The impact of COVID-19 is being felt all over the world. Not only has the coronavirus caused a great deal of human tragedy, but its effect on the world economy is unparalleled. Thus, while the multifamily real estate market is resilient, the long-term effect of the pandemic remains to be seen.
According to a U.S. Multifamily Market Update by the UBS Wealth Management Chief Investment Office, several long-term fundamentals remain positive and while there are near-term uncertainties, the future for the multifamily sector in a post-coronavirus world should remain strong due to the following factors:
The effect of COVID-19 on the economy into the future depends on many things, not the least of which is the severity and longevity of the pandemic.
Here are five things that may play into how the pandemic will impact the multifamily real estate market and rental industry.
To blunt the impact of the sudden, severe rise in unemployment, the U.S. government passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, an unprecedented $2 trillion stimulus package.
It provided for an expansion of unemployment benefits to include people who were not normally recipients, such as furloughed employees, gig workers and freelancers, provided for a $600 per week increase in unemployment benefits for up to four months to the end of July, delivered direct payments to families of up to $1,200 per adult and $500 per child and included a $367 billion loan and grant program for small businesses to help maintain their payrolls throughout this emergency period.
This was then supplemented by the Paycheck Protection Program and Health Care Enhancement Act that provides, in addition to some other appropriations, additional lending authority for the Small Business Administration (SBA) to respond to needs created by the coronavirus outbreak. All of these measures will help many tenants who are struggling to pay rent.
Since so many occupants have taken significant pay cuts or have been furloughed, owners may expect to have problems with tenants' abilities to pay rent. Given the significant increase in job losses, politicians have been proposing rent holidays. However, it remains to be seen if rent forgiveness will be mandated by executive or legislative orders.
Initial data from the National Multifamily Housing Council (which represents more than 11 million professionally managed apartments) indicates that 89 percent of rent checks in April have been collected (compared to 93 percent the previous month). At the moment, it remains uncertain as to whether the figure is lower because tenants have been unable to pay or if rent checks have simply not been collected because many corporate offices are closed.
As expected, rent and occupancy vary according to such factors as geographic location, the quality of the rental units and the nature of tenant employment. Higher-priced Class-A (or luxury) apartments will likely fare much better as they're occupied by a higher portion of salaried workers in more growth-orientated industries, where working remotely is more easily facilitated, such as the technology sector.
In contrast, Class-C apartments that tend to house lower-income hourly workers in service-orientated industries, such as the entertainment and food sectors, will be harder hit by this crisis.
While Class-B apartments, which house a mixture of individuals from multiple sectors who may be renting by necessity or by choice, are expected to fare relatively well, depending upon geographic location.
The areas that look to be at greater risk are dependent on industries in leisure, travel and retail markets in the regions of Central and South Florida, Hawaii, Las Vegas and New Orleans.
Co-living is a recent trend in the multi-family real estate market, especially in high-cost cities where the co-living network has exploded. Similar to “adult college dorms," tenants have their own bedroom and bathroom but share amenities like kitchens, working lounges, fitness centers, pools and indoor and outdoor amenity spaces.
At this point, it's difficult to assess the future of co-living, especially as it's unknown how long social distancing will be in effect. There's also the possibility that if working from home becomes more established, tenants may decide they need more of their own private space.
Although technology and real estate are rarely discussed in the same circles, COVID-19 could accelerate the adaptation of technology in this sector. To limit person-to-person interactions, there could be a significant uptick in the use of self-touring technology with smart lockboxes, immersive virtual apartment tours, drone footage, online leasing, automatic rental collection and tenant application services.
To limit exposure to the virus, real estate offices and landlords are using technology to communicate quickly and efficiently and to run operations with limited personal contact, such as keyless entry, moisture and water sensors, remote lighting/thermostats and automated self-leasing.
All of these technologies will improve the antiquated apartment rental experience, providing much needed cost-saving measures in a post-coronavirus world.
Even though the multi-family real estate market will face many challenges due to the COVID-19 pandemic, there are still many bright spots to anticipate for the multi-family real estate industry:
In short, people will continue to need housing and rentals will remain a solid choice for many.
Zain Jaffer is an entrepreneur and the Founder and CEO of Zain Ventures, an investment firm with more than $100 million in assets under management. Zain Ventures is active in a variety of commercial real estate initiatives across the U.S. with a current portfolio of 17 projects across 11 states.