So, 2020 did not go as planned, or as predicted. What do forecasters see in store for 2021?
- Predictions for the coming year are more cautious and a lot more uncertain than those made pre-pandemic for 2020.
- Some predictions for the year ahead: increased multifamily vacancies and declining rents in the near-term, rent recovery beginning in Q1 and completed by Q2 2022, delays in construction that will impact the supply pipeline and longer lease-ups for luxury apartments.
- Savvy professionals will be watching for new technology to be introduced and trying to assess how resident needs are changing.
This time last year, industry experts provided their predictions and scouted upcoming trends for 2020. Little did they know the world would be turned upside down in a matter of weeks, altering the industry entirely and throwing all of those predictions out the window.
This year, predictions are a little more cautious and a lot more uncertain. No one truly knows how the industry will unfold, what economic changes will occur, and how the market will respond. We can only speculate and hope for positive trends.
A look back at last year’s predictions for 2020
For reference, here is a look back at some of the expert predictions from last year for 2020:
- Rent control was predicted to increasingly become an issue. Rent regulations were instituted in a few major markets. Many economists agreed that building more housing could be one solution.
- It was predicted there would be a slowdown in multifamily construction in 2020; construction peaked in 2016 but has paced well since.
- More baby boomers were predicted to downsize in 2020 into multifamily and senior living apartments. A Fannie Mae study estimated that more than 14 million baby boomers would end their homeownership by 2036.
- Overall, experts and economists believed multifamily housing would remain strong and that it would be a strong investment for those who use sound fundamentals.
- According to the Harvard Joint Center for Housing, it was predicted that approximately 75 percent of renters would like to become homeowners soon.
- Multifamily developers were predicted to remain very active in 2020. Permits and starts were predicted to fall, but not deliveries. CBRE Research estimated that multifamily completions will total 280,000 units, which would be in line with 2019’s 281,000 units.
How 2020 predictions have changed amid the pandemic
While some of the above-mentioned predictions might still hold true, many of them have already drastically changed course.
Let’s take a look at what’s changed so far:
- Substantial job losses and high unemployment led to a decline in multifamily demand and rents.
- Investment activity has slowed in March but volume has increased since June compared with the start of the year. This is due to liquidity being offered when other market participants moved to the sidelines.
- The market saw a high rate of lease renewals as residents remained in their units during the lockdown.
- Some of the reduced demand will be offset by slower completions the remainder of this year; compared with pre-pandemic levels, completions are tracking lower this year by at least 30 percent.
- There may be some relief to rent and vacancies are expected as fewer units are completed and demand continues to slow.
What can the industry expect in Q4 and 2021?
It’s no secret the market has been rocky this year and everyone is ready for the start of a fresh year. It’s still unclear when the multifamily market will completely bounce back, but experts estimate the sector will gradually start to improve, with a full recovery expected within the next two years.
Here is a look at what other predictions are expected for the multifamily market for the remainder of this year and into 2021:
- COVID-19’s impact on the economy will continue to cause an increase in multifamily vacancies and declining rents over the next few months.
- CBRE Econometric Advisors estimate the market to “bottom out” soon and begin a recovery toward the end of this year and into next year.
- Rent recovery is expected to begin in the first quarter of 2021 and be completed by the second quarter of 2022.
- New luxury apartments are taking longer to lease up as renters are more concentrated on less-expensive units amid the pandemic.
- The pandemic will continue to delay projects that have not started construction yet, weakening the supply pipeline.
No matter where the next few months or year takes us, the important thing to remember is that the industry will bounce back. Ultimately, this upcoming year will definitely be one to watch as new technologies are introduced and renter’s needs change.
Ashley Tyndall is the Director of Corporate Communications for Criterion.B, an agency focused on branding and inbound marketing for the commercial real estate industry.