{"id":24496,"date":"2020-06-18T09:23:37","date_gmt":"2020-06-18T16:23:37","guid":{"rendered":"https:\/\/www.yardi.com\/blog\/?p=24496"},"modified":"2026-02-22T15:27:53","modified_gmt":"2026-02-22T23:27:53","slug":"rents-drop-prompting-concern","status":"publish","type":"post","link":"https:\/\/www.yardi.com\/blog\/rents-drop-prompting-concern\/","title":{"rendered":"Rents Drop, Prompting Concern"},"content":{"rendered":"

When you think about a 0.3 percent drop in anything it hardly seems like a big deal. It\u2019s just 3 pennies on every 10 dollars. If you are an apartment operator and that reflects the national average on rents for May compared to April, some would figure it\u2019s something not too difficult to make up.<\/p>\n

But what if it isn\u2019t? The three-tenths of a percent is the drop for one month, and 12x that comes to 3.6 percent annually. Quickly, that could become serious.<\/p>\n

\"\"<\/p>\n

During what would typically be the middle of prime leasing season, rents declined nationally by 0.3% on a month-over-month basis, reports Jeff Adler, vice president of Yardi Matrix. He describes that drop in rents as startling.<\/p>\n

\u201cIs it a harbinger of things to come? A warning sign?\u201d Adler says. \u201cWhen rents being offered to new residents drop like that month-over-month, year-over-year you have to ask yourself.\u201d<\/p>\n

Adler says current national multifamily occupancy rates are mostly steady (a good thing). And there\u2019s no deterioration in demand as measured by apartment search activity, which is also positive.<\/p>\n

\u201cBut this is peak leasing season,\u201d he adds. \u201cFalling like this would be at a rather significant clip. If we see it again next month, then demand will not have stabilized. And data show this is happening to high-end apartment communities.\u201d<\/p>\n

The steepest declines in rents on a MoM basis were seen in major gateway markets that were among the first to impose strict lockdowns. Smaller markets are not immune and have seen substantial MoM rent declines as well.<\/p>\n

For this \u201cgeneral rolldown\u201d in rents, Yardi Matrix has\u00a0observed year-over-year price decreases\u00a0of -0.6 percent to -1 percent for houses for rent in Los Angeles<\/a>, San Jose, Houston, Orlando, Denver, San Francisco and Chicago.<\/p>\n

Unprecedented Swiftness<\/strong><\/p>\n

Many long-standing observers and employees of the multifamily industry can point to real estate\u2019s cycles, and to the Great Depression, back around 2008-09, when rent declines were similar.<\/p>\n

\u201cBut the swiftness of what we\u2019re seeing now is unprecedented,\u201d Adler says. \u201cBack then, job formations were slowing and you could almost read between the lines to know something bad was coming up. There were signals. This time, it\u2019s sudden. This time it\u2019s being caused by a health issue. We are counting on a vaccine or treatment to COVID-19 to turn the tide.\u201d<\/p>\n

Job creation, of course, is helpful. Job losses, however, equate to income losses and ability to pay the rent, and inability for owners to stabilize (if not raise) rents.<\/p>\n

\u201cFor the sake of the industry, let\u2019s hope that six months down the road things are different,\u201d Adler says. \u201cWouldn\u2019t it be great to go back to how it was in February, or even in 2019?\u201d<\/p>\n

Some can speculate that the \u201cbusy season\u201d for leasing could move to fall this year.<\/p>\n

Look at These Numbers<\/strong><\/p>\n

Yardi Matrix also reports that national average rents decreased $5 to $1,460. Kansas City (0.4 percent), San Antonio and Baltimore (both 0.1 percent) were the only markets to show increases from April to May; 23 markets remain negative on a month-over-month basis. the last two months overall, rents have declined by $13.<\/p>\n

\u201cIf rents continue this rapid downward trend, we could be looking at alarming numbers by the end of the summer,\u201d Adler says.<\/p>\n

The markets with the most severe MoM declines include Houston and San Jose (both -0.9 percent) and Nashville, Orange County and Seattle (all -0.8 percent). Houston tends to be among the most volatile markets in a normal month, and given the rapid decline in oil prices the road to recovery in Houston could be extended. San Jose, Orange County and Seattle were among the first markets to impose stringent lockdowns. Seattle only entered Phase 1 of reopening on June 5.<\/p>\n

Social Unrest Could Affect Urban Rents<\/strong><\/p>\n

Apartment operators also must consider the social unrest that is going on in many urban centers.<\/p>\n

\u201cWhat\u2019s going on right now — with the role police will play in society \u2013 these urban areas are up for grabs,\u201d Adler says. Respectful policing in our communities will help them to thrive. History shows that if there is a shift away from urban to suburban it will happen gradually.\u201d<\/p>\n

The social demonstrations also bring to mind the 2019 push for opportunity zones. This is a designation and investment scheme created by the Tax Cuts and Jobs Act of 2017<\/a>, allowing for certain investments in lower income areas to have tax advantages. The purpose of this program is to put capital to work that would otherwise be locked up due to the asset holder’s unwillingness to trigger a capital gains tax. States may designate up to 25 percent of low-income census tracts as Opportunity Zones.<\/p>\n

\u201cEverything I\u2019ve heard is that all of these projects are moving forward,\u201d Adler says. \u201cThese decisions are not being overshadowed by events. These projects are being penciled out. Given the capital cost advantages that are out there now, you can see why.<\/p>\n

\u201cIf we are heading into the depth of a recession, then this sometimes is the best time to start them. They won\u2019t be completed for three to five years and a lot could change by then. It\u2019s the projects that are being completed now that you might have to worry about.\u201d<\/p>\n

With so much to observe and monitor closely, it\u2019s vital to keep up with the latest industry data. Find all the latest market information from Yardi Matrix<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

When you think about a 0.3 percent drop in anything it hardly seems like a big deal. It\u2019s just 3 pennies on every 10 dollars. If you are an apartment operator and that reflects the national average on rents for May compared to April, some would figure it\u2019s something not too difficult to make up. […]<\/p>\n","protected":false},"author":470,"featured_media":24497,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_s2mail":"yes","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2791,4],"tags":[2808,157,29,1169],"class_list":["post-24496","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-matrix","category-news","tag-covid-19","tag-economy","tag-multifamily","tag-yardi-matrix"],"acf":[],"yoast_head":"\nYardi Blog<\/title>\n<meta name=\"description\" content=\"When you think about a 0.3 percent drop in anything it hardly seems like a big deal. It\u2019s just 3 pennies on every 10 dollars. 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