As a result of the pandemic, many people have made short and long-term lifestyle changes. When the pandemic started, urban locations were hit hard, and many people fled the cities due to the dense population and reduced opportunities for social distancing. However, the attractive lifestyle a post-pandemic bustling city provides will draw some back. The CBRE reports, “There are no indications that 2020’s decline in urban multifamily demand is permanent or there is an impending return to the hollowed-out cities of the 1970s and 1980s. Yet urban submarkets will lag in the multifamily sector’s overall recovery. Lower-density and less-expensive suburban submarkets held up remarkably well in 2020 and are positioned to lead overall market performance in 2021”.
Bradley Balletto, VP of Investments at Northeast Private Client Group, reflects on the recent history of Investment Real Estate saying, “2019 was a fantastic year. My team was on track to have an even better year in 2020. But when March came around, everything changed. Transaction volume came to a halt because nobody knew what was going on. Surprisingly, collections held up and occupancy increased. Landlords could not evict their tenants for no payment during the pandemic unless they had a previous balance before the pandemic hit, or if they had gone more than six months without paying. It was a wild year”.
As a brokerage specializing in multifamily and apartment building investments it’s clear that, in some ways, these types of investments tend to be recession-proof. As market conditions improve, multifamily investment volume is expected to increase in the new year. According to CBRE research, “U.S. multifamily investment volume will reach about $148 billion next year, lower than 2019’s record level of $191 billion but a 33% gain over the 2020 estimate of $111 billion”. Class A multifamily investments saw the greatest struggle in 2020 and are expected to recover the slowest; whereas Class B and C multifamily investment properties have and will continue to do well.
When it comes to mixed-use retail and apartment buildings, we know that unfortunately, many retail companies went out of business in 2020. As we head into 2021, the outlook for retail real estate is looking a bit different. Orion Investment Real Estate said, “More retailers went bankrupt in 2020 than during the Great Recession — especially department stores and apparel retailers. As brick-and-mortar retailers burn through cash reserves and consumers shop online, even more retail properties will go empty and landlords will default on their loans in the first half of 2021. Experts predict there will be 20% less retail real estate by 2025, according to the CBRE”. Due to the influx in online shopping, investors can expect to see an increase in warehouse and storage real estate.
There is no doubt that the first half of 2020 was difficult for investment real estate. Many submarkets of commercial real estate have been negatively impacted by the global pandemic. The multifamily submarket however, managed to survive due to the constant need for shelter. Three out of the five largest transactions Northeast Private Client Group has ever had, were in 2020.
Senior Financial Analyst at Northeast Private Client Group, Jacob Jordan said, “as urban core multifamily properties have struggled with increased vacancy and collections issues throughout the past 12 months, suburban multifamily has continued to perform well. In suburban multifamily, occupancy has remained high and collections issues are very limited at the middle and top tier properties. Rent growth remains but has been limited and most owners are expecting to be able to raise rents in 2021. Demand for suburban multifamily is high, and that coupled with historically low interest rates, has resulted in increased pricing”.
According to Wealth Management, “Apartment managers continued to lease apartments even in the first months of the pandemic. Markets in the U.S. absorbed 71,493 apartments in second quarter. Demand for apartments strengthened through the rest of the year. Markets absorbed a net 114,000 apartments in the third quarter, one of the strongest third quarters CoStar has ever recorded in multifamily. And the fourth quarter was the strongest since 2015, based on preliminary data, says Rybczynski. The average apartment community to remain close to fully occupied in 2021 with relatively stable rents and stable collections”.
For those people looking to sell their building, now may be the perfect time to list. According to Bradley Balletto, VP of Investment, ““Looking into 2021, the market outlook is positive. I expect the market to continue to be strong for multifamily investment properties due to extremely high demand, a limited supply of properties for sale and historically low interest rates. The only possible threats I can see to that would be a potential short-term shutdown this winter or and a shocking increase in interest rates – both of which seem very unlikely. The election is behind us, the vaccine rollout is gaining steam, and I am looking forward to building off of the momentum we created in the second half of 2020 for a strong, and hopefully far less tumultuous year in 2021”.