Apartment leasing activity at the end of 2020 was exceptionally strong compared to historical norms as demand remained high among tenants in the typically slow winter season.
There were 79,000 net units absorbed in the fourth quarter of 2020, which was the first fourth quarter of positive net absorption since 2017, according to RealPage, a real estate data and analytics company. As a comparison, in the fourth quarter of 2019, there was a net loss of approximately 20,000 units. Additionally, the RealPage data indicates that 2020’s fourth quarter doubled the net leasing volume for the decade’s previous fourth quarter record high of 37,000 net units in 2014.
The second quarter usually has the highest net unit lease-up. However, the COVID-19 pandemic forced a slowdown in leasing in 2020’s second quarter, pushing the overflow of demand later into the year.
The third quarter of 2020 saw an enormous rebound in leasing demand, resulting in more than 146,500 net units leased. The unusually high leasing activity in 2020’s fourth quarter helped bring annual leasing to 296,000 net units, which was only 9% lower than 2019’s total, RealPage noted. That means more than 75% of net units leased for the year came in the final six months of 2020. Over the year, cities in the Sun Belt region, including Dallas, Atlanta, Houston, Phoenix, Denver and Charlotte, had stronger absorption performance than major coastal metro areas, according to RealPage.
The late leasing surge occurred despite a record wave of coronavirus cases in the end of the year. However, it’s in line with the performance of the multifamily sector as a whole, which has consistently proven to be one of the most resilient asset classes in past recessions and during the pandemic-driven fallout. For example, a strong percentage of households have continued to pay their rents each month since the pandemic began, and average occupancy rates continue to be high. While rent growth fell during the pandemic for coastal cities, there has been substantial rent growth achieved in the Midwest and Southwest markets.
The multifamily sector has been bolstered by the federal government’s first and second stimulus packages, which provided checks to individuals and households in certain income ranges, extra unemployment payments, and forgivable loans to small businesses to keep workers on staff. The federal relief aid supported families during the pandemic, allowing many to meet their financial obligations, including rent. Congress is currently negotiating legislation based on President Biden’s $1.9 trillion proposal for a third COVID-19 stimulus package.
Leasing activity initially slowed in the second quarter of 2020 when many workers lost their jobs as uncertainty was high and companies implemented cost-cutting measures. However, there are positive signs pointing to an improving economy. In January, the country’s unemployment rate fell to 6.3%, continuing a steady drop each month from a high of 14.8% in April 2020. As the economy seems to be gaining strength, it appears people are continuing to show high interest in leasing new apartments.