Buyer Interest in Downtown Rentals Reviving

After plunging last year at the outset of the pandemic, oc­cupancy rates and rents in some of the worst-hit cities have be­gun to recover. As Covid-19 vaccinations become increasingly widespread, and as restaurants, bars and entertainment venues reopen, tenants once again are gravitating toward city living.

As a result, buyers are warming to urban apartment listings, bid-ask gaps are narrowing, and capitalization rates are tight­ening — to historic lows in some markets, particularly in the Sun Belt.
Brokers report tenant tours and lease signings have re­bounded in recent weeks from their year-ago depths, and rents have stabilized in most — although not all — major urban markets.
For example, “some assets in Midtown Miami are signing 50 to 80 leases a month, three times what you would expect in a normal lease-up,” said Matthew Lawton, executive managing director of capital markets at JLL. “It’s dramatic. The economy is opening back up. People are moving back downtown to the urban cores, and workers are re-engaging at the office.”

Atlanta’s in-town submarkets “started turning a corner” last month, said Paul Berry, a vice chairman in CBRE’s multi-family institutional properties group. “We started seeing leasing ve­locity really ramp up.”

Berry said that while most complexes in Atlanta’s suburbs “didn’t miss a beat” at the height of the public health crisis, it was a different story in the city. As late as this year’s first quar­ter, urban apartments were averaging a net increase of just three to four leases per week, he said.

“Today, properties with similar characteristics are doing around eight net leases a week or more, and some are up in the neighborhood of 20 leases a week,” he said. “This strong rebound in leasing velocity is gaining the attention of investors who are saying, ‘Wow, these urban markets are coming back’ — and subsequently, they’re bidding aggressively for the as­sets.” Where an urban listing six months ago might have drawn 80 signed confidentiality agreements, “in May that number is closer to 150,” Berry said.

And while suburban properties accounted for 70% of CBRE’s Atlanta-area sales in the first quarter, the balance has tipped in the second quarter, with urban properties accounting for 65% of closed sales so far, Berry said. He added that the current list­ing pipeline appears split about 50-50. Greater Atlanta was the second-most active apartment market last year, according to Real Estate Alert’s Deal Database, and CBRE has been the lead­ing multi-family sales broker there since 2009.

Brokerage executives say the outlook is improving to vary­ing degrees in urban markets across the country.

“We are definitely seeing signs of life,” said Marcus & Millichap president and CEO Hessam Nadji. “We’re seeing apartment leases being signed pretty aggressively in New York and Seattle, and also San Francisco and Los Angeles to a lesser degree. There is definitely life emerging in downtown urban markets.”