Growing unemployment rates and the economic downturn during March and April were a major concern for many in the multifamily housing sector. But, as we’ve previously noted, the multifamily housing market is historically the most resilient and first to recover during economic downturns. Right now, we’re seeing apartment turnover decline even more due to lockdown mandates and the economic uncertainty of COVID-19. Renters are discouraged from moving and staying where they are, helping maintain occupancy rates and cash flow.
The National Multifamily Housing Council (NMHC) reported that 90.8 percent of renters made partial or full payment by May 20. The rent payment tracker found that 92.2 percent of apartment households made a payment by June 20. According to CBRE, turnover – or the percentage of total rented units not renewed each year – has fallen from 47.5 percent in 2019 to 42.1 percent in April, the lowest level in the last 20 years. The impact of COVID-19 has accelerated this trend.
For owners and investors, lower turnover rates are a good thing. Benefits include:
- steady cash flow;
- cost savings from continuation of rent income;
- lower “make-ready” turnover expenses; and
- effective rent increases from renewals compared to new leases from vacated units.
It’s during periods of high rent growth, where high turnovers are beneficial to investors because owners may be able to obtain more higher rent from new leases than renewals. We’re expecting to see turnover slightly increase in the next month, but overall, experts project turnover will still be lower in 2020 than last year. Apartment turnover is seasonal and renters move less in the fall and winter months.
It’s important to note that turnover patterns vary through market cycles. Market fluctuations create short-term deviations from long-term trends. In the mid-2000s, turnover increased due to greater economic growth for renters, a lot of which was driven by millennials entering the rental market. However, during the past recession, turnover fell due to less employment opportunities and fewer residents qualifying for new leases. Development also slowed and there was less availability of new products. Now we’re back on the upswing, with turnover reverting back to it’s long-term trend of gradual decline thanks to shifting demographics of seniors and older millennials staying in multifamily housing longer.
Overall, expect to see Class B and Class C residents renew their leases, especially since eviction moratoriums and payment plans are helping renters stay in their apartments.
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