Since early March 2020, economists began speculating not if we would have a recession but what kind of slope and what shape of economic recovery we would endure. People started saying we will have a ‘V’ or ‘U’ shaped recovery; the American people were introduced to a whole slew of alphabetical metaphors for economic healing.
Hoping for a ‘V’ or ‘U’ and fearing the ‘L,’ we are heading towards more of something in the middle- a ‘K’ Shaped recovery model. While it would be nice to describe a complex economic system with a single letter, our country’s economy is much more complicated.
A ‘V’ economy would mean that all sectors would quickly take a hit and then bounce back just as quickly. A ‘U’ economy would mean that we would have an exponential recession and then exponentially rebuild and regrow into pre-COVID size. But the truth is COVID shuffled the deck of traditional American economic practices and business structures. Some sectors were and will be devastated for some time before a proper recovery. Others, thriving, achieved skyrocketing stock prices. Many reports show that those with significant wealth got richer, and the poorer and unstable populations lost considerably. Highly educated individuals are doing better statistically than those without vital trade skills or degrees.
Maybe one of the most telling statistics of late is this- Americans who made over $32/hour are back to pre-COVID income levels, and those who made less than $15/hour are still down 40%. Thus, a ‘K’ shaped recovery- some fared much better than others. So, what does this mean for multifamily and the rental industry?
Single-family rentals have so far outperformed multifamily housing as a whole. That being said, secondary and tertiary markets have outperformed primary markets. Primary market growth is down, but take that with a grain of salt. Many hot markets were growing exponentially faster than their secondary or tertiary neighbors. In fact, A-Class collections are beating C-Class collections, even if rental growth has slowed.
The suburban markets are shining while the dense urban populations struggle. This ‘K’ shaped economy is something new to everyone. Past recessions have followed a pretty uniform downfall and growth model. This means we are treading fresh waters, and many operators have to do things a bit differently to succeed in the post-COVID world. Strategy and excellent property management are essential now more than ever. Great operators will adapt and overcome, and subpar operators will succumb to their shaky business models. A rising tide lifts all boats, but a lack of clarity and business plans may make the 2021 year more of a learning experience for some operators than others. to their shaky business models. A rising tide lifts all boats, but a lack of clarity and business plans may make the 2021 year more of a learning experience for some operators than others.
Communication is just as vital. Operators communicating with management teams frequently and management teams communicating with tenants regularly have become a must. Everyone is talking now more than ever, and this is because data is gold. Accurate and valuable information is the key to weathering this storm, a storm that none of us could have predicted. This data isn’t just pricing and vacancy; it’s the whole hierarchy of key primary and secondary demand drivers and local demographics that operators consider to make the most effective plan for healthy property management. Amenities and non-rental income-producing assets are projected to hold extra value as we start this recovery instead of simple rental unit income.
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