Multifamily properties are expected to experience a sharp decline followed by a fast recovery through 2020, according to a report by CBRE.
CBRE’s economic advisers predict the multifamily market will reach its bottom in the fourth quarter of 2020 and begin recovery in the first quarter of 2021. Vacancy will rise to 7.2 percent by the end of 2020, which is a full 3.1 percentage points higher than the end of 2021.
CBRE predicts that vacancies will bounce back with a full recovery within one year. Rents are predicted to drop 8.1 percent in 2020 but are also expected to rebound fully by the beginning of 2022. The forecast predicts that the downturn for multifamily properties should be shorter than the downturn experienced by the real estate market during the dot com bubble and the Great Recession.
However, CBRE also mentions that these predictions assume that the coronavirus pandemic has been adequately contained. This week, the largest one-day spike in coronavirus cases was reported in the US ahead of the July 4 holiday. The report also stresses that CBRE’s economic advisers are not certain about the severity of the downturn nor the pace of recovery.
The immediate downturn in the multifamily market was affected by the loss of 25 million jobs in the US from February to April, as businesses closed due to stay-at-home orders across the country. The unemployment rate in April was 14.7 percent, the highest since the Great Depression. Since then, the unemployment rate dropped to 13.3. percent in May as industries slowly re-opened and added jobs. The unemployment rate affects the multifamily rental market as renters make choices for housing, decide whether to get roommates, downsize, or move to a new apartment based on employment status.
Cities dependent on tourism such as Las Vegas and Orlando were hardest hit by the pandemic. Markets with high-growth such as San Jose and Seattle were also hard hit, as these areas experienced more non-corporate labor losses coupled with higher rents.
The use of virtual tours increased leasing activity in April. The federal fiscal stimulus package, CARES act, also helped the multifamily rental market regain momentum. The pandemic has also increased resigning of leases as renters are staying put instead of moving into new apartments. Rents for renewed leases and new leases declined 1.7 percent from March to May.
The next year may see renters staying put due to economic uncertainty, with pent-up demand bursting through in early 2021. New construction should absorb pent-up demand in 2021, with 230,000 units expected to be completed in 2020.