The impact of the pandemic was not felt evenly across the county as multifamily transactions in 2020 were down and sales plunged in due to COVID-19, according to a new report from Yardi Matrix, after record multifamily transaction volume in 2019.
A few summary points from the report:
- Much of the change could be described as a “filtering” effect: investors moving from urban cores to inner-ring suburbs, from primary to secondary metros and from secondary to tertiary metros. This phenomenon results from several factors, including owners putting fewer properties on the market, disagreement between buyers and sellers about prices, the composition of buyers, and the competition for assets.
- Sales recovered in the third quarter after hitting a trough in 2Q20, but like so much about the economy, a return to “normal” transaction activity is hard to predict. Until the pandemic recedes and people can return to daily activities with the help of an effective vaccine, uncertainty will linger.
- Despite worrying economic signals—S. unemployment numbers remain high, gateway-market occupancy rates and rents have plummeted, and December rent payment data shows more tenants not making payments—multifamily fundamentals have held up better than in other commercial property segments, and loan delinquencies remain low.
Gateway cities took the biggest hit
“Multifamily transaction activity abruptly hit a wall when shelter-in-place orders started in March. Transaction volume fell to $9.4 billion in the second quarter, the lowest quarterly total since the first quarter of 2011 and a decline of 62 percent from 1Q20 and 67.2 percent year-over-year,” according to Yardi Matrix data.
“Deal flow picked up to $16.5 billion in the third quarter, though that is still 51.1 percent below 3Q19 volume of $33.8 billion. Through three quarters of 2020, total volume was $50.6 billion, down 41.7 percent year-over-year.
“But the impact is not being felt evenly across the country. On a regional basis, the Northeast (-54.6 percent) and West (-51.0 percent) had the biggest declines, while the Midwest (-32.6 percent) and Southeast (-34.1 percent) fell the least. Urban and suburban multifamily sales have dropped by roughly the same percentage, but there has been a difference by region.”
The report says the trend of corporations allowing employees to work from home has contributed to the migration from bigger urban areas to more suburban areas and from urban submarkets in the most expensive metros to suburban markets or even secondary markets.
And equity investors still see multifamily as a highly appealing investment product. “Apartments typically produce 4-6 percent dividend yields, which is a better return than sovereign bonds or investment-grade corporate bonds,” the report says.
“The upshot is that demand for multifamily properties is high and should remain so for the foreseeable future. Barring a sharp and unexpected economic downturn or a health crisis that would create another shutdown, or disruption in the capital markets, multifamily transaction activity is poised to rebound in 2021 closer to pre-pandemic levels.”
—Paul Fiorilla, Director of Research, and Casey Cobb, Senior Analyst
About Yardi Matrix:
Yardi Matrix researches and reports on Multifamily, Office and Self Storage properties across the United States, serving the needs of a variety of industry professionals.Yardi Matrix Multifamily provides accurate data on 18+ million units, covering over 90% of the U.S. population. Contact them at (480) 663-1149.