Despite a challenging economic landscape, multifamily real estate has proven to be a steady revenue source and continues to be a sound investment strategy for investors. Our Stirling Investment Advisors specialize in multifamily investments across the Gulf South region. In this report, we drill down into local MSAs to demonstrate the resiliency of multifamily assets in our market area.
Throughout the COVID-19 crisis, the biggest concern among landlords and property owners was the inability of tenants to pay rent due to a mass increase in unemployment. Many thought this could lead to significant losses and potentially flood the market with distressed assets and foreclosures, but that hasn’t been the case as of now.
Different markets within the U.S. will have varying economic impacts and understanding the backbone of each market’s job base helps understand its recovery. For example, markets heavy in tourism will recover slower than those with more reliance on technology and manufacturing. In our Gulf South markets, we saw a significant increase in unemployment rates, averaging around 7.34% in November of 2020—up from an average of 3.86% at the same time in 2019. The highest rate being in the New Orleans metro area, a market heavily reliant on tourism and hospitality.
However, the multifamily sector has weathered the storm relatively well in collections, occupancy and overall operations compared to other asset classes such as retail and hospitality. This is largely due to federal programs that provided relief to owners and the economic stimulus package, which helped keep renters in place. Compared to pre-COVID-19 levels, national rent collections have held steady at around 95%, according to the National Multifamily Housing Council. In our local markets, occupancy rates have also held relatively stable, and average rental rates have increased slightly in most.
Coinciding with a market’s economic performance, the multifamily construction pipeline could play a factor in the strength of the industry moving forward. In the fall of 2020, 371,000 new apartments were planned for construction across the country, according to data from Yardi Matrix. However, only 283,114 were in the pipeline by the end of the year, leaving a delta of 87,886 apartment units in flux as to whether they will begin construction later or not at all. This potential decline in the construction pipeline will delay new units hitting particular markets, keeping supply low, and providing some owners the opportunity to reposition existing assets. New construction is expected to remain a significant headwind throughout the coming year, as labor and material shortages are driving up costs dramatically for builders. Interest rates are also extremely low today, creating an opportunity for buyers to win deals they may not have pre-COVID due to less overall buying activity in the market.
Earlier in the pandemic, we saw a discrepancy in price expectations between buyers and sellers. Buyers had expectations of a “COVID discount,” while owners were simply not taking the hit on their bottom line hard enough to need to exit their investment at a discount. We are now seeing both price expectations and investment activity trend back towards equilibrium in recent months, which is a good sign for moving forward. (Though we will continue to keep an eye on performance metrics, with the CARES Act expiring and no new stimulus legislation on the horizon, as well as the CDC’s eviction moratorium.)
Despite a very challenging last year, the multifamily sector showed strong resiliency, and we anticipate this resiliency to continue into the new year, helping to sustain future economic recovery.
Multifamily real estate continues to be a desirable asset for investors and can be a great way to diversify your investment portfolio and generate a steady income. If you are interested in buying or selling multifamily property, contact Stirling Investment Advisors. We specialize in investment sales of retail, multifamily, office, healthcare and industrial properties in the Gulf South.