Professional Documents
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Multifamily Outlook
Winter 2021
Market Analysis
Winter 2021 Pandemic Prompts Rise
CONTACTS In Rent Concessions
Jeff Adler
Vice President & General
Manager of Yardi Matrix ■ After a year ravaged by a global pandemic and political division,
Jeff.Adler@Yardi.com nothing would be more satisfying in 2021 than a return to normal.
(800) 303-615-3676 While there does appear to be light at the end of the tunnel, it
will take some months to get most of the country vaccinated and
Jack Kern
Director of Research and
get businesses operating as normal.
Publications
Jack.Kern@Yardi.com ■ Job growth has been mostly positive since the summer, but the
(800) 866-1124 x2444 economy remains nearly 10 million jobs off its peak. Millions of
renters continue to struggle to make monthly payments. The $900
Chris Nebenzahl
Editorial Director billion stimulus package passed at the end of 2020 provided some
Chris.Nebenzahl@Yardi.com relief, especially the $25 billion renter assistance, $25 billion for
(800) 866-1124 x2200 Housing and Urban Development (HUD) programs and $300 per
week unemployment aid. However, another package is likely to be
Paul Fiorilla
Director of Research
needed in 2021 to keep many families and property owners afloat.
Paul.Fiorilla@Yardi.com
(800) 866-1124 x5764 ■ Nationally, rent growth fell only slightly in 2020, but there was
a huge variation among metros. Rents and occupancy levels fell
Madeline Winship
sharply in high-cost gateway markets, as renters left crowded and
Senior Research Analyst, Operations
Madeline.Winship@Yardi.com expensive coastal centers. More affordable markets in the Sun Belt,
(800) 866-1124 x2115 Southwest, Midwest and Mid-Atlantic saw modest rent growth.
2
Economic Outlook
Nine months into the largest % Change in Employment by Wages from Feb. 2020
% Change in Employment by Wages from Feb. 2020
global pandemic and economic 0.0%
Oct-20
May-20
Apr-20
Jul-20
Aug-20
Nov-20
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Feb-20
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recreational vehicle sales have had
banner years, as consumers have High (Over $29/hour) Medium ($18-29/hour) Low (Under $18/hour)
Sources: Yardi Matrix; U.S. Employment & Training Administration (ETA):
been forced into goods and away Unemployment Insurance Weekly Claims
from services.
On the other hand, weekly jobless claims remain There is hope for a strong economic recovery
elevated as new unemployment claims have as 2021 proceeds, but much of that hope will
topped the 2009 peak every week since March, depend on the pace of vaccine adoption and the
when record numbers of jobs were lost as the reopening of businesses nationwide. In the early
virus induced shutdowns that closed many stages, the vaccine rollout appears to be lagging
businesses. The economy lost 22.3 million jobs over initial expectations; however, a new presidential
two months. Although job growth was positive administration and an organized national effort
for seven straight months before December, the for vaccine deployment may increase the speed of
economy remains 9.9 million jobs below its peak. the recovery.
A debate raged about the “shape” of the recovery, Consumer confidence will also determine how
but as time has played out it is clear that the quickly the overall economy can recover, although
“K-shaped” model will turn out to be the most it is also subject to the K-shaped model. Many
accurate. Employees with lesser education and lower-income households saw stimulus checks
those working in low-wage positions have been run out in the second half of the year and have
disproportionately impacted, as those job losses had to borrow to pay for basic expenses such as
were most severe and have yet to recover. As of rent. For higher-income households, extra stimulus
December, leisure and hospitality was down by and reduced spending allowed them to increase
3.8 million jobs, or 22.8% from the year before, savings. When the vaccine distribution enables the
according to the Bureau of Labor Statistics. Travel economy to reopen, probably in the second half of
has taken a blow from the pandemic’s second 2021, the economy is likely to see a jolt of growth
wave, as nearly 500,000 leisure and hospitality jobs from pent-up consumer demand among high-
were lost in December. Moving up the education income households.
and wage scale, job losses have been fewer and the
recovery has been much quicker. The finance sector As low-income families sink into debt, they may
lost less than 1% of its jobs as of December, while face increased problems paying rent. The National
professional and business services was down 3.8%. Multifamily Housing Council’s Rent Payment
Apr-20
Sep-20
Jun-20
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that Democrats control Congress
and the presidency, they are likely
Less than a high school diploma High school graduates
to approve higher aid, possibly
Some college or associate's degree Bachelor's degree and higher
$600 per week for unemployment
Source: Yardi Matrix
and individual stimulus checks
of $2,000 being sent to many
Americans.
We expect growth to remain tepid during the in both the equity and real estate markets. The
first half of the year as employees continue to latter half of 2021 may indicate a return to more
work from home. Jobs that require in-person pre-pandemic economic trends, as the vaccine
work and human interaction will likely see volatile will hopefully be fully administered by then. Still,
growth until the virus is fully contained. The same the long-term impact of the pandemic will take
is true for wages versus assets. Wages, especially years to sort out, depending on the development
in service jobs, will fluctuate as dining, travel and of trends such as work from home, e-commerce
leisure make a slow recovery. However, market and domestic migration between regions, cities
indicators point toward strong asset growth and suburbs.
Despite the COVID-19 pandemic, U.S. Multifamily Rent Growth (YoY Change)
national rent growth remained 7%
relatively flat on a year-over-year 6%
5%
basis, ending the year at -0.8%.
4%
There was a large divergence in 3%
performance between markets, 2%
1%
though. High-cost gateway mar-
0%
kets struggled the most, while -1%
many tech hub and tertiary mar- -2%
-3%
kets thrived.
