More renters are staying in place due to the COVID-19 economic downturn, according to a new research brief from CBRE.
While turnover, the percentage of total rented units not renewed each year, has been on the decline for years, the trend has been accelerated, at least temporarily, and is helping owners maintain occupancy and cash flows.
RealPage had earlier reported that turnover decreased from 47.5% in 2019 to 42.1% in April, which is the lowest level the nation has seen in over two decades. While turnover numbers typically rise each spring, they had declined this year due to stay-at-home orders and economic concerns.
According to the CBRE research brief, turnover numbers will likely rise in the coming months as leasing activity picks back up, but 2020 is anticipated to have lower levels than last year.
For the seven major multifamily REITs, the trailing four-quarter turnover rate was 48.7%, down 120 basis points from last year and 560 basis points from five years ago, reported RealPage. The only major REIT without a drop, UDR’s turnover rate was essentially unchanged. The REITs’ turnover rates overall have been falling for many years. Equity Residential’s first quarter annualized rate of 38.8% was its lowest since at least 2005, and Camden’s first quarter trailing four-quarter rate of 51.8% was its lowest since at least 2002.
Turnovers can be costly for the multifamily industry, and the lower numbers can have significant benefits for owners. Citing the National Apartment Association, turnover costs average about $1,800 per unit and can easily rise from there. In addition, effective rent increases on renewals are typically higher than from new leases on vacant units.
During the Great Recession, turnover fell because fewer residents qualified for new leases, reduced development activity, and less employment opportunity. That inched up in the early years of the economic recovery but returned to the long-term trend of decline by the mid-2010s.
As for market types, Class B and C apartment communities typically have lower turnover rates than newer developments because of the challenge to find affordable housing in markets where vacancy is low and rents are high. According to the CBRE research brief, Class A residents tend to move more because of more alternatives at newly built communities, rental concessions, and higher rates of migration due to new job opportunities.
Due to the COVID-19 pandemic, payment plans and eviction moratoriums for renters affected by unemployment are helping to keep the Class B and C renters in place. In past recessions when safety nets weren’t available, turnover rates were much closer among the different assets.
