Gateway Metros Are Leading In These Key Multifamily Metrics
Rents are above pre-pandemic norms in several cities.
Gateway metros have posted the biggest increases in occupancy in recent months, with New York, Los Angeles and Chicago challenging the Sun Belt and Dallas-Fort Worth, Houston and Phoenix.
Rents are above pre-pandemic norms in cities like Chicago, which saw a 17.6% uptick in early 2022,as well as Boston, Washington, D.C., Los Angeles and parts of the Bay Area, all of which posted year-over-year pricing increases in the 10% to 18% range, according to Marcus & Millichap.
“Rent growth over the past year more than countered earlier cuts and pushed pricing to new highs in most gateway market locations,” the firm notes, adding that first quarter rents are 12 percent to 13 percent above early 2020 pre-pandemic prices in Los Angeles and Chicago.
Rents are still 2% under early 2020 prices in San Francisco, while San Jose’s average monthly rates trailed the past high by 3.9%, the firm said.
Marcus & Millichap also notes that gateway cities are notching considerable employment growth, with headcounts pushing up by 6.2% on average year-over-year in March in the six gateway cities the firm tracks. That’s compared to 4.5 percent for the U.S. overall.
“There is solid new household formation, particularly among young adults who have traditionally been attracted to gateway markets for their amenities and lifestyle characteristics,” the firm notes. “While some people who left these areas a year or two ago are returning, that is not the primary source of current apartment demand here. The locations that gained households moving from gateway metros in 2020 are not suffering resident loss, on net, at this point.”
Marcus & Millichap also notes that there is still room left for rents to push upward. All six of the major metros in this category posted two-year rent increases below the 17.3% US average, while pricing jumps clocked north of 30% in several key Florida markets, as well as Phoenix, Las Vegas and Riverside-San Bernardino.
And “looking ahead, gateway metros should maintain higher rent growth momentum relative to the country as a whole or today’s best performing metros,” the report notes. “Monthly rates have yet to jump significantly in most gateway markets relative to what is occurring in some other locations where new residents are filing in more rapidly. Furthermore, none of the gateway metros have vacancy issues or outsized construction activity that could derail returning momentum for rent growth results.”