Regional Trends in Multifamily

■ Multifamily property performance has been stellar throughout most of the country during the current economic cycle, but even so there have been distinct regional differences in fundamental measures, investor demand and economic growth.

■ The West, Southwest and Southeast have outperformed in metrics such as rent growth, employment growth and transaction volume, according to a Yardi Matrix study of multifamily performance in 130 metros. Although growth was less robust in the Northeast and Midwest, those regions did exhibit steady gains in most fundamental categories.

■ The West and Southwest have led in rent growth for most of the economic cycle, but on a regional basis the gains converged in 2019. There was only a 30-basis-point difference between the metro with the most rent growth (the West, at 3.3%) and the Northeast and Southwest (3.0%).

■ Occupancy rates of stabilized properties at the end of 2019 were at least 94.6% in every region but the Southwest (93.7%). The Northeast led with an extremely strong average occupancy rate of 96.5%.

■ More than half (52.1%) of all the 298,000 units delivered in 2019 were in the Southeast (84,923) or West (70,434). All told, total completions fell 10.9% in 2019, as projects are taking longer from start to finish due to labor shortages and delays by local jurisdictions.

■ Investment dollars are flowing to the Southeast and West, which accounted for 60.0% of the $119.5 billion of transaction activity in 2019. Deal flow lagged in the Midwest and Northeast.

Rents

■ The Northeast ($2,066) and West ($1,824) have the highest rents in the country, while the Midwest ($1,091) lagged

the $1,383 national average at the end of 2019. In the Northeast, New York City and its suburbs had the highest rents,

led by Manhattan ($4,208) and Brooklyn ($2,942). In the West, areas with the highest rents include the San Francisco Peninsula ($3,165) and Los Angeles ($2,551).

■ Several years into a strong rent growth cycle, gains were remarkably consistent across the country, as a mere 30 basis points separated the five regions in rent increases. The West had the highest rent growth (3.3%), while the Southwest and Northeast were the lowest at 3.0%. During the previous three years, rent growth was led by the West with the Northeast the weakest, although the spread between the regions was much higher. The gap between the West and Northeast was 330 basis points in 2016, 290 basis points in 2017 and 180 basis points in 2018.

■ The convergence between regions is the result of several factors. Some metros in the West that experienced outsize gains in recent years due to a wave of demand slowed down to more normal rent increases. Metros where rent growth has declined in recent years include parts of San Francisco, Seattle, Los Angeles and San Diego. Technology firms have either reduced hiring or moved workers  out of high-cost metros into areas where employees could better afford rents.

■ Another reason rent growth has cooled in some regions is the growth in deliveries. Rent growth fell 60 basis points in 2019 year-over-year, as demand could not keep up with supply growth in metros such as Orlando, Atlanta and Miami.

■ Meanwhile, rent growth accelerated in the Northeast in 2019 due to strong performance from metros such as Washington, D.C., Boston, Philadelphia and New York boroughs Queens and Brooklyn. Demand has been strong for newly built Life style units.

■ Although it’s unlikely that rent growth will remain as geographically consistent as it was in 2019, the multifamily market is benefiting from strong demographic and population trends and the demand for new housing.