Rental Beast September Market Report: Conversation with Brian Horrigan, Chief Economist at Loomis Sayles

September 23, 2020 -- In conjunction with our regular monthly Market Report, Rental Beast interviewed Brian Horrigan, Chief Economist at Loomis Sayles, a Boston-based investment management firm with more than $310 billion in assets under management, to discuss economic trends and COVID-driven real estate developments.

Rental Beast spoke with Horrigan on the 19th anniversary of the September 11th attacks, and Horrigan draws enlightening parallels between the economic conditions following 9/11, and today's COVID pandemic. Horrigan explains that 9/11 permanently changed the way airport security is handled. Similarly, he expects the pandemic to have long-term effects on where we work and where we live.

Although COVID-19 restrictions will eventually ease, Horrigan expects many companies will adopt a permanent hybrid work from home model. "Extended lockdowns forced millions of employees to experience working from home for the first time, and many workers found that a work from home model resulted in both more productive working hours, and the ability to spend more time with family and pursuing other interests," says Horrigan. "Even after restrictions are eased, many employees may not want to return to pre-pandemic routines and will make future real estate decisions without considering proximity to the office."

Since mid-March, Rental Beast's Rental Inquiry data has shown renters moving away from urban centers to the suburbs. Horrigan emphasizes that, for millennials in their prime family formation years, the pandemic has highlighted the risks of urban living. Horrigan comments on the rise in millennial-driven suburban living, saying, "Even before the onset of the COVID-19 pandemic, many millennials left cities in search of suburban affordability and space. And, with the spike in urban violence, fear of COVID-19 contagion, and concern of future outbreaks, the number of millennials interested in non-urban living options will continue to rise."

However, Horrigan is careful to point out, "This is not all bad news for urban centers. Cities will need to re-define themselves, and we may see more commercial projects pivot towards residential activity in order to address major pre-pandemic issues, including poor housing availability and affordability." But, as developers look ahead to new projects, a lack of available land near city centers will push development further away from major metro areas. If Horrigan's theory plays out, a combination of more work from home opportunities and millennial-driven suburban development may result in more affordable housing options in urban centers.

While much of the resale and rental market is, in Horrigan's words, "Go, go, go," homeownership and rentals in city cores have been compromised. He emphasizes that it took most cities decades to develop the levels of safety and vibrancy needed to attract and keep residents. "COVID is dramatically changing these dynamics. Major cities will need years to repair the damage done."

Rental Beast's August 2020 data reflects slowing interest in the urban rental market. In this report, we evaluate exclusive data from five major U.S. cities: Atlanta, Boston, Chicago, Miami, and Philadelphia. We track year-over-year (YOY) changes in Rental Inquiries and Rental Concessions in each city to gain a picture of market conditions.

Rental Inquiries

Rental Inquiry Volume Continues to Fall in Most Markets

Rental Inquiries are prospective tenants actively seeking to rent an available property in our database. Rental Inquiry volume typically follows a predictable seasonal pattern—Rental Beast data from previous years show a high volume of Rental Inquiries during the summer months, as renters hoping to move in the fall begin their apartment search. Departures from such patterns serve as powerful, quantifiable early indicators of a shift in the rental marketplace and are more powerful predictors of future transactional activity than traditional rental information, such as average rent.

Rental Beast monitors all inquiries to available listings on the Rental Beast website and listings syndicated to our partner sites including Facebook Marketplace and Realtor.com.

August was yet another month of high anxiety for renters. Americans continued to process powerful economic and social factors, including the expiration of the CARES Act, ongoing confusion about school re-opening plans, numerous social reform protests, amped up messaging ahead of the U.S. presidential election, and, of course, the continued effects of COVID-19.

In August, Rental Inquiries were down YOY in three out of five markets surveyed. Boston, Miami and Atlanta all recorded significant YOY declines, while Chicago and Philadelphia registered YOY increases:

Chicago and Philadelphia registered positive YOY Rental Inquiry results, with gains of 144% and 32%, respectively. Despite health, economic, and social challenges, August represented the 4th consecutive month of positive YOY Rental Inquiry results in Chicago.

Rental Beast had the opportunity to discuss the state of the Chicagoland rental market with Chicago real estate leader and CEO of Exit Strategy Realty, Nick Libert. Libert, who has a successful track record of working with both homebuyers and renters, explains that due to historically low interest rates more Chicagoans are considering homeownership, many for the 1st time. This desire for homeownership has driven his 2020 business to record levels. However, a key factor in the growth of the for-sale market is job security. Conversely, some clients must adjust their housing plans due to layoffs. Libert shares that some clients who were in the market to buy a home decided to rent due to recent furloughs. Other potential homebuyers choose to continue renting in pursuit of better deals on home prices—Libert adds that many of his clients who may be financially positioned to purchase a home are choosing to rent, waiting for lower home prices while the economic fallout from COVID-19 persists.

For three of the past four months, Philadelphia recorded positive YOY Rental Inquiries as the city of Brotherly Love continues to benefit from renters moving out of NYC in pursuit of more space and lower costs.

August represents the eighth consecutive month that both Boston and Miami reported negative YOY Rental Inquiry rates—down 65% and 62%, respectively. Atlanta also reported a 53% decline, continuing the city's nearly year-long trend of negative YOY Rental Inquiries.

Like most major metros, many of Boston's large office complexes sit empty as companies re-think their real estate needs. While the shift to virtual models by Boston's universities and large corporate employers has dampened rental demand, Horrigan is optimistic that Boston will recover more quickly. "Unlike many other cities across the US, Boston crime-rates have remained relatively low, suggesting a smoother road to recovery."

Like Boston, Miami recorded negative YOY Rental Inquiry rates, as tourism continues to suffer under COVID-19 restrictions.

Rental Concessions

Rental Concessions Settle in Some Markets While Remaining Prevalent in Others

Rental Concessions are compromises landlords make to original rent terms in the hope of filling a vacancy more quickly. Rental Concessions can include monetary compensation, a discount, or various goods and services.

For August, Rental Concessions dropped in Philadelphia, Chicago, and Atlanta, while Boston and Miami registered YOY increases:

Throughout August, anxious landlords and tenants hoped for guidance from Congress about new rent relief measures. Absent further guidance, landlords continued to slow the pace of Rental Concessions with the following YOY declines: Philadelphia (-99%), Chicago (-54%), and Atlanta (-14%).

"Lawmakers in Congress and the Administration need to come back to the table and work together on comprehensive legislation that protects and supports tens of millions of American renters by extending unemployment benefits and providing desperately needed rental assistance," said Doug Bibby, National Multifamily Housing Council President.

Boston & Miami landlords continue to offer Rental Concessions to prospective tenants. Boston Rental Concessions were up 99% YOY for August, while Miami posted a 82% YOY increase.

Pre-COVID, Boston landlords rarely offered Rental Concessions. However, landlords have quickly adjusted to reduced demand by offering high concessions.

Ishay Grinberg, Rental Beast's founder and CEO, comments, "As a landlord, I want to make sound financial decisions while still attracting the best residents. I don't want to lower rents, because it will be very difficult to raise them to market value later. Offering Rental Concessions strikes the right balance—they help landlords fill vacancies, and tenants benefit from some financial relief."

About Rental Beast

Rental Beast is a SaaS platform that simplifies the leasing process with an end-to-end platform and maintains a highly accurate database of over eight million off-MLS rental properties. With active listings in 19 markets across the United States, and 5 additional markets opening within the next 30 days, Rental Beast's Data Services Group tracks various rental trends in its markets across the nation.