Which commercial real estate sector will escape the COVID-19 pandemic with the least amount of damage? According to a new report from commercial real estate researcher Yardi Matrix, multifamily is best poised to weather the pandemic.
This isn’t to say, though, that even this sector won’t suffer. Plenty of tenants will struggle to pay their rent. Law enforcement throughout the country has vowed to put a hold on evictions. And many tenants won’t be able to absorb rent increases. These factors will all hit the bottom lines of apartment owners and operators, according to Yardi Matrix’s Economic and Coronavirus Update National Multifamily Report.
According to the report, the multifamily sector remains well-capitalized and strong enough to weather a modest slowdown. The report, though, also says that owners and operators might face short-term rent-collection issues if the economy slumps too badly. And value-add projects will likely slow.
Yardi Matrix predicts that the impact of the COVID-19 pandemic will last three to six months before a steady recovery boosts the economy once again.
Yardi says that the slowdown period might offer an investment opportunity for owners who have enough extra cash. Borrowing interest rates remain at all-time lows and financial institutions remain well-capitalized. This, Yardi says, is a significant difference from the 2008 financial crisis.
Before the COVID-19 news worsened, the apartment market was enjoying its typically strong growth. According to Yardi Matrix, multifamily rents increased 3.2 percent in February when compared with the same month one year earlier. That matched the rental growth rate this sector saw in January.
It’s uncertain what will happen to rent growth now, but the evidence does suggest that the multifamily sector is positioned to survive the COVID-19 pandemic and rebound fairly quickly once the situation improves.