In a year of constant uncertainty and economic volatility when most sectors of the economy faced significant uphill battles, the multifamily market remained notably consistent. While investment totals generally dwindled, mostly due to a lockdown-affected second quarter, property values have actually gone up in a large number of markets. Amid significant change, we looked to identify a list of smaller markets that have shown resilience in market fundamentals, with some of these actually showcasing growth at a time when most gateway and high-profile secondary markets have struggled.
While the health crisis caused significant disruption in growth levels in rent and occupancy, as well as notable contractions for the job market, the metros on this list have shown resilience. With one exception, these markets reported an unemployment rate equal to or lower than the national average in September—with the highest one at 9.4 percent and the lowest at 3.9 percent. Additionally, developers completed more than 7,500 units in the 10 markets on this list, 57.3 percent of the 13,131 units that came online in all the 32 metros on our radar. What’s more, of the almost 55,000 apartments underway throughout the 32 metros, 52.1 percent are in the works in the 10 markets on this list.
What follows are summaries of performance for the second half of this list. Stay tuned for Part II, offering insights on the top five of our top 10 emerging multifamily markets.
|Rank||Market||Price per Unit||Units Completed||Units Under Construction||Unemployment Rate|
Knoxville enjoyed the fruits of an accelerating economy prior to the current volatility, attracting a highly skilled workforce and better positioning it for the effects of the downturn. The metro’s population rose 6.6 percent between the 2010 Census and July 2019, with most new residents coming from smaller cities in Tennessee. In the 12 months ending in September, Knoxville only lost 9,700 jobs, thanks to increases in the construction, business and services, and education and health services sectors. That’s equal to a 2.4 percent decline, proof of the metro’s resilience. The unemployment rate stood at 4.8 percent in September, a 160-basis-point uptick year-over-year and far below the national average.
With positive employment and demographic trends also came increases in development activity, occupancy and average rent. Developers completed some 1,900 units over the past two years, almost as many as in the previous three years, and were working on nine properties totaling more than 1,500 apartments in September. And as the pace of completions rose, so did the average occupancy rate, up 60 basis points year-over-year through September, to 96.6 percent—more than 200 basis points above the national rate. While national rents dropped 0.6 percent year-over-year through October, Knoxville’s average rate increased 4.4 percent to $1,072.
Birmingham continues to be a fast-growing multifamily metro, thanks to its strong automotive, life sciences and manufacturing industries, which in pre-pandemic times helped keep the unemployment rate among the lowest in the country. More recently, as most markets its size took a big hit from the health-induced economic volatility, the metro’s jobless rate more than doubled year-over-year through September to 6.3%. That’s still 140 basis points below the nationwide rate. In the 12 months ending in September, Birmingham lost almost 30,000 positions, with two sectors—leisure and hospitality and information—reporting double-digit losses. The overall contraction was equal to a 4.3 percent decline.
But as residents living within city limits continued to relocate to neighboring states or metros, Huntsville is expected to surpass Birmingham’s population in a decade. This trend, coupled with the effects of the pandemic, resulted in a 70-basis-point drop in the metro’s average occupancy rate year-over-year through September to 94.2 percent, 30 basis points below the national rate. While developers only completed some 400 units year-to-date through September, there were still more than 2,500 apartments underway in Birmingham, which placed the metro within the top 10 for units under construction.
Coming in at No. 8 is New Orleans, which has seen an incredible improvement in its multifamily fundamentals in recent pre-pandemic years. By diversifying its economy following the devastating effects of Hurricane Katrina, the metro significantly increased its population, adding more than 75,000 residents between the 2010 Census and July 2016, thanks in part to the low cost of living and doing business. However, between 2017 and 2019, metro New Orleans only added some 200 residents, with a decline in 2019 for the first time since Hurricane Katrina, as the cost of housing rose and people migrated to smaller and cheaper areas.
The occupancy rate hasn’t been significantly impacted by this trend, surpassing 94 percent for the entire period of slowdown in demographic growth. While the average rent rose 1 percent year-over-year through October to $1,024, the average per-unit price surged more than 90 percent, to $85,598 year-to-date through September, compared to the same period of 2019, as investors focused on less established markets. As a result, New Orleans ranked third for per-unit price increase among the metros on our radar. Additionally, the metro ranked fourth for units completed over the first nine months of the year, as developers delivered five communities totaling 1,179 units.
