U.S. market-rate apartments signed more new leases in May 2020 compared to May 2019, fueled by a surge in leasing activity over the second half of the month. The results are remarkable given a backdrop of double-digit unemployment and tens of millions of job losses.
In the last seven days of May alone, lease signings came in 19.4% higher than the same time period last year, based on same-store rent roll data sourced from millions of units on the RealPage platform. That followed an increase of 7.4% in the prior week. Prior to the second half of May, weekly new lease volumes hadn’t once exceeded the blistering 2019 pace – even prior to COVID-19.
Notably, some of the big coastal metros were exceptions, with sharp declines in leasing activity seen in New York, San Francisco and Boston, among others. Overall, though, 39 of the top 50 markets notched more new lease signings in May 2020 than in May 2019.
The strong numbers trace in part to pent-up demand unleashed by loosened shelter-in-place ordinances across the country. But another key factor is the comparative affluence of market-rate apartment renters, as economic data shows the bulk of job losses impacting lower-wage earners who are less likely to live in market-rate rentals.
Prior to COVID-19, apartment leasing volumes this year had consistently trailed the 2019 pace by modest levels. Leasing then plunged in the second half of March through the first of April. At the lowest point, weekly new leasing totals were down 46% year-over-year in the week-ending March 31.
For May 2020 overall, new apartment lease signings exceeded May 2019 volumes by 5.5%. Those signing leases did so at a discount compared to the same time last year. Executed new lease rents in May dropped 3.8% year-over-year. That’s not sizable enough to meaningfully stimulate demand, but rent cuts are becoming a key operational strategy in a highly competitive leasing environment. We continue to see a sizable gap between advertised market rents (even when factoring in offered concessions) and actual executed rents, reflecting that property managers are offering unadvertised concessions to close leads and also pushing longer lease term commitments in exchange for lower monthly rents.
The demand pickup in May wasn’t enough to offset a lack of demand in March and April. Since mid-March, total new lease signings are still down around 16% compared to the same time period in 2019.
Lease volumes are measured by day of signing, not lease start date or move-in. Apartment occupancy rates did inch back a slight 20 basis points in May. Most of the new move-ins in May came from leases signed prior to the surge in the latter part of the month. The lack of leasing volume prior to that indicates occupancy would have declined more if not for record-high retention rates.
Metro Leaderboard Includes Usual Suspects … and Some Surprises
Of the nation’s 50 largest metros, 39 recorded more new apartment lease signings in May 2020 than they did in May 2019. Another four metros recorded very slight declines of 2% of less.
That left six exceptions – nearly all big coastal cities. New York, San Jose, Cincinnati, San Francisco, Orange County, Chicago and Boston all saw sizable declines in year-over-year leasing volumes.
New York clearly traces this to its status as the North American epicenter for COVID-19, with few people moving into the city. The Bay Area results likely reflect cutbacks and extended work-from-anywhere programs among tech companies headquartered in the area. Notably, the Oakland metro notched sizable gains in contrast to declines in San Francisco and San Jose.
The top performers list features a mix of high-demand Sun Belt markets, steady Midwest metros plus a few big surprises. It’s important to note these numbers do not reflect demand leaders, but rather compare year-over-year results within the same metro. Some of the top performers in this list are slow-and-steady markets that did not see especially strong demand, but performed well relative to local norms.
Metros across the Southeast and into Texas recorded strong results with very few exceptions. Big gains relative to 2019 came in South Florida, Memphis, Greensboro, San Antonio, Fort Worth and Virginia Beach. Atlanta, Charlotte and Dallas also notched solid growth in lease signings. While these metros typically dominate demand leaderboards, it’s notable to see so many on a list measuring same-store new lease signings considering heavy new supply pressures in most of those areas.
More surprisingly, though, the list also includes some unexpected winners including Las Vegas, Houston and Orlando. Las Vegas and Orlando have been hard hit by exposure to tourism and hospitality, while Houston’s ties to the energy sector have raised concerns. These spots may have challenges maintaining strong demand, though.
Are the Demand Numbers Sustainable?
Strong demand numbers in the second half of May combined with high retention plus eviction moratoriums suggest occupancy rates should hold high through at least the next couple months. The next big milestone comes at the end of July, when federal unemployment benefits are scheduled to expire. Debate continues on whether to extend, modify or sunset those benefits. Congress is also considering industry-backed measures for direct rental assistance funding.
Is strong demand sustainable? We’ll explore this question in more depth in the near future, but apartments are not the only housing option reporting strong demand. Single-family homes – both for-sale and for-rent – are also showing signs of momentum. The numbers appear counterintuitive given the bleak economic backdrop.
Pent-up demand plays a role. Housing demand froze in the second half of March through much of April. That meant many households hit the pause button on housing decisions due to health concerns and shelter-in-place ordinances. As cities opened back up, many of those households able to do so have resumed surprisingly normal housing decisions. Spring and summer mark the peak season for housing demand, and it’s notable that so many households feel confident enough to lease or buy homes.
But the longer the economy languishes, the more unlikely it becomes for housing demand of all types to remain strong.