Today, Theo analyzes the May 2021 National Rent Data Report published by Apartment List. He breaks down the record-breaking growth we’ve seen in the past few months, how the markets are performing versus pre-pandemic projections, and which markets continue to boom through pandemic recovery.
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Theo Hicks: Hello Best Ever listeners and welcome back to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndications. As always, I am your host, Theo Hicks. Today, we are going to be talking about Apartment List’s most recent national rent data report that they released. For the third month in a row, we have experienced record-breaking rent growth. Last month, I did an episode talking about the report from April. In April, rents grew by 2% on average across the US. At the time, that was the all-time record. By all time, I mean, since Apartment List began creating these reports back in 2017.
Prior to that, the record was 1.4% month-over-month rent growth, and that was in March of 2021. In May, rent grew by 2.3%, which was the new record. Over a three-month span, we’ve got 1.4%, 2%, 2.3%, for a total of 5.7% rent growth in a three-month span. The first graph that they have in the Apartment List report is that pandemic pricing is officially over, or that the impacts on rents from the pandemic are officially over. I wanted to go over some of my takeaways from this report. It’s going to be a little bit of a shorter episode but I think this is very powerful information for multifamily, and being Syndication School, it’s something we should probably talk about.
Number one, and this is probably the most interesting and groundbreaking fact is that the current rents, as determined by Apartment List now exceed the pre-pandemic projections. Apartment List made projections, I believe they made the projection in 2019, about the rent growth for 2020, each month, and then for 2021 each month. They kind of just calculated based off of the rent trends in 2018 and 2019, the actual rent trends, what we project is going to happen in 2020 and 2021. Basically, it was a curve that gradually increased up until the summer months, and then decreased but didn’t decrease to what it was at the beginning of the year. In January it started off — for example, in 2018 the national median rent started off around $1,075, in January it went up to about $1,125 by August, and then dropped down to about $1,100 by the end of the year. The year ended higher than the year began, but the peak was always in the summer months.
The same thing happened in 2019 where it increased from $1,100 up to $1,150 by the summer months and then dropped down to about $1,125 by the end of 2019. The assumption was that it would keep doing that trend of increasing and then decreasing, slightly increasing and then decreasing slightly, for 2020 and 2021.
Theo Hicks: Now, of course in 2020 that didn’t happen. It began originally to increase, but then once the pandemic hit in March of 2021, it dropped. It dipped when it was supposed to increase in the summer, and then I think it completely dipped around June. Then it had a slight bump for seasonality reasons, because in the summer, as I mentioned, is when rent reaches the peak. After the summer months, as usual, it declined. The rents at the end of 2020 were lower than the rents at the beginning of 2020, for the first time in those two years. Now in 2021, because of these record-breaking rent increases that I mentioned, 1.4% in March, 2% April, now it was just 2.3% in May; the current actual May rent is higher than the May 2021 projections that were made in 2019 based off of that increase-decrease trend.
If you look at the graph, it’s basically just a line that goes straight up starting in January of 2021… Again, which is usual because rents will gradually increase, at least from 2018 to 2019… They gradually increase from January until about August; but the rate at which these rents have increased has far exceeded the previous years, such that the rents are now exceeding those pre-pandemic levels.
We’ll see what the future holds and how this trend compares to the projections, but as of now, just looking at the graph, we’re going to end 2021 with rents that are higher than the pre-pandemic projections, which I thought was super interesting and I wanted to highlight that fact. That’s the biggest and newest piece of data that came from this report. The rest of the report is kind of a continuation of the same.
Point number two is that rents are continuing to recover in the really hard-hit COVID markets. As we’ve talked about a lot of times on this episode, these big cities were impacted the most by the pandemic. While they haven’t returned to their pre-pandemic rents yet, they’re still down overall since the onset of the pandemic in March of 2020. They’ve recovered significantly, and some of them are still down double digits, but compared to what they were before, huge improvements over the past couple of months… With the biggest example being San Francisco. In San Francisco, their rents dropped 27% from March 2020 through January 21, but since March 2021 through May, their rents increased by 13.4%. They’re still down 17% overall, but massive increases in their rents. And again, if this trend continues, then they should hopefully reach their pre-pandemic rent levels at some point in the near future. So the corner has been turned at the beginning of this year.
