West Region Trails U.S. Norm for Pandemic-Era Revenue Growth
Since the start of the COVID-19 pandemic, apartment markets in the West region have seen revenues increase below the national average.
It goes without saying that the pandemic has had a tremendous impact on the nation’s multifamily market. One way to look at performance is to study the changes in revenue per occupied square foot, one of the metrics available in RealPage’s lease transaction data set which is comprised of more than 11 million individual apartment leases. This particular metric focuses on rent roll but does not include amenities or concessions, so it provides a nice apples-to-apples comparison of revenue performance across regions and markets.
When looking at revenue change by region since the beginning of the pandemic, the South saw revenues increase the most through 2Q22, surpassing the Northeast at the beginning of the year. The Northeast led in revenue growth up until that point, coming out of the gates hot during 2020 and surpassing the three other national regions by a wide margin.
Meanwhile, the slow-and-steady Midwest performed quite closely to the South during the early months of the pandemic, with revenue growth even surpassing the South region from mid-2020 to mid-2021.
The West was the only region to see a significant decline in revenue, which lasted from the start of the pandemic until around mid-2021. Indexed revenue change in the West eventually pulled up into positive territory in 3rd quarter 2021, averaging about 0.8%. By comparison, growth registered about 5.1% in the Northeast, 3.9% in the South, and 3.2% in the Midwest during that same July to September period. Still, the West has regained significant ground since that inflection point, slightly outpacing the other three regions for revenue growth through 2nd quarter this year.
Overall, the West region has seen nearly a 10% increase in revenue per occupied square foot since the onset of the pandemic, essentially tied with the Midwest, with both trailing the national norm of 12%.
Turning to look at yearly revenue change by region, the Northeast again really outperformed throughout 2020 with a net gain of nearly eight cents per occupied square foot, while none of the other regions achieved any meaningful gains over that period. In fact, in the West region, there was a slight decline of about three cents per occupied square foot during the year.
Revenue grew across each of the four regions during 2021, with the West regaining ground and seeing significant acceleration, especially during the second half of the year. Both the West and the South saw revenue increases of about ten cents per square foot during 2021, while growth in the Northeast tapered and performed more closely to the Midwest during the calendar year with each of those two regions achieving revenue growth of about five cents per square foot.
The first half of 2022 saw an uptick in revenue growth across the board. Revenue per square foot in the Northeast increased eleven cents per foot during the first six months of 2022, with the West region achieving a slight advantage ($0.12) and the South region ($0.09) following closely behind. By comparison, the increase in the Midwest landed at about half that amount ($0.06).
Overall, the West region added about $0.20 of revenue per occupied square foot since the onset of the COVID-19 pandemic, second to only the Northeast region ($0.24) and outperforming the national average ($0.18). Stated another way, while the West region trailed in percentage gain in revenue since the start of the pandemic, the region was still able to achieve the second-largest dollar gain in revenue per square foot.
Since the West region was among the leaders in COVID-era dollar revenue gain, it’s important to examine the individual performance in some of the larger investment markets in the region. Looking at total accumulated revenue gain by year, Phoenix really dominates, with about 38 cents of additional net revenue per occupied square foot added since the beginning of the pandemic. Despite moderate performance during 2020, revenue growth in Phoenix saw a strong uptick in 2021, with additional revenue of nearly twenty cents ($0.18) per occupied square foot added during the calendar year. Revenue change during the first half of 2022 landed closer to fifteen cents per square foot, closer in line with – but still outperforming – the other major West region markets.
Las Vegas also held onto revenue gains throughout the period, despite steep job losses in its Leisure and Hospitality sector earlier in the pandemic. After moderate (but still positive) in 2020, Vegas gained an impressive $0.16 per occupied square foot during 2021, just trailing Phoenix. With an additional eleven cents per square foot added in the first two quarters of 2022, Las Vegas takes the #2 spot in the region with about thirty cents per square foot added overall.
San Diego saw the largest gains during 2020 of about six cents per occupied square foot, with subsequent gains of about ten cents per square foot in both 2021 and the first half of 2022 landing the market in third place.
Meanwhile, Denver experienced essentially no revenue growth during 2020, but – similar to San Diego – added about ten cents per square foot in both 2021 and 2022.
Los Angeles and Seattle demonstrated surprisingly similar revenue performance, with both markets seeing total net gains of a little over ten cents per square foot ($0.12 and $0.11, respectively) overall.
San Francisco was certainly an outlier during this period, registering some of the steepest pandemic-era revenue declines among large markets nationally from 2020 into late 2021. Still, San Francisco reversed course during the first half of 2022, adding about $0.25 of revenue per occupied square foot over just those six months alone. Even so, revenue per square foot in San Francisco remained down about $0.30 compared to 1st quarter 2020.