The pandemic is squeezing owners of big apartment buildings, with a surge in vacancies leading to a decline in rent growth for the first time in years.
The U.S. vacancy rate for apartments rose to 5% in the third quarter from 4.6% a year earlier, according to Moody’s Analytics REIS. That’s the highest national vacancy rate since the first quarter of 2012. The firm predicts vacancies will climb to 5.4% by the end of this year and continue rising in 2021.
Meanwhile, a measure called effective rent declined 1.8%, the largest drop going back to at least 1999, when Moody’s began publishing quarterly data. Effective rent is what’s left after taking out concessions offered by landlords to woo tenants.
All told, 62 out of 82 major apartment markets tracked by Moody’s recorded declines in effective rents in the third quarter, up from two a year ago.
The trends are a boon for people looking to move to a new apartment, because they’re likely to have a wider selection and incentives to lower their cost.
“It’s totally a renters’ market in those large metros,” says Joshua Clark, an economist at Zillow Group. “In many cities we’re seeing extremely high shares of listings with concessions, the vast majority being actual months of free rent.”
Still, what’s good news for tenants is usually not favorable for landlords, including real estate investment trusts, or REITs, that own apartments across the country, including in Baton Rouge.
Despite demographic trends that continue to point to strong demand for rental housing as Generation Z comes of age, uncertainty over how long the pandemic will last and its impact on rental households’ ability to pay rent, have dimmed the outlook for apartment REITs and turned off investors.
While REITs overall are lagging the broader stock market this year, apartment REITs are among the worst-performing, along with owners of office and retail space, two commercial property types also hit hard by the pandemic as more people work and shop from home.
One concern is that more renters will miss payments as the pandemic and recession drag on. Because of their tax structure, REITs are required to pay out most of their income, which comes largely from rent payments, as distribution to shareholders. Read the full story.
