2020 was a year for the record books because it wasn’t uncommon to see many multifamily tenants nationwide moving, especially during the height of the COVID-19 pandemic.
This was understandable, especially since nobody wanted to catch the virus and movers left the city in record numbers for suburban destinations.
One year later, many of those same renters who left cities like Chicago, Los Angeles, and other major cities nationwide are coming back in record numbers but the one state that continues to lead the way in multifamily absorption is Texas.
Multifamily Absorption Is Red Hot In Texas
The Lone Star State continues to attract people from across the United States in record numbers as most people who choose Texas are eager to escape high taxes and regulations that are prevalent in other states.
Which Texas cities continue to attract the most renters?
Dallas continues to be the top relocation destination in Texas as more people continue to migrate to the ‘big D’ to be a part of the healthy jobs market and a wide variety of amenities that the Dallas area offers.
Following Dallas, the other hot cities in Texas for multifamily absorption are Austin, Houston, San Antonio, and Laredo.
Will the relocation trend to Texas continue? The answer to this question is yes, especially as more people continue to get vaccinated and resume their relocation plans that they may have put on hold for the last twelve months to deal with the virus.
Is Texas tapped out for multifamily investors? Not even close! With a state that’s the size of three small countries, there’s plenty of cities that offer multifamily properties.
For example: In the Dallas area, if you travel just 30 minutes away from Dallas, you’re going to see that there are plenty of excellent cities for multifamily to choose from including Plano, Frisco, Flower Mound, Richardson, Irving, and Fort Worth.
Travel to Central Texas, and you will see that the same is true there as well because just outside of Austin you will find the thriving communities of Hutto, Wells Branch, Leander, Georgetown, Pflugerville, Round Rock, Temple, and Killeen.
There’s an opportunity to be found in Texas for multifamily investors; if you’re planning on adding a piece of the Lone Star State, don’t let 2021 slip by without making your move because those same properties may be gone next year.
Besides the big news about Texas leading the way with multifamily absorption, the good news is that multifamily absorption in most gateway cities nationwide is returning to normal as well.
Perhaps most encouraging, however, is the rebound in large, high-cost gateway metros where absorption was negative last year due to the pandemic. Chicago, for example, was second only to Dallas with just under 7,000 units absorbed through April, after posting negative demand (-1,800 units) in 2020.
Other gateway metros with strong year-to-date numbers are San Francisco, which has absorbed 3,400 units in 2021 after 2,200 units of negative absorption in 2020; San Jose, which absorbed 1,300 units after -2,000 last year; and New York City, which has absorbed 2,400 units through April after -16,000 in 2020. Also surpassing their performance are Washington, D.C. (4,500 units absorbed through April), Los Angeles (4,000), and Boston (3,100).
High-rent metros with large central business districts saw a wave of move-outs and little in-migration in 2020 as office buildings stayed largely empty. As vaccination programs sharply reduce the spread of the virus, cities are re-opening, and evidence suggests that residents are starting to return. Although recovery may take months or even years, positive demand is a welcome sign for apartment owners in urban markets.
Since 2013, when recovery from the Great Recession began in earnest, the U.S. has absorbed 283,000 multifamily units on average annually. The pandemic didn’t impact the overall number as much as was feared, given the downturn in the economy and the loss of as many as 20 million jobs, but it created a bifurcation, with demand concentrated in secondary and tertiary markets and suburban areas of large metros.
In 2020, absorption was positive in secondary and tertiary metros, at 2.3 percent of total stock; in gateway metros, absorption slipped 0.2 percent. Rent growth was highest in smaller, less-expensive markets. Tertiary metros saw rents grow 3.1 percent in 2020, compared to 0.4 percent in secondary metros and a 6.1 percent decline in gateways.
Those numbers are flipped somewhat in 2021. Year-to-date demand has been led by gateway and secondary metros, which have absorbed 1.0 percent of the stock, with tertiary markets absorbing 0.6 percent. Rent growth still favors less expensive metros, however. In tertiary locations, rents have risen 2.0 percent year-to-date through April, compared to 1.6 percent in secondary metros and 0.1 percent in gateway markets. It appears that demand remains focused on properties with rents that are affordable for middle- and lower-income households.
The robust absorption numbers are reflected in apartment rent growth, which has rebounded strongly in 2021. Nationally, rents are up 1.6 percent year-to-date, reaching an all-time high of $1,417, according to Matrix.
Contact Trier Capital
At Trier Capital, we help qualified investors around the world get their piece of the multifamily real estate market in the United States.
Now is the right time to invest in multifamily in the USA, especially as our country has evolved into a nation of renters over the years.
If you’ve been thinking of investing in a multifamily property for the first time, or are planning on adding another multifamily property to your investment portfolio, now is the right time to make your move.
Multifamily real estate investing has proven to be one of the best asset classes for long-term wealth accumulation. It is coveted by the wealthy as a valuable addition to traditional stocks and bonds. And not only is it an excellent hedge against inflation and recession but owning real estate provides significant tax advantages compared to stocks and bonds.
Learn more about partnering with us by calling us at (630) 229-2383 or click here to connect with us online.