Multifamily Outlook

June 28, 2021

The American economy has suffered many major hits throughout the history of time, and has overcome all of them so far. As for the future of the multifamily industry, from the looks of the beginning of 2020 failure seemed imminent. However, as the country began to open back up and people started going back to work the situation began to change for the better. Many of the  younger people that had been forced to move back into their parent’s  homes because they could not afford their rent are back in business and anxious to return to the privacy of their own homes again. This is promising news for both the multifamily industry and the people that just want things to go back to somewhat normal.

Quarter 3 2020

Due to the COVID catastrophe the CBRE expected the overall vacancy rate to rise to over the 6% range by the third quarter of 2020. As we mentioned earlier, many people were forced to move out of their apartments and in with relatives or friends in order to avoid eviction or excessive debt.

  • Higher vacancy rates
  • Lower overall cost of rent
  • Loss of income

On top of the increase of vacancies, the overall cost of rent was forecasted to drop around 7% throughout the rest of the quarter and on into the next quarter.

Loss of income, loss of jobs, health problems and many other problems that became overwhelming in the wake of the pandemic forced people to move out, or refuse to pay rent. Arond th the country tenants were protected from evictions and other legal recourse if they were affected by COVID in any way. Without people working the entire United States economic structure threatened to crumble.

The third quarter of 2020 was undeniably one of the hardest quarters to ever hit the nation, but did not take long to pull out of the rut and start raising up towards a full recovery within the next few months.

Quarter 4 2020 

The CBRE predicted that the vacancy rates would drop back down rather quickly in the fourth quarter of 2020. Because the restrictions that had been put into place due to the COVID situation bagan to relax, an overwhelming amount of activity throughout the country began to occur. As people began to come out of hiding, the entire nation began to awaken and a fresh vision for the multifamily industry began to emerge.

As the end of 2020 closed in, 2021 began to unfold and bring promise for many of the withering industries that had been battling the cruel advances of COVID.

The end of the fourth quarter of 2020 showed definite growth in overall rent costs, as well as a substantial drop in the overall vacancy rate. As people went back to work and their paychecks started coming again, there were no excuses to not pay rent so people began to pay their dues.

Quarter 1 2021

The very beginning of 2021 witnessed a substantial increase in the cost of rent and a large drop in vacancy rates. However, at that point it was only the beginning of the recovery. Towards the end of quarter 4 2020 there was a rent change raise of a half of a percent, but near the end of the first quarter in 2021 the rent change rose from below 2% to above 4% making this one of the largest leaps since the third quarter of 2009. Throughout the end of 2019 to the end of 2020 the cost of rent decreased as much as it had during the market crash between 2008 and 2010. Since the beginning of 2021 the multifamily market has been climbing at an incredible rate. It does not look like it will be slowing any time soon.

Quarter 2 2021

The second quarter of 2021 has been a historical upward trend. The vacancy rates are at an almost record low, and the cost of rent has skyrocketed  faster than anytime in over 20 years. The current forecast by the CBRE is that the average rent will be $1,737 per month in the United States. This is an astounding 3.5% increase.

The decreased vacancy rate in addition to the increase in the cost of rent has prompted investors to start building in highly competitive areas. Sacramento, California had a 2.3% drop in vacancy rates, coupled with a high percentage of risen rent costs. Although this is only one of many major cities that has seen potential such as this, it is easy to see why investors have been attracted to these numbers.

As the capacity for housing begins to close in, the demand for it grows larger. With this demand, there is a promise of big money because rent will be higher, more people will want to move in to the empty new buildings and investors will be able to bring a large return on the money that they invest in new construction.

The Multifamily Outlook Bird’s Eye View

Across the entire United States there has been a great deal of improvement for the potential of huge returns on multifamily investments. As the A class renters have gained momentum from the beginning of the year, higher earnings are on the table for investors that have the capital to invest in large amounts. However, Class A renters are not the only feasible target for aggressive investors. Both Clases B and C are part of the overwhelming growth in the multifamily realm. 

Regardless of the class, or the arguments that spring forth behind which ones are the best to invest in, the entire multifamily entity has great potential for high returns. People that can’t afford to live in the higher costing neighborhoods are moving into the neighborhoods that they can afford, and at the same time, people that can afford the higher costs are moving away from the lower costing areas. The populations that make up the renting communities that allow multifamily investors to actually make money ebb and flow from one spectrum to the other. Markets shift and change throughout the years, but the smart investors keep their eyes on the activity and pounce on the opportunities as they appear.

As for the general outlook for the multifamily industry, things look really good at this time.