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The most dramatic example of bi- Lifestyle Overall Renter-by-Necessity
ment rate was 6.7%—nowhere near the high of Phoenix 3.7% 4.6%
14.7% in April but still well above normal levels.
With a new stimulus package recently signed into Winston–Salem 3.6% 6.6%
law, most Americans received a $600 direct pay- New Orleans 3.5% 0.6%
ment and additional unemployment benefits of
Birmingham 3.4% 2.8%
$300 per week until March 2021. With Democrats
firmly in control of Washington, more aid could be Sacramento 3.4% 6.1%
passed in 2021 that could boost rent payments
Cincinnati 3.3% 2.2%
and stabilize rent growth.
Atlanta 3.3% 3.0%
with the most forecast new supply are White Phoenix 9,334 13.6%
Plains (4,464 units, 6.5% of existing stock), the
Denver 8,653 -29.7%
Southwest Florida Coast (4,108 units, 5.9%) and
Louisville (4,484 units, 5.8%). Boston 8,449 20.8%
metros benefit from strong migration out of the Charlotte 6,692 55.3%
high-cost gateway markets into these lower-cost
locations in the Sun Belt and Southwest. Orlando 6,662 21.5%
Nov-16
Nov-15
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gateway markets, Boston has
the most forecast deliveries in
Lifestyle Overall Renter-by-Necessity
2021, at 3.7% of existing stock,
Source: Yardi Matrix
followed by San Francisco (2.8%),
Washington, D.C. (2.7%), Los
Angeles (2.6%), Chicago (2.2%) and New York age population (20-34 years old) set to continue
City (1.3%). The mass exodus out of the gateway growing through the middle of the decade.
markets could affect the leaseup of these new
deliveries over the next few years, especially As Millennial renters reach their late 30s and 40s,
since most of the new supply is concentrated in a prime stage for first-time homebuyers, all eyes
the Lifestyle segment. are turning to the rental preferences of Gen Z—
those 25 years and younger—which was the only
New deliveries will take longer to fill until the renter segment to see an upward trend in renter
economy recovers from COVID-19, since the activity in 2020. Gen Z is expected to demand
demand for high-cost apartments has declined. new design preferences; most importantly, young
Most projects, however, should find tenants in the renters demand advanced technology built into
long term. Occupancy has declined somewhat the units. Other design changes likely to be
during the pandemic, especially among high- popular this year coming out of the pandemic
end properties, but at year-end the average include more dedicated office spaces (either
occupancy in the U.S. was 94.7%. Demographic in the apartment or common areas) and more
trends are still positive, with the prime renter- outdoor space.
The industry faces many hurdles in 2021, but by more aggressive investors. The effect is a
surprisingly capital markets conditions are not filtering down, in which investors are moving
among them. Slow economic growth, the decline down a notch in market size.
in rent collections and shrinking demand in
primary markets might portend waning capital Despite the sudden decline in transaction activity,
conditions, but that’s not the case in multifamily. acquisition yields have not changed much. Usually
a sales slowdown leads to higher capitalization
Transaction volume declined to just over $80 rates. However, that hasn’t happened during
billion from $127.6 billion in 2019, mostly because the pandemic, since demand is high, property
deal flow plummeted in the spring. Some facilities performance has been solid in most market
and activities necessary to complete deals were segments, and interest rates fell from pre-
closed, lenders paused until they could assess the pandemic levels, making borrowing cheaper. The
landscape, and some equity sources withdrew bids 10-year Treasury rate fell as low as 0.54% in March
or sought to retrade deals. After a short pause, before recovering and has mostly remained below
though, multifamily once again became a sought- 1.0% in recent months (although it rose to 1.1% in
after asset class. mid-January). That gives property buyers a large
premium over the risk-free rate and a cheap cost
Many investors remain bullish on the prospects of debt.
for multifamily demand. With a national long-
term shortage of reasonably priced housing, Multifamily lending snapped back after a month-
demand for multifamily is projected to remain long period in the spring when the market needed
strong, especially in the Renter-by-Necessity and time to adjust. The market was steadied by the
affordable segments. Investors see multifamily presence of Fannie Mae and Freddie Mac, whose
as a highly appealing investment product. government support helped them get back to
Apartments typically produce 4-6% dividend business. Agency lenders Freddie Mac, Fannie
yields, which is a better return than sovereign
bonds or investment-grade
corporate bonds. Multifamily
also is attractive relative to other CRE Securitization Volume
CRE Securitization Volume
commercial property classes,
$140
except for industrial.
$120
Renter-by-Necessity households span a range. In descending order, household types can be:
■ Students, who also may span a range of income capability, extending from affluent to barely
getting by;
■ Blue-collar households, which may barely meet rent demands each month and likely pay a
disproportionate share of their income toward rent;
■ Subsidized households, which pay a percentage of household income in rent, with the balance
of rent paid through a governmental agency subsidy. Subsidized households, while typically low
income, may extend to middle-income households in some high-cost markets, such as New York
City;
These differences can weigh heavily in determining a property’s ability to attract specific renter
market segments. The five-star resort serves a very different market than the down-and-outer
motel. Apartments are distinguished similarly, but distinctions are often not clearly definitive without
investigation. The Yardi® Matrix Context rating eliminates that requirement, designating property
market positions as:
The value in application of the Yardi® Matrix Context rating is that standardized data provides
consistency; information is more meaningful because there is less uncertainty. The user can move
faster and more efficiently, with more accurate end results.
The Yardi® Matrix Context rating is not intended as a final word concerning a property’s status—
either improvements or location. Rather, the result provides reasonable consistency for comparing
one property with another through reference to a consistently applied standard.
To learn more about Yardi® Matrix and subscribing, please visit www.yardimatrix.com or call Ron
Brock, Jr., at 480-663-1149 x2404.
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