COVID-19 Slows Apartment Demand
Apartment demand normally increases when spring arrives, but this year could see significantly lower volume due to the coronavirus threat, said RealPage, Richardson, Texas.
RealPage noted apartment leasing volume normally peaks during the second quarter. In 2019 April, May and June represented 54 percent of annual demand.
“Apartment owners and operators now may be facing a short-term demand drop compared to the leasing activity realized in the previous couple of years,” said RealPage Chief Economist Greg Willett and Head of Data Science Rich Hughes. “With layoffs already being announced in select industries, the economic machine that fuels housing demand is losing momentum. Even those with secure employment face disruptions in their day-to-day routines when social distancing is being encouraged by health care experts.”
With fewer households looking to change their living arrangements, driving new deliveries through initial lease-up could be “difficult,” the report said. “Rent discounting is likely to be widespread among properties building their initial resident bases. Use of concessions also could grow in the upscale existing projects that are vulnerable to losing residents to nearby new communities.”
Sector analysts had expected more than 370,000 market-rate apartment units to deliver this year, up 50 percent from 2019’s new supply. But RealPage said fewer units than that will actually come online this year due to building delays from the coronavirus threat. “Supply chain disruptions could lead to shortages of construction materials, and it likely will be difficult to sustain full construction crew staffing,” the report said.
RealPage said if the economy falls into a recession middle-market Class B properties and lower-end Class C communities will likely hold up better than the Class A space. “Job loss could trigger move-outs across the product spectrum,” the report said. “However, since vacancies in Class B and C product are so limited, moderate loss of momentum at those properties still would leave them essentially full. Furthermore, price discounting at Class A developments likely won’t create much move-up demand among renters of Class B product, since the difference in monthly rents for those two product lines is quite sizable in most locations.”