Apartment Demand Hits Record Cyclical High

Consumer demand for apartments hit a record high in the third quarter of this year, with new data from RealPage showing that the nation’s occupied apartment count jumped by a staggering 255,094 units from July to September. The figures mark the biggest quarterly absorption since the 1990s.

Annual demand data as of Q3 registered at 597,354 units, well beyond a prior cyclical peak of 380,000 units recorded in the third quarter of 2018. Annual demand over the decade spanning 2010 to 2020 averaged around 250,000 units.

Demand was particularly strong in Class A projects, and overall demand was bolstered by the rising costs of homeownership and highly competitive housing markets, both of which pushed would-be buyers back into rentals. Demand was also bolstered by household formation increases.

Gateway metros appear to be poised for a comeback after being all but decimated by the pandemic’s darkest hours; New York ranked topped metro-level demand estimates for Q3, pushing Dallas/Fort Worth from its usual #1 position. The number of occupied apartments in NYC grew by 24,800 units over the course of the quarter. 

Quarterly absorption hit 16,500 units in Los Angeles, 12,100 units in San Francisco, metro Oakland and metro San Jose combined, about 11,700 units in Washington, DC and approximately 10,300 units in Chicago, according to RealPage.

In non-gateway cities, occupied apartment counts increased by just more than 19,000 units during Q3 in Dallas/Fort Worth, with 14,700 of those in metro Dallas. Houston also saw its counts grow by about 15,300 units.

Also worth noting: “extremely high apartment occupancy held back apartment demand in some locations during the third quarter,” according to RealPage. “There was essentially no more product available to be absorbed in metros like Riverside-San Bernardino, Virginia Beach, Sacramento, Greensboro/Winston-Salem and Memphis.”

RealPage analysts predict near-term demand for apartments will remain well above historical norms, but that absorption will likely ease from 2021 highs.

“With bargain rents now mostly in the rearview mirror in gateway metros, the demand comeback in these areas could slow,” the report notes. “The youngest renters have played an especially big role in apartment leasing activity in gateway metros during 2021, with reduced prices spurring demand from households who previously couldn’t afford living in these locations unless they teamed up into multiple roommate households. At this point, rents are roughly at or meaningfully above pre-pandemic prices everywhere except the San Francisco Bay Area.”

RealPage also predicts build-to-rent SFRs will drain demand from rentals, especially in the Sun Belt where such construction is booming, but “we’ll have to wait and see how demand sources for this line of product are split among those who previously rented apartments, those who previously rented older single-family product from mostly mom-and-pop landlords, and those who are downsizing from larger single-family homes that they owned,” RealPage analysts note.