Multifamily Q1 2021 Investing Outlook (3 minute read) LOTS of GRAPHS!

Q1 2021 Apartment Investing Outlook

Marcus and Millichap released their 2021 Commercial Real Estate Investment Outlook on Monday March 1st. Its 116 pages and jam packed full of statistics covering multifamily, hospitality, industrial, office, retail, self-storage and senior housing. In this article I’m only going to recap the overall economic and multifamily trends. I’ve included a link at the bottom if you would like to download the report in its entirety to dig a little deeper. Enjoy!

Executive Summary

2020 was tough and we are all working to put that behind us as quickly as possible. Some states faster than others. Coronavirus cases are quickly on the decline and there are now multiple vaccines available for individuals. The U.S. economy was very resilient over the last year which should be setting us up for some very steady economic recovery and even growth. New business applications soared despite the job losses as individuals are looking at new ways to thrive in the economy. GDP was only down 3.5% in spite of the 22 million jobs that were lost. We likely won’t see a full recovery until year end 2021.

Apartment housing remained strong in the commercial real estate space. B and C class apartments in secondary and tertiary markets saw the most growth and will likely remain the sweet spot in this asset class. Cities in the Sunbelt metros have been some of the least impacted and are predicted to be the fastest growing markets over the next few years.

Households have made a mental shift in priorities. With so many people working from home or now doing school online space is important and secondary and tertiary markets offer a greater price per square foot return on investment. With mortgage rates at all-time lows, the need for larger, more affordable housing and the ability to work/attend school remotely, potential homebuyers seized the opportunity which has driven higher home prices which in turns widens the affordability gap for homeownership. A continued level of economic uncertainty has led other families to weather the storm and wait out a home purchase yet they still have the same shift in priorities and need lager, more affordable housing. Urban growth will likely remain slow as a number of organizations are supporting remote work for the long team, at least that’s the story for now.

Overall I remain bullish on multifamily investing as housing will always remain a priority. The U.S. economy showed an amazing amount of resiliency and had heavy backing from the government (which isn’t over by the way). The next few years should be interesting to watch as we begin to emerge from the cocoon of 2020 and begin to establish ourselves in this new normal.

Data, Data and a Little More Data

Below I’ve include charts and graphs from the Marcus and Millichap report. I highly encourage you to take the time to really understand the data trends.

2020 Economic Trends

Corona virus cases down. March 3, 2021 = 66,714 cases where mid-January saw a spike of 300,000 new cases in a single day (Image from google.com)

In 2020 new business applications were at an all-time high

Employment took a big hit at the beginning of the pandemic but it making great strides even without the vaccine rollouts

The U.S. economy took a large hit mid-year but made almost a full recovery with only a 3.5% reduction in GDP in 2020

2020 Multifamily Trends and 2021 Multifamily Outlook

Least impacted markets/Most likely to see near-term recovery

Forecasted population growth

Growth trends leading up to the pandemic

Top markets continue to be (in no particular order):

• - Salt Lake
• - Las Vegas
• - Phoenix
• - Dallas/Fort worth
• - Austin
• - Houston
• - San Antonio
• - Atlanta
• - Charlotte
• - Raleigh

Secondary and tertiary markets were least impacted 

Urban dwelling have been hit the hardest and likely will take a back seat to secondary and tertiary markets

B and C class apartments were least impacted during the pandemic as class A renters were better positioned to purchase a home when more space was needed

While there was some contraction of in place rents, the hardest hit was A class properties

For the full report please follow this link: https://www.marcusmillichap.co...  

As always, please let me know if you have any questions or have suggestions for a new topic.  I'm happy to help you any way I can!

Stephen Lee-Thomas

#multifamily #syndication #passive #investing