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Blog Post04/06/2020
The 2020 Multifamily Outlook: What We Know Now

What can we expect for the multifamily industry this year? Despite it being the end of Q1, it may be too early to tell. The US is reeling from the impact of COVID-19, and we have no way of knowing just how much the economy will be affected.

With conditions changing rapidly, and local, state and the federal governments taking various — sometimes drastic — action to curb the spread of the virus, we’re just going to have to take a wait-and-see approach.

Still, heading into the year, CBRE research showed signs that the market was poised to remain mostly stable through this year, and that could help the industry weather the storm. Check out these highlights from their “2020 U.S. Real Estate Market Outlook.”

Developers will remain active in 2020

CBRE Research predicts that the completion of multifamily units will total 280,000, close to 2019’s estimated 281,000 units. Surprisingly, the rise in new builds is largely due to an increase in suburban multifamily units, which are projected to outperform urban areas with lower vacancies and higher rent growth.

CBRE’s top four markets for multifamily performance in 2020 are Austin, Atlanta, Phoenix and Boston. Still, CBRE recommends smaller metro areas, of less than two million people, as key areas for development. In fact, the CBRE says as of Q3 2019, Albuquerque, Birmingham, Colorado Springs, Greensboro, Memphis, Dayton and Tucson all experienced 4% or higher rent growth.

This will be one to watch. COVID-19 could result in business closures, additional travel restrictions, potential government-mandated quarantines and curfews. Those could have a dramatic impact on labor and supplies, and specifically how quickly buildings can be completed.

Vacancies are up, demand is down

Multifamily vacancies rates are expected to increase to about 4.5% in 2020, but still remain under the long-term average of 5.1%.

Apartment demand is 20% less than 2019, as well. That is in part due to slower economic growth. Additionally, Millennials already were leading the charge in real estate sales, and they’ll continue to move out of rentals and into their own homes. Still the CRBE projects that multifamily demand will be high enough to absorb the increase in supply. 

That said, one underlying factor could cause the market to go either way. We are already seeing fluctuations in mortgage rates, as the Federal Reserve aims to mitigate the economic fallout from the pandemic. Lower interest rates could motivate more people to buy, rather than rent, increasing vacancies.

On the flip side, a wildly fluctuating stock market and fears of another recession could convince many would-be buyers to keep renting, while driving homeowners to sell — while the getting is good — and move into rentals. The busy spring real estate season will give us a better idea of the long-term impact, at least through 2020, of COVID-19.

Rent control legislations could upset the industry

New rent control legislation has been enacted in New York, California and Oregon, and other states are likely to follow suit, in order to help manage the growing affordability problem. That could cause quite the shake up, as the industry responds to the new legislation and the impact on the bottom line.

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