Before the COVID-19 pandemic resulted in stay-at-home orders and schools going fully remote, the multifamily market in Southeast Michigan was soaring, with vacancy rates low and occupancies high. Today? The apartment market in this part of Michigan, including in its biggest city of Detroit, is still strong.
Yes, the pandemic has slowed activity in the multifamily market here. But the majority of tenants are still paying their rents on time. Most are staying put in their current apartments, boosting retention rates. And people are still looking for new apartment units to call home.
Midwest Real Estate News recently spoke to Jason Krug, managing director with the Southfield, Michigan, office of Berkadia, and Kevin Dillon, senior managing director with the same Berkadia office, about the resilience of the Southeast Michigan multifamily market.
Here is what they had to say:
Multifamily has been one of the commercial real estate sectors that has remained strong during the COVID-19 pandemic. Are you seeing the same thing in Southeast Michigan?
Jason Krug: There were so many unknowns as this pandemic hit across the country and across the world. So we were concerned with what might happen in this region. The team we have built in Southeast Michigan, though, has a lot of experience with transitional markets. We have lived through several of the recessions. So I did know that we would be prepared for whatever happened.
And so far? We have been massively impressed with how resilient the market has been. One of the major reasons for this is that we have limited new supply coming online as opposed to other markets. It is not a transition market It is a very established market, a market that is very solid when it comes to the performance of properties.
Kevin Dillon: We have seen a resurgence or a stability in occupancy rates, too. Many residents have chosen not to move. They pulled move-out notices and stayed at the communities they were in. Turnover has been minimal. We have seen people paying their rent on time, too. That is largely due to the unemployment benefits that they have been receiving. And some people are back to work, which is a great thing, too.
We are also still seeing tenants coming in and looking for apartments. When they do, they are very serious, and they are renting pretty quickly. There is not a long delay. When they find a clean, reputable apartment, they typically rent it. It’s really been an eye-opener.
Are you surprised at how many renters are staying put these days?
Dillon: I think there is a comfort in knowing your surroundings. Residents want to keep their comfort level high given these uncertain times. There is some concern about rent collection with unemployment benefits ending. But multifamily has an advantage: Everyone needs a place to live. The residents are responsible for their rents either way. One way or another, they have to figure out how to pay their rents. The eviction moratorium will go away at some time.
A good landlord will professionally and politely inform residents of the process. They will work with them to navigate these uncertain times. We are seeing that already. There are only a small percentage of renters on payment plans now. But landlords are working with their tenants to figure out how to keep them in their units.
Krug: People are largely working from home today. Their apartments aren’t just a place to sleep. They are a sanctuary. People are looking for a place where they can raise a family. They are also driving from their bedroom to the living room, den or second bedroom to work. Apartment living has become more attractive to many people. And, yes, there are concerns over the future of the government’s enhanced unemployment benefits. But I think that the creativity and the chip-on-your-shoulder drive that people in Southeast Michigan have will prove once again that this is a resilient part of the country.
Can you talk about that resiliency? Why has the apartment market here remained so stable during this pandemic?
Dillon: The limited amount of new construction in this market has really helped. There hasn’t been overbuilding. In certain submarkets there is zero new construction going on. The buildings in those markets are staying very well occupied. We have only had the delivery of 400 new apartment units for the year so far in Southeast Michigan. The lack of new construction has kept demand high for apartment units here. The multifamily market throughout the metro Detroit area exceeded 96 percent occupancy for the first part of the year.
Before the pandemic hit, the apartment market in Detroit and the region was quite strong. Has that initial strength helped during the pandemic?
Krug: Yes. The established nature of our market been a factor in our current stability. We can go back and look at how properties operated 10 or 15 years ago and point to that as evidence that these are strong properties. In some of the markets where developers are putting up apartments on every corner, there is no history. We simply don’t have the supply that other markets have. You have 5 million plus people in the metro area. The established nature of the market going into this has definitely helped.
As the pandemic drags on, do you think there’ll be a shift from urban living to suburban apartments?
Dillon: I don’t think that will happen in every urban environment. In downtown Detroit, there is more space for people. You don’t have people on top of each other like you have in New York City. While there is certainly a movement from urban to suburban communities at the moment, it’s not prominent in markets like Detroit. It definitely is something that is happening in New York. I don’t see much of that happening here, though.
You will get back to having a social life eventually. When that happens, people will want to be able to walk to entertainment areas. They will want to walk to restaurants and bars. The downtowns have those options. I really don’t see a long-term move from urban to suburban in most areas.
Krug: One thing we have talked about is that a lot of people in the Midwest go to schools in the Ivy League or other major schools across the country. They have the ultimate goal of ending up in New York, Chicago or San Francisco. Today, some of those individuals who might have moved to Manhattan might be more willing to come back to the Midwest.
Companies still want the best of the best. But they might be more willing to let these people work remotely from wherever they want. So maybe they come back to Southeast Michigan or Columbus or wherever they grew up. We think there are some tertiary markets that could see some growth from what would be people who would typically be leaving for an opportunity in larger core markets but instead are working for those same companies but remotely in the Midwest.