With many states beginning to reopen in May, rents continued to decline from previous months, according to YardiMatrix’s National Multifamily Report for May 2020.
Although May rents increased by 0.8 percent year-over-year, they dropped on a national level by 0.3 percent month-over-month, slightly less than the 0.5 percent decline month-over-month in April.
Rents dropped most dramatically in major gateway markets that were quick to establish strict lockdown orders in response to the COVID-19 outbreak. YardiMatrix’s report noted that Washington, D.C., is currently the only gateway market where rents have not yet become negative year-over-year — but will also likely become negative in upcoming months.
Despite declining rents, May rent collections remained strong with 93.3 percent of apartment households paying some portion of rent by May 27, according to the National Multifamily Housing Council. The contrast between decreasing rents and strong rent collections may be due in part to some renters either downgrading to more affordable apartments or moving in with family and friends during the crisis.
Boston and San Francisco saw the greatest declines in year-over-year rents for all asset classes with a drop by 1.0 percent. Chicago (-0.9 percent) and Los Angeles (-0.7 percent) also saw significant declines — all four markets that have taken a slow and gradual approach to reopening in the wake of the pandemic.
Kansas City (0.4 percent), San Antonio (0.1 percent) and Baltimore (0.1 percent) were the only markets that maintained positive rent changes month-over-month between April and May. Houston and San Jose took the biggest hits month-over-month with a decline by 0.9 percent.
Nationally, rents dropped 30 basis points month-over-month during this period by $5 to $1,460. Over the past two months, rents have dropped nationally by a total of $13.
In part as a result of the additional $600 per week currently provided to those who have sought unemployment benefits through the CARES Act, rent collections have not seen significant declines as of yet. However, with this benefit set to expire at the end of July, upcoming months could show a rapid drop in rent collections if additional legislation is not passed in the meantime.
Those markets with high numbers of “durable employment sectors” — what YardiMatrix defines as jobs in government, finance and professional and technical services — will be at an advantage when unemployment benefits do expire.
Markets with high concentrations of durable employment sectors that are positioned to rebound quickly from the crisis include Lansing (44 percent durable jobs), Washington, D.C. (41.8 percent) and Sacramento (34.5 percent). However, markets with fewer of such jobs available — Las Vegas (19.8 percent durable jobs), Milwaukee (20.5 percent) and Memphis (20.6 percent) — may struggle more to recover from the crisis.
YardiMatrix’s forecast for year end rent growth shows only 11 out of 30 major cities maintaining positive rent growth through the end of 2020 with Sacramento (growth of 5.6 percent) and Indianapolis (growth of 3.3 percent) topping the list. With an economy largely dependent on tourism, hospitality and service, Las Vegas may be particularly hard hit in terms of rent growth by year’s end, with YardiMatrix forecasting a drop in rent by 8.7 percent by the end of 2020.