At the same time, we’ve seen a downward trend in residential vacancy rates across the country. The vacancy rate has declined 39.6% since 2010 (when vacancy hit an all-time high) and currently, 6.4% of rental units in the U.S. are vacant. Not all vacancies are created equally, however. As the COVID-19 pandemic unfolded, we witnessed a noticeable shift in renter behavior as people migrated from highly populated urban centers to the suburbs in search of larger units and less densely populated multifamily communities. Overall vacancy rates for suburban multifamily declined, with a 6% national vacancy in Q3 2020, while downtown multifamily vacancy increased to around 9%.
This high demand for multifamily properties may also be related to the unaffordability of homeownership, especially for millennials. Nearly 70% of millennials say they cannot afford a house due to rising prices. This is backed by a study by the Federal Reserve Bank of St. Louis Center for Household Financial Stability, which found that millennials have almost 35% less wealth than earlier generations at the same ages.
But people need to live somewhere and if they can’t afford to buy a house, the only option is to rent. In the classic supply-demand relationship, limited supply leads to an increase in rents. According to Yardi Matrix’s Multifamily National Report, multifamily rents rose by 1.6% year over year in April 2021, the largest YOY rent growth the market has seen since the start of the COVID-19 pandemic.
How else did COVID-19 impact the multifamily sector?
At the beginning of the pandemic, as entire sectors of the economy shut down overnight and job losses mounted at an unprecedented rate, there were understandable concerns about the multifamily sector. If renters were unable to pay their rent, property owners might, in turn, be unable to pay their mortgages. Government intervention helped prop up the multifamily sector by providing significant fiscal and monetary stimulus, as well as by implementing eviction moratoriums to protect renters. Consequently, rent collections never dropped below 93% in any month in 2020 (as reported by the National Multifamily Housing Council), with final collection rates below, but still close, to 2019.
In the end, multifamily handled the 2020 recession better than most property sectors aside from industrial.
Where should investors be looking for opportunities?
For 2021, the overall outlook for multifamily is positive. With favorable target tenant demographics, all-time low interest rates, and a spike in single-family values that are pricing out many would-be homeowners (despite the low interest rate environment), CBRE forecasted a “return to pre-COVID vacancy levels and a 6% increase in net effective rents next year, with a full market recovery occurring in early 2022.” The firm has speculated that rising multifamily demand will be also driven by “unbundling,” with renters moving out of their parents’ homes as new job opportunities provide the flexibility to work remotely and live where they want.
With 30+% of the population renting, many of CrowdStreet’s top 25 multifamily markets already have a significant renter presence. Cities such as Raleigh-Durham, Austin, Nashville, Atlanta, Charlotte, and Phoenix continue to stand out as they have favorable business climates, educated workforces, some level of affordability, and population growth, all of which serve to drive demand for multifamily properties.
Here is our full list:
- Salt Lake City
- Dallas-Fort Worth
- Tampa-St. Petersburg
- Washington D.C.
- San Antonio
- Palm Beach
- Colorado Springs
- Fort Lauderdale
- San Jose
Download our full Best Places to Invest report to learn more about where we see opportunity in 2021.
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