Although the pandemic is very much far from over, it has had a remarkable impact on the real estate industry, influencing almost every aspect of it — from deal underwriting, to acquisition and construction, to sales and operations. 

However, one area that merits particular attention is COVID-19’s effect on multifamily (MF) residential units. Here at We Lend LLC, we recently carried out a webinar to delve into exactly how the pandemic has affected the multifamily market up until now. 

With the help of a panel of experts, we explored ways to navigate the market’s current challenges and capitalize on opportunities within commercial investment markets in 2021. Keep reading to find out more about the main takeaways.

How has COVID-19 Affected the Multifamily Market?

In 2020, there were approximately 43 million housing units occupied by renters in the U.S., and when the pandemic hit, many tenants were left unable to pay their rent. To remedy this, the CDC put eviction moratoriums in place in September 2020 to freeze rent payments for tenants who had been particularly affected by COVID-19. They have since been extended to June 2021. 

While this was good news for the 12 million tenants struggling to pay their rent, landlords have been left without months worth of rent payments, leaving a rent shortfall of an estimated $57 billion in January this year. The hardest hit have been “mom and pop” landlords, or smaller investors, who own almost half of all residential rental stock. 

However, despite an initial dip in cash flow due to unpaid rent, generally speaking, the multifamily market has weathered the pandemic storm remarkably well. According to a report by commercial real estate services firm CBRE group, multifamily occupancy levels are predicted to return to their pre-pandemic selves in 2021, with rents fully recovering by 2022. 

The pandemic stimulus checks provided by new President Joe Biden’s administration are also predicted to continue stabilizing the multifamily market for now. In the meantime, some real estate agencies have made a point of helping their customers to access government funding to enable them to continue with rent payments. 

What Will Happen to the Multifamily Market Once the Covid Eviction Moratoriums Have Been Lifted?

The general consensus from our panel of experts in the webinar was that most landlords would prefer to arrange payment plans when eviction moratoriums end rather than evict tenants who have failed to pay rent during the pandemic and be left with vacant units. 

While there is likely to be a minor amount of displacement among some tenants who will inevitably be evicted, it is unlikely to be enough to cause price disruption from an industry-wide perspective. 

Ultimately, the need for multi-family rental homes is a demand that isn’t going anywhere anytime soon, and will likely increase as the sluggish labor market pushes the rate of first-time home buyers down. 

Likewise, older homeowners who’ve racked up missed mortgage payments may be forced to either short-sell or face foreclosure on their homes, pushing many into affordable multifamily rentals as a short-to-medium term solution. 

Learn more about what the multifamily market will look like post-pandemic by watching our webinar below:

How Will the Multifamily Market Fare in the Coming Years Compared to Other Asset Classes?

While the multifamily market is likely to remain stable in the coming years, one asset class that continues to gain steady momentum is the industrial real estate market. 

As The Amazon Effect continues to squash the retail market and the e-commerce industry gained momentum while others fell by the wayside during the pandemic, the industrial real estate market is thriving

Businesses need warehouses to house their e-commerce stock, which is why CBRE predicts that industrial completions will jump by 29% this year

Another commercial real estate sector that could challenge the multifamily market this year is offices. Although tech companies are unlikely to be returning to their huge office spaces in the near future, the medical, legal, and banking industries will soon be making an office working comeback, which means this market could be on its way up.

Multifamily Markets to Watch in 2021

It’s fair to say that multifamily markets in desirable inner-city metro areas such as New York City, Chicago, Boston, and San Francisco have been the hardest hit by the pandemic. This is due to the “great reshuffle,” which has seen workers take advantage of remote working flexibilities to relocate to other states during the pandemic.

While inner-city areas will eventually experience a price recovery at some point over the coming years, there’s still a lot of uncertainty over their medium-term outlook.  

With that being said, the areas office workers are relocating to are seeing high upticks in demand for multifamily units. Generally speaking, these states tend to be home to republican voters and warmer climates. Multifamily markets to watch out for in 2021 include: 

  • Dallas
  • Houston 
  • San Antonio
  • Cleveland 
  • Cincinnati 
  • Georgia
  • Florida 
  • North/ South Carolina
  • Salt lake city,
  • Phoenix
  • Idaho 

What Types of Multifamily Assets are Currently the Most Popular?

At the moment, most tenants’ price points tend to be hovering low-to-mid market, which could cause an increase in demand for class B and class C multifamily units. 

Economic uncertainty will likely put a stop to class A newbuild multifamily units becoming available online for the time being. Given the elevated price of construction materials, especially lumber, ground-up construction activity on multifamily assets is also on pause at the moment.

With this in mind, most landlords are taking the opportunity to carry out refurbishments and renovations to class B and class A multifamily assets in desirable areas of the market. With remote working in mind, they are looking at creating space for desks and home offices, which will add value to properties.

Opportunity zones, which have also increased during the pandemic, are also areas likely to appear on multifamily investment portfolios in the near future. 

Closing Thoughts

The general consensus is that despite some initial hiccups, the multifamily real estate market has done well to withstand the impacts of the pandemic, which could have been a lot worse. 

Of course, COVID-19 has prompted some shifts in market trends, which will affect tenants, landlords, and investors alike. However, pandemic or no pandemic, provided they are aware of the current challenges and able to work around them, there’s still room for investors to capitalize on opportunities in the multifamily market.