Multifamily Housing: What to Expect in 2021
The COVID-19 pandemic is impacting every aspect of our economy. First it was the hospitality and travel industry; then retail; and now it is the real estate sector, more specifically multifamily housing.
According the to the United States Postal Service since the start of the pandemic ~16M people have moved. Some people are moving back in with their parents and others are moving to rural co-living spaces. CoStar data shows that many are moving to the suburbs where rents are holding, while rents are falling in urban and downtown areas.
All of this pandemic moving is having adverse effects on the multifamily housing (MFH) market. Overall multifamily transactions have sharply declined due in part to the difficulty of securing site visits and inspections to complete transactions; lenders pulling back from debt and equity; and a growing uncertainty in the underwriting of future cashflows for income producing properties. In addition, landlords are increasing their payment leniency requests of banks as the federal eviction moratorium significantly reduces their income available to cover loan payments. As a result, financial lenders are starting to place MFH properties into their highest-risk categories.
In addition, we are experiencing an investment shift. MFH investors are moving from the urban core to inner ring suburbs. According to commercial real estate research firm Yardi Matrix since the start of the pandemic apartments sales in midwestern urban areas declined 41% while the decline is not as steep in the suburbs at 26%.
And as expected this volatility is trickling to rents. Thus far the steepest declines in rent have primarily been on the coast and in the top 10 most expensive cities. However, the rent declines are starting to creep across the country. To date, Class B properties which are typically 20-year-old properties are holding their rents. However, according to rentcafe in 2020 rental activity was 10% slower than 2019.
CBRE projects a full recovery of the market by 2022, but only time will tell. But for sure, 2021 will be a rocky year for the real estate market.