban markets have been more impacted by the economic destabilization caused by the pandemic.

The move to slash asking rents came after occupancy rates fell in the second quarter. Occupancy in the urban core has remained stable at or above 95% for the last business cycle. During the first half of the year, occupancy rates fell by more than 100 basis points. In the urban core, occupancy now nears 93%. Interestingly, occupancy rates also fell in suburban markets, although to a lesser degree. Still, suburban markets have yet to see the same decrease in asking rents.

The Downtown/University submarket in Austin led the urban core in rent decreases, declining 8.4%. Downtown San Francisco and Downtown Los Angeles rounded out the top three on the list, with rents falling 7.8% and 6%, respectively. In general pricey gateway markets and markets with active new construction activity have seen the most significant decline in asking rents. As a result, the list included four markets in California, which until the pandemic had seen strong rent growth, and in markets like Boston, which are both expensive and heavily supplied.

Austin was really the only anomaly on the list; however, the Real Page report notes that it has been both a high-development market and a high-performing market at times during the last decade, and as a result has seen big increases and decreases in rental rates. In 2009, apartment rents fell 13%—the steepest decline on record, while rents climbed 14% in 2011. These swings have become typical for the market. Furthermore, the Downtown/University area is the most expensive neighborhood in Austin, which is on trend with the other markets.

Apartment rent collections have also continued to decline through the pandemic, which has also prompted landlords to cut asking rents. In September, apartment rent collections declined by 2.4%, according to the National Multifamily Housing Council’s Rent Payment Tracker, and fewer renters made a full payment in mid-September than in mid-August.