A couple of other examples… For San Francisco, just focusing on May, San Francisco rents increased by 3.8%. In Boston, they increased by 4.4%, but Boston is still down 6%. For the other ones that I say they’re down, this is since March of 2020. I don’t want to keep saying since March of 2020 over and over again. So in May, they’re up 4.4%, but down 6% since March 2020. For Seattle it’s up 3.7%, but they’re still down 11% since the onset of the Coronavirus. New York is 4.4%, versus 12% down. And then Washington DC up 1.6% in May, as opposed to down 9% since March. Again, you can kind of take a look. They have a really nice graph at apartmentlist.com, they have a bar graph where they show the monthly rent change for these major markets. It’s basically kind of small up and down fluctuations based off of seasonality, and then March 2021 hits, there’s all these just really big decreases… Then starting in the past three or four months, we’ve got really big increases that reflect the same magnitude of the decreases.
On the flip side, you’ve got the markets that have been doing really well during the pandemic are still continuing to experience increases in rents. These are your mid-sized, affordable markets. Just quickly going over the top 10 markets with the most growth since March 2021 – Boise, Idaho at 31%; Spokane, Washington at 22%; Fresno, California at 17%; Mesa, Arizona at 16%; Virginia Beach at 16%; Reno, Nevada at 15%; Glendale, Arizona and Gilbert, Arizona at 15%; Henderson, Nevada and Chandler, Arizona at 14%. All Sunbelt states, except for the exception of Idaho and Washington, are in that Top 10 list and are showing no signs of slowing down. They all experienced rent growth in May; for example, Boise, Idaho grew by another 6.6% in March.
Theo Hicks: One thing to keep in mind about these markets though is that it’s not like they were performing poorly or average before the pandemic, and then the pandemic hit, and then they just exploded. They were already performing well prior to the pandemic, and the pandemic just accelerated that trend. Let’s take Mesa, Arizona for example; between 2017 and 2020, rents grew there by 25.5%. That’s four years over approximately 6.25% rent growth every year for the past four years prior to the pandemic, and then the big, approximately 16-ish% growth in 2020. That was the fastest rent growth in the nation over that period of time. Eight of the 10 cities that I mentioned with these larger rent increases during the pandemic were in the top 20 for rent growth between 2017 and 2020. This isn’t really anything new, just a massive acceleration of rent and growth. 31% in a year is way higher than 25.5% over a four-year period. So that is just a staggering increase in rents.
The last point I wanted to make, point number four – this was something I mentioned in last month’s Apartment List breakdown, and it’s a trend that has continued, is this convergence of the rents in pre-pandemic affordable markets and pre-pandemic expensive markets. The markets that were really, really expensive before the pandemic that were way above the national average, they’re the ones that essentially all experienced those massive decreases in rents. Whereas the markets that were more affordable and right below that national rent average, those are the ones that experienced the increases in rents. So there’s been a convergence of those; there’s not this drastic contrast between expensive markets and affordable markets anymore. The pandemic has had an evening-out effect, so those rents have converged. This is another interesting fact that, across the board, everything is in a sense, becoming more affordable.
Those are the Top 4 takeaways. Again, I highly recommend bookmarking this apartmentlist.com national rental data report. They do release them towards the end of every month. This one was released on May 26, and they’ll probably release another one for June in the next couple of weeks. I recommend bookmarking that or just bookmarking Syndication School, because we’ll be talking about this every month from here on out.
That will conclude this episode for today. Again, a little shorter, but again, I think very powerful information, especially the fact that rents are now exceeding the pre-pandemic projections. A complete return; all the losses, on average, had been wiped out across the board, which is great news for real estate. Make sure to check out some of our other Syndication School episodes, as well as all the free documents we give away at syndicationschool.com. Thank you for tuning in. Have a Best Ever day and we’ll talk to you tomorrow.
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