The Weekly Briefing - March 15th, 2021

The Weekly Briefing – March 15th, 2021

In This Week’s Brief:

  • Lower-Cost Multifamily Markets Leading the Way in Net Absorption Amid the Pandemic
  • Market Spotlight: Dallas Metroplex Standing Above the Crowd
  • Life Sciences Real Estate Attracting Increased Attention During COVID Outbreak

Lower-Cost Multifamily Markets Leading the Way in Net Absorption Amid the Pandemic

Markets with lower average effective rents have logged some of the most robust net absorption figures over the past year. Many markets saw leasing activity slow to a crawl during 2Q20 because of social distancing restrictions and an uncertain economic environment only to have demand bounce back during the second half of the year.

Atlanta achieved the fastest pace of net absorption nationwide last year when measured as a percentage of existing inventory (3.1%) and second fastest in nominal terms (nearly 16,400 units). The strong demand has pushed Atlanta’s occupancy rate up a full percentage point over the past year to 95.3%, while rents have climbed 4.0% YOY with southern suburbs showing the strongest rent gains.

At the other end of the spectrum, San Francisco posted a net absorption figure equivalent to negative 2.6% of existing stock, the lowest in the country. New York, where rents average more than $3,000 a unit, recorded net absorption of negative 24,000 units, the lowest figure nationwide in nominal terms and equal to negative 1.3% of multifamily inventory.

Average Rent vs. 2020 Net Absorption: 25 Largest Multifamily Markets

Market Spotlight: Dallas Metroplex Standing Above the Crowd

Already home to major corporations such as AT&T and American Airlines, Dallas is seeing firms like CBRE, Goldman Sachs, and Charles Schwab expand their local footprints while continuing to attract coastal talent. Redfin estimates Dallas recorded the second largest net inflow of new residents nationwide during 2020. The metro also experienced the seventh largest increase in LinkedIn users.

This growth has lifted the local multifamily market with the metroplex leading the nation in the number of units absorbed last year. As a result, vacancies have ticked up only 50 basis points in Dallas and 10 basis points in Ft. Worth despite 26,000 units of new supply during an acute economic downturn. And most submarkets in the metro posted positive rent growth last year, some as high as 2% to 4%. In addition, multifamily investors continue to flock to Dallas with transaction volume up 8.2% YOY.

Meanwhile, the Dallas office sector has proven steadier over the past year than gateway markets. Dallas office rents have declined -0.8% YOY, better than New York, Los Angeles, San Francisco, Washington, and Chicago. The metroplex has registered the largest increase nationwide in occupied office space over the past ten years, although vacancies have risen 210 basis points YOY.

Dallas-Plano-Irving Multifamily Rent & Vacancy Trends: 2011-2020

Life Sciences Real Estate Attracting Increased Attention During COVID Outbreak

Life sciences is taking on increased prominence as a growing sector within healthcare real estate as both pandemic-specific and longer-term trends drive demand for lab and research space. Building specifications for life sciences can vary widely based on tenants’ needs but typically include added systems to reinforce security, store chemicals, treat waste, tightly regulate temperatures, among other unique needs.

Venture capital investment in life sciences companies was already accelerating before the pandemic, while public spending on life sciences has ramped up over the past year in the search for vaccines and treatments for COVID-19, generating demand for lab space. Longer-term, the aging U.S. population is likely to provide continued lift for life sciences due to increased spending on healthcare.

As life sciences continues to expand, we could see it diversify into new markets that pair affordable rents with access to a deep pool of skilled talent, such as Pittsburgh and Austin. The sector is currently concentrated in a few key hubs, such as the San Francisco Peninsula, Boston, San Diego, and Northern New Jersey.

Estimated Annual Transaction Volume for Life Science Properties


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