Apartments Are a Tale of Two Worlds: CBD Versus Suburban
Apartment performance during the pandemic has been largely based on geography, says CBRE’s Spencer Levy.
The apartment market has bifurcated during the pandemic with some markets showing resilience and improving fundamentals, and others showing severe distress. It isn’t random; there is a clear patter: urban markets are hurting and suburban markets are thriving. Spencer Levy, chairman of Americas research and senior economic advisor for CBRE, called the dynamic the tale of two worlds at a recent virtual CREW San Diego event.
Central business districts are having a very bad day, he said in the event, citing a lack of price elasticity in urban cores to achieve full occupancy. But it is also more than that. “Even if pricing is cheap, people don’t want to be there,” he said. “Until people are back in the office, cities and central business districts will take a hit.”
The government agencies have been a silver lining, providing much needed liquidity to the market. One the other hand eviction moratoriums have been darker cloud. On the one hand, people have been able to stay in their homes, but the burden has been significant for landlords. Levy said, “the single biggest risk is implementation of more rent control. California has high risk of rent control measures.” He added that historically, rent control has not proven to increase supply. With the ongoing pandemic and eviction protections for tenants in place inevitably, Levy adds, “there is not a landlord/tenant judge who is likely to throw out a tenant today.”
While major markets are struggling—and implementing challenging regulations—smaller cities are growing. There has been a clear shift from coastal markets to cities like Nashville, Denver, Raleigh and Austin. The growth in these areas has come at a cost to New York and California. In California, however, Levy expects that there will continue to be an inflow of educated and talented people, which will help the market. The state is expensive, but it offers a lot of benefits, like talent and weather.
Millennials are helping to drive these trends. Many are making the decision to move to the suburbs due to lifestyle changes more than concerns about the pandemic. “They are just young human beings,” says Levy. “They will make same decisions when they get older as previous generations.” That includes moving to the suburbs.
Looking ahead to 2021, Levy said that the second half of the year will be the start of the recovery, and it will spill into 2022.