Unusual Developments Unfold Among Apartment Tenants
Renting's New Normal:
If you're a renter in a big city, you might be settling in for the long haul. The usual 50% turnover rate among apartment renters in massive urban markets is now down to an astonishing 30%. Real estate analyst Alex Goldfarb from Piper Sandler finds this trend "striking."
Why the change? Goldfarb points to several factors. An insane housing market, a shortage of rentals on the coasts, doubts about the economy and tariffs, the cost of moving, and the appeal of larger, comfier suburban apartments are all playing a role.
This slow shift has major implications for landlords. With more residents deciding to renew their leases instead of jumping ship, landlords are scoring better pricing and improved cash flow. Lower turnover means less need for repairs, painting, and cleaning - heavy expenses for landlords.
So, who are the winners in this market? Goldfarb recommends taking a closer look at Essex Property Trust and Equity Residential, thanks to their large West Coast footprints.
The rebound of S.F. and Seattle, boosted by a tech industry making its return to offices and AI innovation, is also helping the real estate market.
Goldfarb stays neutral on the Sunbelt, which previously shined during the pandemic. However, a potential recession that leads to job losses could hit companies like Camden Property Trust and Mid-America Apartment Communities hardest.
The overall multifamily market is also seeing a comeback. After a decline last year due to a surge in new supply, rents are up 0.9% year over year in the first quarter. This rise is thanks to solid positive net absorption - the change in occupied units - and lower vacancy rates.
For Kelli Carhart, leader of multifamily capital markets at CBRE, this drop in vacant units signals a significant turning point in the multifamily sector. She predicts increased investment activity in 2025, as improving fundamentals continue to boost investor confidence and capital deployment.
References:
- CNBC, "Trump's deal with the UK sends clear message: 10% tariffs are here to stay," Link
- CNBC, "The aluminum sector isn't moving to the U.S. despite tariffs - due to one key reason," Link
- CNBC, "Fed's Barr: Tariffs to boost inflation, slow growth later this year," Link
- Multifamily Executive, "Low Turnover Rates: Dealing with the Decline," Link
- The Balance, "What Causes Low Turnover Rates in a Rental Property?" Link
- The extraordinary drop in apartment renter turnover rates in large urban markets may signal a permanent shift in the housing-market, with renters choosing to stay instead of moving, due in part to economic uncertainties, high costs of moving, and the appeal of larger suburban apartments.
- Real estate analyst Alex Goldfarb from Piper Sandler points out that this phenomenon has significant implications for landlords, as better pricing, improved cash flow, and reduced maintenance expenses result from tenants opting to renew leases.
- Goldfarb recommends investors consider companies like Essex Property Trust and Equity Residential, given their strong West Coast presence and the potential for continued growth in the San Francisco and Seattle real estate markets.
- The tech industry's return to offices and AI innovation are driving the rebound of these major cities, which could lead to increased investment in the housing-market and real-estate sector.
- However, Goldfarb expresses caution about the Sunbelt, suggesting that job losses during a potential recession could pose a threat to companies such as Camden Property Trust and Mid-America Apartment Communities.
- The multifamily market is experiencing a comeback, with rents increasing by 0.9% year over year in the first quarter due to solid positive net absorption and lower vacancy rates.
- Kelli Carhart, leader of multifamily capital markets at CBRE, believes that this decline in vacant units marks a pivotal moment in the multifamily sector, predicting increased investment activity in 2025 as improving fundamentals encourage investor confidence and capital deployment.
- As the economy is expected to suffer from inflation and potential recession due to factors like tariffs, investors should carefully consider their investments in the finance, business, and real estate sectors, paying particular attention to the absorption rate and vacancy rates in the housing-market and multifamily market.
