Trends and speed of recovery will differ across the country depending on several variables
Before the coronavirus pandemic, 371,000 new apartments across the country were planned for 2020, but as a result of complications and delays caused by the current global crisis, only 283,114 are expected. That’s down 12% from apartments delivered in 2019, according to Yardi Matrix, a U.S. real estate software company.
With economic uncertainty and no one knowing exactly what the recovery will look like, commercial real estate investors and multifamily developers will need to prepare for the changing economic climate and adapt accordingly. Trends are already beginning to take form in some regions, including rent drops and vacancy increases in expensive urban areas like San Francisco, Seattle and New York, according to John Loper, associate professor of real estate at the University of Southern California Price School of Public Policy.
“With major tech and finance companies giving their employees the option to work from home long term or even permanently, there is a push to suburban areas,” he said. “It won't be a mass exodus, but we're going to see some people that make that decision.”
Cities with a greater dependence on tourism and conference business will naturally take longer to recover, compared to regions with more reliance on manufacturing or technology. Loper expects a drop in values in downtown multifamily, and increased interest in “urban-suburban” areas, where outdoor dining and walkability exists. Areas with less supply like California and Seattle won’t see as rapid of a decline, but rather a cooling of the market.
Pre-pandemic, there was a trend toward less cars and a higher reliance on public transit where possible, but more people are hesitant to use trains, buses and even ride shares like Uber due to the higher risk of transmission. Loper believes the pandemic will push people toward wanting access to a car, in which case multifamily developers should consider sufficient parking. There will also be an increased desire to live alone versus with roommates.
“This will be a big problem for the co-living concept. People would rather rent a small studio than live in a shared space with five other people,” said Loper.
For high rises or bigger multifamily buildings, he believes new projects will include more technology in the infrastructure like keyless entry on elevators, or mobile apps that could allow you up to the floor you need without having to press a button.
Multifamily developers will also need to figure out how to accommodate home offices. Instead of a two-bedroom unit, perhaps it will be marketed as a one-bedroom with an office alcove or private den. He also expects a demand for private, outdoor space, whether that’s a balcony, roof terrace or patio.
“Multifamily units oriented toward families will likely need to offer an an area for kids to play outdoors, preferably in outdoor space,” said Loper. “We will see more townhomes with outdoor decks and possibly a shift in square footage from community space to private, outdoor space.”
Restructuring for a new normal will take time, much like it did after the September 11 attacks, he said. Even though the pandemic is unprecedented, after 9/11, everything was paused, and it took about six months before anyone felt comfortable shopping or traveling again.
The following year people’s jobs returned, and they were active in the economy again with tightened security measures in places like airports and malls. With the pandemic, Loper believes it may take longer because we still don’t know when it will be safe to reopen, but he does expect a bounce back.
“The health of the multifamily market is going to come back faster in certain areas; there will be some states where the recovery in real estate takes longer because there’s a tendency to keep things closed, but the faster jobs are back in place, the healthier the real estate market will be with less foreclosures and less issues in multifamily.”