For 10 years, the multifamily sector has enjoyed consistent growth. Often heralded as the “smart investment” of the real estate industry, research cited by CBRE in 2018 reveals that when compared with hotel, industrial, office, and retail spaces, multifamily has the highest average annual return while simultaneously holding the second-lowest volatility.
So, when a global pandemic strikes—destabilizing the economy, incapacitating much of the workforce, and lessening disposable income—what happens to the jewel of the real estate industry? While this book hasn’t completely been written yet, early indications suggest the multifamily market remains resilient—even strengthening in select markets.
Here are three key factors influencing the multifamily market’s future:
Traditionally slower and more conservative growth markets, such as Birmingham, Ala.; Memphis, Tenn.; Kansas City, Kan.; and St. Louis, have seen consistent growth and increased demand even amid challenging times. Fogelman Properties supports nearly 28,000 units across 12 states, and we’ve already returned to pre-COVID pricing and occupancy rates, while maintaining manageable delinquency levels. Recent CBRE research declares the “Midwest had the most major markets with quarter-over-quarter rent growth” at the close of the second quarter. At Fogelman, we have experienced similar results with mid-level markets outperforming all urban markets across the country. The correlation between working conditions shifting to more remote opportunities and thriving atypical real estate markets is hard to ignore.
Even with the challenges of COVID-19, we’re experiencing a meaningful year-over-year increase in lease renewals across all of our communities. Our early adoption of virtual leasing and rent collection allowed us to stay nimble in communications with residents. The technology curve is steepening quickly. Property managers who neglected to make those same investments were at a serious disadvantage. This was visible in financial results and resident attitudes. Knowing how to support your customer base and having the proper tools in place has been a key differentiating factor in the multifamily space.
It’s not surprising to see discretionary spending take a nosedive during times of hardship. Housing is a necessity and is less susceptible to more volatile economic conditions, but that can’t be taken for granted. With more than 21 million apartments across the country, according to the National Multifamily Housing Council, potential renters have ample housing options. At Fogelman, we recognize the significance of working in an industry that provides an essential service. Our continued growth during these times is certainly a reflection of the connection between our residents and our front-line associates. The invaluable sacrifices of our team on the front lines was critical to ensuring our residents were supported.
During the 2008 Great Recession, we offered residents an opportunity to break their leases if they experienced job loss, and we saw less than 1% of our resident count use that option. Now we find ourselves, again, working closely with our resident base to better understand their needs. At the onset of the pandemic, we projected to see shifts in delinquency up to 6% to 8% of outstanding rent. With our team’s dedicated outreach and customer support, we only saw a peak of 3% to 4% in April, and it has been trending downward to an average of less than 2% over the past few months.
What comes next for the multifamily industry, and most industries for that matter, will heavily rely on the availability of future support. Further loss of income may signal a rough fourth quarter ahead of us as uncertainty persists. Whether through continued governmental support or availability of a viable vaccine, we’ll see a sharp recovery with an upward trajectory after increasing economic stability.