Key Takeaways

  1. Among the country’s gateway markets, San Francisco is the comeback story for the return of multifamily transaction volumes to pre-pandemic levels. The market recovered more than 80% of its pre-pandemic transaction volume.
  2. Across East Coast gateways, Boston is the front-runner when it comes to multifamily transaction volume returning to pre-pandemic levels. Due to the booming life sciences and tech industries, Boston’s knowledge-based economy growth is set to outperform the U.S. over time in terms of gross domestic product (GDP) growth, which could boost the demand for Multifamily properties and prompt continued momentum for the asset type.
  3. New York suffered from a significant decrease in CRE transactions as a result of Covid. Even as activity picks up, it still ranks last among the group of gateway cities for recovery of multifamily transaction volume. On a positive note, New York apartment rent growth has increased 23% between January and June.

Traditionally, multifamily properties in gateway cities have weathered difficult economic circumstances and shown greater resiliency in contrast to other property types. The Covid pandemic has, however, posed unique challenges to the asset type. With work models shifting to remote and hybrid, social distancing requirements still in place, and the emerging Delta variant posing a greater threat, the workforce continues to opt for areas with lower costs of living and with additional space. Further delays to office re-openings suggest that we haven’t seen the end of this trend.

In order to understand the continued impact of Covid-19 on Multifamily, Reonomy took a closer look at transaction volumes within six major gateway cities and analyzed commercial performance to unearth key insights on Multifamily across each market.

The race to pre-pandemic transaction volumes

It’s mostly a duel between the East Coast and West Coast when it comes to multifamily transaction volume in gateway markets returning to their pre-pandemic levels.

The San Francisco metro area has recovered 82% of its pre-pandemic transaction volume (comparing the first half of 2021 with the first half of 2019), followed by the Seattle metro area (72.4%).

At the other end of the spectrum, the New York City market has regained the smallest amount of its pre-pandemic transaction volume (56%) among gateway markets, preceded by Washington, D.C. (60.6%).

Read on to take a look at multifamily transaction volumes and economic factors in the gateway markets of San Francisco, Seattle, Los Angeles, Boston, Washington, D.C. and New York City.

San Francisco bounces back

  • 1,015 transactions in first half of 2021
  • 1,231 transactions in first half of 2019
  • 82% of pre-pandemic level

Among the country’s gateway markets, San Francisco is the comeback story for the return of multifamily transaction volumes to pre-pandemic levels. In the first half of 2021 vs. the first half of 2019, San Francisco recovered more than 80% of its pre-pandemic transaction volume.

However, the spike in transaction volume comes against a backdrop of rent declines. According to Apartment List, San Francisco (14%) and Oakland (13%) saw the biggest drops in apartment rents from March 2020 to July 2021 among the 50 largest metro areas in the U.S. Apartment List notes, though, that rents in San Francisco had climbed 17% from January to July of this year.

The rise in transaction volume may reflect, in part, the relatively small number of apartment projects with at least five units getting underway in the San Francisco metro area. According to the U.S. Census Bureau, 154 such projects had received construction permits from this January through June. This low number of construction permits for apartment projects with at least five units could be an incentive for multifamily investors if housing demand is outstripping supply.

Multifamily investors also are betting on the continued affluence of the San Francisco area. 

The U.S. Bureau of Labor Statistics reports that San Francisco County boasted the largest first-quarter over-the-year gain in average weekly wages (33.9%) among the country’s 343 largest counties. Nonetheless, the metro area’s unemployment rate actually rose from 5.5% in May to 6% in June, the bureau says.

Overall, economic prospects appear to be promising in San Francisco. According to Beacon Economics, it’s expected to see job growth of 2.5% this year, with the rate jumping to 7.5% in 2020. San Francisco is projected to recover all the jobs it lost amid the pandemic in the third quarter of 2022.

