As we close out 2020, investors, property owners, and property managers look ahead. The 2021 outlook for multifamily real estate is mixed, but experts suggest the sector will see improvement in the months ahead.
Multifamily Real Estate in 2020
This year was not kind to the commercial real estate sector. The Coronavirus pandemic dramatically impacted the economy, causing spikes in unemployment and upheaval across all CRE sectors. While impacts on multifamily real estate were mixed depending on location and other factors, it seems urban multifamily real estate has been the hardest hit. However, multifamily rental rates decreased across the board. Though urban areas in densely populated markets saw the most significant drops, rents fell nationwide. Q3 2020 saw the largest single-quarter rent price decrease since 1999. As a result, vacancies increased nationwide as well, both in urban and suburban multifamily properties. Even amid the chaos, multifamily real estate remains one of the strongest performers of all CRE asset classes amid the pandemic.
2021 Outlook for Multifamily Real Estate
Needless to say, 2021 remains uncertain. While multifamily real estate is traditionally a reasonably recession-proof asset class, we are in uncharted territory. Commercial real estate giant CBRE predicts we will start to see improvement in 2021. Suburban multifamily properties will lead the way to recovery, with urban properties lagging behind.
GDP Growth in 2021
While financial experts foresee growth in the coming year, there is less optimism that we’ll see a full recovery in 2021. The National Association for Business Economists lowered its estimated 2021 GDP growth to 3.6%, down from the 4.8% the association projected in June. This slower growth will impact all commercial real estate sectors, including multifamily properties.
However, the good news is that economists expect that there will be growth. And as we near closer to a COVID-19 vaccine, that growth should only increase. As businesses reopen, people will head back to work, which should positively impact the multifamily sector. It’s important to note, though, that economists warn it may be a long road ahead to full recovery.
Lower Rent Rates Nationwide
Even though the economy should begin to climb out of the downturn in 2021, multifamily property owners will likely experience lower rent rates for some time. National Real Estate Investor recently released a report outlining the challenges ahead for commercial real estate. Among these challenges is a dramatic drop in rent rates, increasing vacancy rates, and predictions for more of the same in 2021.
In the survey, nearly half of respondents say they expect occupancy rates to fall for multifamily properties in the next 12 months. Others say they expect occupancy to stay consistent or even grow in 2021, but property owners should expect moderately declining rent rates and potential delinquencies.
Of course, these contrasting projections depend on multiple factors, like location, local economy, and the pandemic spread within local communities. Urban multifamily properties may continue to see slower growth as employees work from home in 2021. More affordable multifamily housing in suburban areas will likely see improvement. And the economic rebound depends on whether communities can effectively manage the spread of the virus moving forward.
2021 Looks Optimistic
The bottom line: like all commercial real estate sectors, multifamily properties have seen challenges in 2020. It’s likely property owners and property managers will continue to face difficulties moving into 2021. However, the data offers hope of an economic recovery, no matter how slow. Furthermore, the multifamily sector has weathered the Coronavirus storm better than other CRE sectors. Only the industrial sector performed better in 2020. While retail and office properties are reeling, many multifamily properties remain fairly optimistic moving forward.
Multifamily Real Estate Investments in 2021
2021 multifamily investment forecasts suggest increased sales volumes over the next year. CBRE estimates a 33% increase in multifamily investments over 2020. While this falls short of sales volumes from 2019, it is still a positive sign for the multifamily market. Low interest rates should continue into 2021 as well, which should encourage more buyers to invest in multifamily real estate. Suburban markets and smaller urban markets show the most promise as these areas are ripe for growth in the coming year.
Property Management for Multifamily Properties
Increased multifamily sales volume is good news for commercial property managers, too. As more investors move into the multifamily sector, property management needs increase as well. At Designated Broker Solutions, we provide cost-effective broker and property management solutions to keep your investment running smoothly. Contact us today to learn more about our services.
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