Metro Des Moines’ population rose 15.3 percent between the 2010 Census and July 2019, according to estimates, with a slowdown in growth in recent years. New supply came online at a faster pace over the past decade compared to the previous one, with an increase of more than 150 percent, to 13,000 units. As a result, the metro’s occupancy rate remained steady at roughly 93 to 94 percent throughout the period. Year-over-year through September, it declined 10 basis points, but with a nationwide eviction moratorium underway, the effects of the current economic crisis have not yet been felt in full.
With the second-lowest unemployment rate from the markets on this overall list, at 4.8 percent in September, the Des Moines job market was better positioned to deal with the health crisis’ consequences. And while it lost 22,800 positions in the 12 months ending in September, that’s a decrease of only 6.1 percent, well below the national average, with many larger markets reporting double-digit losses. And although the average rent stood at $964, unchanged year-over-year through September, Des Moines’ price-per-unit saw a 50 percent increase year-to-date through September compared to the same period last year, reaching $69,125 (though that’s still the lowest for the markets on this list).
Benefiting from its location, the metro has seen positive demographic trends over the past decade, with new residents coming in from neighboring markets and states, attracted by its lower cost of living and diversified economy. This resulted in an increase of 13.2 percent from the 2010 Census to July 2019, according to estimates. Savannah-Hilton Head posted an average rent of $1,179 as of October, up 1.6 percent year-over-year although still almost a quarter below the national average of $1,464. Its occupancy rate saw a significant uptick in pre-pandemic times but declined by 20 basis points year-over-year through September to 93.9 percent, 60 basis points below the national rate.
Because part of its economy is tourism oriented, the COVID-19 crisis and ensuing economic uncertainty have undeniably impacted the metro’s job market, with the leisure and hospitality sector contracting by 19.9 percent in the 12 months ending in September. However, the overall unemployment rate stood at 6.7 percent, 100 basis points below the national average, as Savannah’s professional and business services sector rose 13 percent, adding 2,700 positions. In spite of recent hardships, the small metro’s multifamily fundamentals remained strong, with more than 1,200 units completed year-to-date through October—ranking third among the metros on our radar for multifamily deliveries—with an additional 2,654 units still underway.
To determine a potential list of some of the country’s emerging markets, working with Yardi Matrix data, we first filtered out all MSAs with 2 million or more residents. Then we decided on a series of significant data points that would separate the best-performing markets from the rest. We looked at the increases in the average per-unit price for transactions closed year-to-date through September compared to the same period of last year, at how the employment market performed year-over-year, as well as the number of units completed over the first nine months and the number of apartments underway as of September. We then compared the resulting 32 markets based on their performance for these data points and eventually assigned them a final score. The lower the final score, the higher the metro’s rank.
Following up on our list of top emerging multifamily markets, here’s a look at market fundamentals and performance for the first five of our top 10 markets smaller than 2 million residents.
The national occupancy rate stood at 94.5 percent at the end of 2020’s third quarter, down 50 basis points year-over-year. The occupancy rates for the metros on this list ranged from 93.9 percent to 96.8 percent. Although transaction volume declined across the country last year, the per-unit prices in the 10 metros on this list, for sales closed through September, saw increases of as little as 9.3 percent (Omaha) and as much as 95.1 percent (Huntsville). Here is our full list of emerging multifamily markets.
|Rank||Market||Price per Unit||Units Completed||Units Under Construction||Unemployment Rate||Score|
Reno’s population rose 11.8 percent between the 2010 Census and July 2019, thanks in part to residents priced out of California relocating to this more affordable metro. The spillover effect positively impacted the average occupancy rate, which consistently surpassed the national average in recent years, standing at 95.7 percent in September 2020, 120 basis points above the nationwide rate. As a result of this increased demand, residential development activity in Reno skyrocketed over the past three years, when some 2,500 units came online, more than in the previous six years combined. Last year through September, developers completed 1,330 apartments, placing Reno first in delivery among markets on this list. Additionally, some 4,500 units were underway in September, making the metro stand out above the other markets on our radar for projects under construction.
Because Nevada classified construction as essential during its stay-at-home order back in late March and April 2020, the construction employment sector only lost 1,000 positions in the 12 months ending in September, equal to a 2.6 percent drop. In contrast, leisure and hospitality jobs were down 11.3 percent, or 4,900 positions. In total, the metro lost 14,200 jobs, amounting to a 4.9 percent decline. Meanwhile, its unemployment rate stood at 6.7 percent in September, on par with the national average.
