In a new special report based on April-May 2020 data from 107 major metro markets, Yardi Matrix examines the immediate impact and the long-term consequences of the COVID-19 pandemic for the U.S. multifamily industry—among them the erosion of multifamily fundamentals that had held strong for nearly a decade.

"Multifamily's nearly decade long run of healthy performance increases came to an abrupt and unexpected end this year," says Jeff Adler, vice president of Yardi Matrix. "Job losses have been particularly high among apartment renters, and simply collecting rents and maintaining occupancy is a new area of focus for owners and managers."

Through April and May, multifamily asking rents fell by 0.4% nationwide. Over the metros covered in the report, 71 metros saw rents decline over this period, compared with 35 that saw rents increase. Smaller markets saw the most rent growth, led by Portland, Maine, at 1.7%; Mobile, Ala., at 1.3%; and Memphis, Tenn., at 1.3%. Asking rents fell by at least 0.6% in all primary markets, with the sharpest drops in Boston (-1.5%), Los Angeles (-1.4%), and San Francisco (-1.0%). Midland-Odessa, Texas, has experienced the sharpest two-month rent drop at -8.6%.

At the same time, rents for units in “luxury lifestyle” properties fell by 1.2%, while rents at market-rate “renter by necessity” properties fell by only 0.5%. New units are taking longer to lease up, and multifamily demand is increasingly turning toward less expensive apartment stock. As a result, owners of luxury units are increasingly offering lower rents or concessions, according to Yardi.

Issues contributing to this movement in rents and drop in multifamily demand vary at the local level. Some, such as Las Vegas and Houston, have large employment concentrations in energy and entertainment that were slowed by the virus. Coastal travel hubs were also hard hit, including major cities in New York, New Jersey, California, and Illinois, as well as cities with a large amount of new inventory just coming online, including Nashville, Tenn., and Denver.

In addition, with shelter-in-place orders in effect and social distancing likely to stay for the near future, many of the advantages of walkable urban centers have turned into public health drawbacks. According to Yardi, a number of city residents have left their areas in response to the pandemic, either temporarily or permanently.

In the near future, asking rents are expected to continue to drop, and ongoing layoffs are expected to stymie household formation. It is not yet clear whether social distancing will reduce or reverse the trend toward urbanization driven by the desire for a “live, work, play” lifestyle, given that many office employees are working from home.

According to Yardi director of research Paul Fiorilla, the long-term effects depend on the course of the virus. “Over the short term, the impact on the multifamily sector has been limited,” Fiorilla says in the report. “The industry comes into the recession in a place of strength, with occupancy rates of stabilized units at 95% nationally. Enhanced unemployment aid, which has helped keep rent payments for professionally managed apartments close to historically normal levels, runs out in July, and Congress has yet to approve an extension. Rents and occupancy levels have worsened only slightly to date, but performance could easily deteriorate if jobs don’t bounce back or the federal government doesn’t continue its financial support.”