San Francisco multifamily snapshot based on Reonomy data 

May 2021 Reonomy Price Index for multifamily: 416.73 (up from 409.4 a year earlier)

Multifamily sales volume

  • $2.64 billion, May 2019
  • $2.55 billion, May 2020
  • $1.89 billion, May 2021

Multifamily share of real estate sales mix: 36% as of May 2021

Seattle stays steady

590 transactions in first half of 2021
703 transactions in first half of 2019
72.4% of pre-pandemic level

By June 2021, Seattle was nearly three-fourths of the way toward recapturing its pre-pandemic level of multifamily transaction volume.

Multifamily investors may be sensing opportunity in Seattle thanks to a relatively small number of apartment projects with five or more units underway. Fewer than 200 construction permits for such projects had been issued in the first half of 2021, according to the U.S. Census Bureau.

At the same time, multifamily investors are taking notice of Seattle’s growing economy. A recent analysis by the Greater Seattle Partnership shows the region’s gross domestic product (GDP), now at $383 billion, has put it in 10th place among U.S. regional economies. Seattle surpassed Atlanta, now in 11th place for regional GDP, to achieve that milestone. This is thanks in no small part to the presence of tech behemoths like Amazon and Microsoft.

The Seattle area’s unemployment rate in June stood at 5.5%, up from 4.9% the previous month.

As the economy makes gains, rents in Seattle have remained relatively stable during the pandemic, with only a 5% decline from March 2020 to June 2021, according to Apartment List. In a sure sign of a rebound, rents grew 22% from this January to June.

Seattle multifamily snapshot based on Reonomy data

May 2021 Reonomy Price Index for multifamily: 462.41 (up from 407.08 a year earlier)

Multifamily sales volume

  • $1.97 billion, May 2019
  • $830 billion, May 2020
  • $970 million, May 2021

Multifamily share of real estate sales mix: 17% as of May 2021

Los Angeles lags on the West Coast

  • 2,624 transactions in first half of 2021
  • 4,109 transactions in first half of 2019
  • 64% of pre-pandemic level

Los Angeles lags the two other West Coast gateways for the rebound in multifamily transaction volume, but the 64% rate still beats its East Coast counterparts.

The slower return to pre-pandemic transaction volume may, in part, stem from the region’s unemployment picture. The Los Angeles area’s jobless rate remains stubbornly high — 9.5% in June, up from 9.2% the previous month, according to the U.S. Bureau of Labor Statistics. A forecast issued in February indicates Southern California should add 620,600 jobs over the course of 2021 and 2022, but that’s short of the 755,400 jobs lost in 2020.

In tandem with somewhat sluggish job growth, rent growth is weak. As of July, L.A.’s year-over-year rent growth lagged the state average of 5.9% and the national average of 10.3%, according to Apartment List.

However, some multifamily investors may be heartened by the fact that only 275 construction permits had been issued in the first half of 2021 for L.A.-area apartment projects with at least five units, according to the U.S. Census Bureau.

Los Angeles multifamily snapshot based on Reonomy data

May 2021 Reonomy Price Index for multifamily: 526.06 (up from 511.17 a year earlier)

Multifamily sales volume

  • $5.51 billion, May 2019
  • $4.27 billion, May 2020
  • $4.41 billion, May 2021

Multifamily share of sales mix: 48% as of May 2021

Boston shines on the East Coast

  • 1,863 transactions in first half of 2021
  • 2,982 transactions in first half of 2019
  • 62% of pre-pandemic level

Among East Coast gateways, Boston is the star when it comes to multifamily transaction volume returning to the pre-pandemic level.

The apartment market in Boston has been buffeted by rent growth that has gone back to its pre-pandemic level, thanks to a 23% jolt in the first half of this year, Apartment List data shows.

It’s also benefiting from a low unemployment rate compared with the other gateways — 5% in July, up from 4.6% in June, according to the U.S. Bureau of Labor Statistics.

Those factors may be contributing to a robust number of building permits (324) issued in the first half of this year for Boston-area apartment projects with five or more units, according to the U.S. Census Bureau.