Benefiting from positive employment and demographic trends, Omaha’s economy was expected to have a great year in 2020, but the COVID-19 outbreak brought a lot of uncertainty. However, the metro wasn’t as deeply impacted as other parts of the country. In September, Omaha had the lowest unemployment rate among all 32 markets on our radar, at 3.9 percent, 280 basis points below the national average and among the lowest in the country. Overall, the metro lost 14,100 positions in the 12 months ending in September, representing a 2 percent drop.
WIth Nebraska not restricting construction activity even during its initial 21-day stay-at-home order, developers completed six communities totaling more than 950 units year-to-date through September, with an additional 3,855 apartments underway. However, as the number of confirmed coronavirus cases continued to surge throughout October, the Harvard Global Health Institute included Nebraska on a list of 13 red-zone states, recommending a new stay-at-home order. One area where Omaha underperformed compared to the other metros on this list is in its per-unit price increase for sales closed in 2020 through September compared to the same period the previous year, with a jump of only 9.3 percent to almost $100,000.
Overall, Colorado has seen a substantial uptick in demographic trends, with all metros reporting increases over the past decade. While the population growth of Colorado Springs wasn’t the strongest in the state between the 2010 Census and July 2019, it far surpassed the national average 6.3 percent growth rate by a factor of more than two, at 15.5 percent. As a result, Colorado Springs’ occupancy rate rose significantly in pre-pandemic quarters, including a 30-basis-point increase year-over-year through September 2020, to 95.4 percent, 90 basis points above the national average rate.
The metro’s employment market contracted by 5,400 positions in the 12 months ending in September, equal to a 1.8 percent drop. While the leisure and hospitality sector lost 5,900 jobs, other sectors reported significant gains—in total, professional and business services, construction and trade, and transportation and utilities added 5,400 positions. All in all, its unemployment rate stood at 5.9 percent, outperforming national average trends.
In 2019, Pensacola consistently reported some of the highest increases in average multifamily rents, thanks to its robust employment market as well as a result of Hurricane Dorian. The metro’s population surged 11.9 percent from the 2010 Census to July 2019, with new residents moving in from elsewhere in the state as well as from Alabama and Texas. Developers took notice of this boom, and deliveries saw an upward trend in recent years, with 2,449 units completed between 2018 and 2019, more than the previous five years combined. In spite of the uptick in deliveries, the metro’s overall occupancy rate consistently surpassed the national average, although it saw a decline of 30 basis points year-over-year through September to 95.2 percent. And what’s more, nine communities totaling some 1,250 apartments reached completion year-to-date through September, the second-highest level among the markets on our list.
Pensacola lost 14,700 positions in the 12 months ending in September, equal to a 3.8 percent contraction. After reaching 11.8 percent in April, the market’s unemployment rate declined to 4.5 percent in September, a 130-basis-point increase year-over-year but still more than 200 basis points below the national average. And although the total sales volume declined by almost 50 percent year-to-date through September compared to the same period of last year to $190 million, the per-unit price rose by 32.5 percent to $175,971.
In recent years, Huntsville has reported robust multifamily fundamentals, thanks to its diversified economy attracting a highly skilled workforce. In fact, its population rose 13 percent between the 2010 Census and July 2019, according to estimates, a rate far higher than any other metro in Alabama. As a result, pre-pandemic estimates anticipated Huntsville becoming the state’s largest city within this decade. It remains to be seen how these trends have been affected by the current crisis, but one thing is clear: Huntsville’s occupancy outperformed the national average by more than 200 basis points, standing at 96.8 percent in September 2020.
With positive demographic trends also came an increase in development activity over the past two years. Developers completed more than 1,100 units between 2018 and 2019, 44.8 percent more than during the previous two years. And while deliveries year-to-date through September were rather low, with only 274 units, the same cannot be said about transaction activity. The per-unit price for deals closed in 2020 through September rose 95 percent compared to the similar period of the previous year, while the total sales volume increased more than three times to $293.3 million. Its outstanding investment activity last year, coupled with a high number of units underway, placed the metro at the top of our list.
Working with Yardi Matrix data, we first filtered out all metros with 2 million residents or more, and we ended up with a list of 32. Then, we decided on a series of significant data points that would separate the best-performing markets from the rest. We looked at the increases in the average per-unit price for transactions closed in 2020 through September compared to the same period of the previous year, at how the employment market performed year-over-year, as well as the number of units completed over the first nine months and the number of apartments underway as of September. We then compared the 32 markets based on performance of these data points, and eventually assigned them a final score.