Flight From Cities Driving Suburban Rents Higher, Especially In Single-Family Homes

The coronavirus pandemic continues to drive people out of crowded cities and into suburban markets where they can spread out safely.

Though rents across the country slackened in the first months since the first outbreak, in June they began recovering in the suburbs while cities have remained on a downward trajectory, a new study from Apartment List has found. In October, U.S. suburban rents were 0.5% higher on average than they started the year, and almost back to their March peak.

The most expensive markets have been trending downward the most sharply, led by San Francisco, New York and Boston. Each cities' largest respective suburbs also saw rents decrease, but at much slower rates so far, the study found. In some cities, like Philadelphia, Atlanta and Seattle, suburban rents were higher in September than in January, even though their core cities saw rent declines.

Though Apartment List's studies don't differentiate between types of rental units, other data suggests that single-family homes for rent have been the most popular form of housing able to charge the biggest rent premium. Asking rents from owners of large, national portfolios of single-family homes rose 7.5% year-over-year in October, according to Green Street Advisors data reported by The Wall Street Journal.

October was the fifth straight month that asking rents in the sector rose year-over-year, and to the highest rate measured in the past five years, Green Street found. The largest landlords in the space, like Invitation Homes and American Homes 4 Rent, have reported near-full rent collection, full occupancy and tenants remaining in place even as rents are hiked on them, WSJ reports.

Invitation Homes and American Homes 4 Rent have seen their stocks increase in value by 74% and 60% this year, WSJ reports, although the past week threw a bit of cold water on the party.

Pfizer's announcement of success in clinical trials of a coronavirus vaccine sent real estate stocks soaring in general, with optimistic investors finally seeing a hint of a light at the end of the tunnel. Shares in retail REITs made their largest gains in months, just like hotel REITs and hotel brand conglomerates.

Though multifamily companies also made gains on the Pfizer vaccine news, the major single-family landlords saw prices decline, WSJ reports. The potential for a vaccine to be distributed next spring doesn't represent the end of a short-term craze, and not even because the speed of the vaccine's rollout could be hamstrung by a severe lack of suitable freezer space. 

The economic aftereffects of the pandemic have driven people from expensive coastal cities to smaller, inland metro areas without as much of a divide between suburbs and the urban core, WSJ reports. Coupled with the historically low inventory of homes for sale, which is worse for households that would stretch to make a down payment, suburban rentals look as if they will continue to be the most popular target for urban renters picking up stakes.