Another potential deterrent for multifamily investors may be the short-term economic outlook for Boston. The MSA is not expected to recover the jobs it lost during the pandemic until the fourth quarter of 2023, Oxford Economics says. Still, Boston’s knowledge-based economy growth should outperform the U.S. over time in terms of gross domestic product growth due to its life sciences and tech industries. The promising growth could boost the demand for Multifamily properties and prompt continued momentum for the asset type. 

Boston multifamily snapshot based on Reonomy data

May 2021 Reonomy Price Index for multifamily: 217.78 (up from 191.8 a year earlier)

Multifamily sales volume

  • $1.74 billion, May 2019
  • $1.5 billion, May 2020
  • $1.45 billion, May 2021

Multifamily share of real estate sales mix: 58% as of May 2021

Washington, D.C. sits in middle of East Coast pack

  • 427 transactions in first half of 2021
  • 705 transactions in first half of 2019
  • 60.6% of pre-pandemic level

Washington, D.C. may be the nation’s capital, but it’s not the capital of recovery in multifamily transaction volume.

But there is good news for the D.C. area. Its unemployment rate in June stood at 5.6%, up from 5% the previous month, the U.S. Bureau of Labor Statistics says. And it’s expected to recover jobs lost during the pandemic in the second quarter of 2022, according to Oxford Economics.

The not-so-good news for multifamily investors is that D.C.’s year-over-year rent growth lags the national average (10.3%). In fact, it’s rent growth sits behind that of every other gateway market in the U.S., according to Apartment List. Yet on the brighter side, only 144 construction permits had been issued in the first half of this year for apartment projects with at least five units, the U.S. Census Bureau says.

Washington, D.C. multifamily snapshot based on Reonomy data

May 2021 Reonomy Price Index for multifamily: 444.44 (up from 417.54 a year earlier)

Multifamily sales volume

  • $2.37 billion, May 2019
  • $970 million, May 2020
  • $890 million, May 2021

Multifamily share of sales mix: 22% as of May 2021

Pandemic-scarred New York in recovery mode

  • 4,232 transactions in first half of 2021
  • 7,514 transactions in first half of 2019
  • 56% of pre-pandemic volume

New York suffered as a result of Covid, so it’s no surprise that it ranks last among gateway cities for recovery of multifamily transaction volume.

Perhaps further contributing to the slow gain in transaction volume: According to the U.S. Census Bureau, 740 construction permits were issued in the first half of this year for apartment projects with at least five units.

Meanwhile, the jobless rate sat at 8% in June, up from 7.6% the previous month, the U.S. Bureau of Labor Statistics says. To make matters worse, the local economy will not “snap back” in 2021, according to the Center for New York City Affairs. The nation’s largest city will likely end 2021 short 300,000 to 400,000 jobs vs. the pre-pandemic era due to the continuing drag on tourism, the arts, restaurants and other economic drivers.

In a positive development for multifamily investors, apartment rent growth has increased 23% from January to June, according to Apartment List, after trailing off earlier in the pandemic.

New York City multifamily snapshot based on Reonomy data

May 2021 Reonomy Price Index for multifamily: 418.7 (up from 382.18 a year earlier)

Multifamily sales volume

  • $8.28 billion, May 2019
  • $4.95 billion, May 2020
  • $4.23 billion, May 2021

Multifamily share of real estate sales mix: 66% as of May 2021

Looking at the gateway markets

When the gateway cities multifamily markets come to rebound from the pandemic, the West Coast wins among transaction volume. San Francisco, Seattle and Los Angeles all lead in climbing back toward their pre-pandemic transaction levels, with Boston not far behind Los Angeles. Meanwhile Washington, D.C. and New York City are both playing catch-up compared with their West Coast counterparts and the Life Sciences and Tech hub of Boston. In terms of returning to pre-pandemic multifamily transaction volume, it’s mostly a tale of two coasts.

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