Which Multifamily Markets Held Up the Best in the Last Downturn?

Every market downturn differs from its predecessors due to broad market conditions going into the down cycle, root causes of the recession and varying impacts on U.S. industries.

With varying economic drivers and market conditions prior to the downturn, metro market performance can also differ from downturn to downturn. Still, analysis of multifamily performance by metro during the past recession is insightful and may reveal some patterns going forward.

This analysis is based on the largest 25 metros and focuses on rent change and vacancy change. The time duration of the peak-to-trough and trough-to-recovery periods are also noted on the tables.

Market statistics, however, do not pick up loss of income from rent payment delinquencies and credit defaults, so the downturn revenue experience is understated (as is also the recovery in revenues).

Figure 1: Metro Market Rent and Vacancy Change in Last Downturn

Rents Fell the Least In Baltimore & Washington

Average market rents peaked in the last cycle in either Q2 2008 or Q3 2008 and fell for five to six quarters on average. Therefore, Q4 2009 and Q1 2020 were the troughs for most markets. Los Angeles was one of the few markets to get a later start on recovery.

For all U.S. markets, the average change from the peak rent to trough was negative 7.9%. Baltimore had the lease amount of change followed by Washington and Philadelphia among the 25 metropolitan areas analyzed.

Five markets experienced double-digit rents declines, led by Phoenix at -15.1% and Seattle at -13.7%. (Another example of two markets which have experienced impressive performance in recent years following a very difficult period in and after the 2008 recession.)

The recovery cycle varied greatly by market (much more than the downcycle), a pattern likely to be replicated in 2020 and 2021, particularly the length of the recovery period. Timing is a significant factor of how a market performs both as a market worsens and as it improves; the longer the market is at lower rents and higher vacancy, the more revenue declines it experiences.

Figure 2: Rent Experience Through Last Downturn-Ranked by Change

Vacancy Gain Averages Just Under Two Points

In and after the 2008 recession, vacancy rose in all markets and at about the same time. The average increase for all markets was 180 basis points. A few markets were experiencing increased vacancy prior to the recession, including Tampa and Orlando. Therefore, the cycle data does not completely reflect the downcycle experience (since vacancy is measured from the 2008 low to the subsequent high). The other markets with lower than average changes were those that were more stable through the preceding expansion period. New York, Houston and Minneapolis experienced vacancy gains of three points or more. (We believe the New York high of 5.7%, however, may be skewed and is under review.) The periods from vacancy low to vacancy peak were fairly short averaging only two or three quarters. However, the vacancy recovery periods varied significantly.

Figure 3: Vacancy Experience Through Last Downturn-Ranked by Change