Urban Multifamily Hit by Market Downturn

The dichotomy between urban and suburban market performance is one of the most talked about phenomena in multifamily performance today.

Urban core submarkets are experiencing more loss in effective rents and occupancy than non-urban core markets. Q2 2020 statistics of 11 diverse markets confirm this trend and illustrate variations on the theme.

Further research over the coming months will provide more explanation of the causes of weaker urban performance. The big picture is that demand has weakened due to the temporary decline in the attractiveness of urban centers and to the work-from-home mandates (flexibility to work from anywhere) for now. The more expensive and denser metropolitan areas seem to be the most vulnerable from this aspect. The loss of students has also impacted some urban cores.

New supply is the other big driver. Development activity has been high in many urban core submarkets for several years, but the impact is exaggerated when there is reduced demand and greater sensitivity to high rents.

Urban core performance in Minneapolis, one of the sample's two Midwest markets, was weaker than for the metro, but not by much, and Kansas City showed no difference. The Midwest markets generally held up well in Q2 2020. New York City's performance does not seem as bad as what headlines would lead one to believe. However, the San Francisco statistics confirm the concerns for that market.