While most of America seemed content to stay put in 2008 (provided they could move), more than one in four people (27.7 percent) living in renter-occupied housing units lived in a different residence than they had occupied in 2007, according to the U.S. Census Bureau. In owner-occupied housing units, the moving rate was 5.4 percent, making renters more than five times more likely to move.
The reason for this volatility: the economy. As many apartment owners, brokers, and lenders fear, people are moving in with relatives and friends in many markets or sizing down their units.
“I see evidence of move-outs happening,” says Nicholas Michael Ingle, director of capital markets for Hendricks and Partners, a broker based in Phoenix, Ariz. “A lot of units have been emptying in my own market, and I don’t think it's people moving up into homes. I would say it's people seeking more affordable living situations, whether its people doubling up, moving home, or moving from As to Bs.”
In bad times, it’s a commonly held belief that renters will often look to save money by moving down from a luxury Class A apartment to a modest Class B space, or downsizing from a spacious one-bedroom unit to a much smaller studio.
Some people see truth in that assertion. “The top of the market (Class A) does tend to suffer first in a downturn, and that is certainly the case today,” says Ron Witten, president of Witten Advisors, a consulting firm based in Dallas.
Greg Willett, vice president of research and analysis for M/PF YieldStar, a Carrollton, Texas-based firm that provides multifamily market analysis, says occupancy numbers in Class B and B-plus apartments (product built in the 1990s) is off about 200 basis points (bps) on an annual basis versus declines of about 300 bps in older units and 400 bps at the very top of the market.
“While it’s likely that there have been some move-downs from Class A projects to Class B communities, another spin would be that dropping rents have moved Class B developments into the affordability range for some previous Class C renters who still have jobs,” Willett says. “The general shifts in the numbers don’t necessarily prove the move-down assumption.”
Others are wary that renters are automatically moving down in class level. “It’s very rare that you see people move down,” says Rod Petrik, managing director at St. Louis-based Stifel, Nicolaus and Co., a regional brokerage and investment banking firm. “I think they stay put. If you’re employed, your rents are getting lower as it is. You can stay put and pay lower rents if you choose.”
But eventually, renters may be able to save money by moving up. “As occupancy in existing Class A assets falls, owners will cut rents rather than absorb double-digit vacancy rates, which draws residents from Class B properties,” Witten says. “The ripple then goes through to Class C. So this process takes time to play out, but the ultimate answer is that all classes suffer—Class A just feels the effects first.”
With these kinds of market forces at work, it may not be surprising to see the renter move-out rate edge even higher, regardless of how hard owners push renewals.