Market recovery is the central theme to U.S. multifamily in 2021.
Three key questions revolve around this theme. When will each market reach the bottom of the cycle? What is the total expected rent loss for each market's downturn? When will each market reach full recovery?
To answer these questions, we analyzed CBRE Econometric Advisors' projections for effective rents for the 40 largest U.S. markets, calculating three vital metrics. The research provides a foundation for 2021 investment timing and market selection decisions.
- The quarter when rents should reach their lowest level—representing the trough of the cycle and stabilization.
- The total change in rents from pre-COVID (Q1 2020) to the projected trough—measuring the severity of the downturn.
- The quarter when rent levels return to or exceed the pre-COVID level—representing market recovery.
CBRE Econometric Advisors' forecasts were made in November 2020. When Q4 forecasts are released in February, projected market cycle troughs for some markets may be pushed out by a quarter due to the slower pace of economic growth in late 2020 and early 2021 than was originally expected.
Most Metros to Stabilize in Q2 2021
Among the 40 markets analyzed, four in the Midwest never experienced rent declines in 2020. For five markets—Chicago, Philadelphia, Phoenix, Tampa, and Cincinnati—the downturn was shallow and short-lived. Rents stabilized (or were expected to stabilize) in Q2 or Q4 2020.
Rents in the U.S. and over two-thirds of markets analyzed are expected to reach their lowest levels in Q2 2021 and then begin recovery in Q3 2021. This timing is partly due to typical seasonal leasing patterns (high demand in Q2 and Q3). The remaining three markets—Austin, San Jose, San Francisco—should reach their lowest rents in the second half of the year.
U.S. Rent Recovery Expected by Q1 2022
U.S. rents are expected to surpass the pre-COVID level by Q1 2022, three quarters after reaching the lowest point.
Four markets—Columbus, Indianapolis, Kansas City and St. Louis—never lost rents. Philadelphia had a minor dip in Q2 2020 but regained that loss by Q3 2020.
Sixteen markets should exceed their pre-COVID levels in 2021: Atlanta, Baltimore, Charlotte, Cincinnati, Cleveland, Detroit, Ft. Lauderdale, Inland Empire, Minneapolis, Nashville, Orange County, Phoenix, Portland, Raleigh, San Antonio, and Tampa. Phoenix and Cincinnati are expected to be the first among these exceeding pre-COVID rent levels by Q1 2021.
Rents in the 19 remaining markets are projected to exceed pre-COVID levels in 2022. Note also that CBRE EA forecasts very strong rental recovery next year for many U.S. markets, especially those hardest hit by the recession and urban outmigration.
Austin & Dallas Lead Jobs Recovery
Since employment is one driver of multifamily demand, the chart below includes the quarter that CBRE EA projects total employment to reach or exceed Q1 2020. The timing is notable, but with work from home common (for now), employment and multifamily demand are not as tightly linked as in the past.
Austin and Dallas are projected job recovery leaders, both reaching pre-COVID levels in the second half of 2021. Employment in another 10 markets should recover in the first half of 2022: Atlanta, Denver, Indianapolis, Inland Empire, Nashville, Phoenix, Raleigh, San Antonio, San Jose, and Seattle.