National apartment vacancy rates are rising, but a new multifamily report from Moody’s Analytics REIS says that the higher rate isn’t a concern. This year, the multifamily vacancy rates increased 30 basis points to 5%, but they remain well below the long-term average vacancy rate of 5.2% to 5.4%.
Apartment occupancy has remained stable for two reasons: the relatively low COVID-19 fatality rates and eviction moratoriums, according to the Moody’s report. Although COVID-19 infections have become more severe, the death rate has remained stable throughout the pandemic with minimal impact on household population formation. In addition, eviction moratoria have all but halted household movement through most of the US.
Moody’s is forecasting rising apartment vacancy through 2021, but the rate should not exceed historical peaks during economic dislocation. By the middle of next year, the report anticipates national apartment vacancy of 6.5%, significantly below the vacancy rate of 8.1% in early 2010, the current record.
Thankfully, new construction activity has moderated since the start of the pandemic, helping to subvert a supply-demand imbalance. Apartment deliveries have declined 30% this year over 2019 construction rates. However, new supply from ongoing construction projects will come to market through 2021, driving the increased vacancy noted above. After a peak in 2021, Moody’s anticipated the vacancy rate will decline sharply.
The decline in occupancy rates and stifled household movement has put downward pressure on apartment rents. National rents declines 1.8% in the third quarter and effective rents fell 1.9%. These are record declines in apartment rents—the worst on record since Moody began recording data in 1999—and a notable event considering the asset class is generally stable during periods of a recession. By the end of the fourth quarter, it is likely that apartment rents will be down 2.6% and effective rents will decrease 2.8% for the year. This trend is likely to continue through the next calendar year.
On the bright side: apartment rent declines have started to slow. The December 2020 National Rent Report from Zumper found that median apartment rents remained flat in December.
And Zillow predicts that slipping rent growth will make a full recovery in 2021.