Apartment Occupancy Levels – Concern in Some Major US Markets
Due to recent economic events and the Covid-19 pandemic, some classes of commercial real estate have been hit very hard. Retail properties have suffered as more people stay away from stores and shop online. Office properties have suffered as more employees work from home. Hotels, motels, and restaurants have been decimated as customers have stopped traveling and eating out. The US apartment loan market has obviously not seen the same problems as these other asset classes, but we are seeing signs of weakening in the market in some major US markets. The percentage of properties where occupancy has dropped below 80% has been steadily climbing in many areas. Commercial apartment lenders are seeing some of their loans in distress in these markets as occupancy concerns lower cash flow and make it harder for borrowers to make their commercial mortgage loan payments. Likewise, many other geographic markets have outperformed as the pandemic has caused many renters to flee the big cities in favor smaller and rural locations, especially many markets in the sunbelt, other southern and western markets.
Some of the best performing markets (apartment properties with the highest occupancy levels) include: Phoenix and Tempe AZ; Orlando, Fort Lauderdale, and West Palm Beach FL; Aurora and Lakewood CO; North Hollywood, Inglewood, Van Nuys, Glendale and Anaheim CA; Minneapolis and Saint Paul MN; Durham and Charlotte NC; Omaha NE; Tacoma WA; Metairie LA; Greenville SC; and Knoxville TN.
At the other end of the spectrum are the following cities that are experiencing challenges with occupancy: Boston MA; Santa Monica, San Francisco and Oakland CA; Tallahassee and Gainesville FL; Seattle WA; Kansas City MO; Memphis TN; Cleveland OH; Marietta GA; Oklahoma City OK; Indianapolis IN; Washington DC; Ann Arbor MI; New York NY; Irving TX; Tucson AZ; Baton Rouge LA and Richmond VA.
Smart investors are watching housing trends carefully before purchasing apartment buildings today and are repositioning their portfolios based on current occupancy levels in other geographic markets.
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