Only industrial real estate faired better than the multifamily sector during 2020. Miraculously, market deterioration was far less than the previous recession. Nevertheless, it was a challenging year for multifamily owners. Operators lost rental income as well as ancillary income.
A CBRE forecast shows that the US multifamily sector should return to pre-COVID levels and a 6% increase in effective rents next year. This rebound will lead to ‘unbundling’, which means certain renters will once again gain their independence from staying with their friends or family during the COVID-19 pandemic. These demand levels are expected to easily beat the 2020 levels, but not ahead of the 2019 and 2018 levels.
Affordable multifamily continues to maintain low vacancy rates and modest rent growth. Class C reported higher delinquencies this year, as this class of renters typically hold more vulnerable jobs. Class A assets have been impacted most for a couple of different reasons. Many young adults occupying these top-of-the-market units have returned home to stay with their parents. The healthy new supply of class A units and the increased concern of expensive rentals have many Class A tenants looking at more affordable Class B units.
The COVID-19 pandemic has caused many investors to hold on to their cash, but a CBRE study shows that multifamily investors haven’t slowed down. The investment volume is expected to rise to 148 billion in 2021. This is 33% more than the 2020 estimate, but this figure falls short of the 191 billion of 2019. Development delivery is looking good too since most of the projects were started pre-COVID. This new supply, as mentioned above, will hurt the struggling Class A occupancy levels in the short term.
The Midwest and Southeast regions are slated to be the finest new multifamily targets and for good reason. These regions in particular are trending well for achieving consistent revenues and stable market performance. In the Midwest, Indianapolis is marked as the best performing market of 2020. In the Southeast, Greensboro North Carolina and Richmond, and Virginia Beach.