Defining 2021: 3 Key Multifamily Investment Trends
Mike Aiken of Fogelman Properties shares his predictions for the multifamily sector next year.
A global pandemic, record fluctuations in unemployment and haphazard movements throughout the stock market have many ready to wave goodbye to 2020. With financial planning on the horizon for employers and investors alike, we examined performance within the multifamily housing industry and drew various predictions regarding investment strategies for next year.
Here are three investment trends to watch as we transition in 2021.
Banner Year Ahead for Transactions
It’s impossible to discuss 2020 without mentioning the hurdles of a global pandemic, uncertainty of the election and the resulting unpredictable economy. The good news is that we’re looking at much less volatility in the upcoming year. Why? There were some bumpy moments regarding employment and delinquency in the first few quarters of 2020, but we’re approaching a more stabilized position as local economies reopen and the potential vaccine(s) accelerates a return to “somewhat normalcy” by mid- to late 2021. That stability will bring with it increased job security and more transaction activity. The exact details surrounding asset performance will certainly hinge on the pace of job growth, but brighter days are ahead.
The Crowding of Southeast Capital Markets
The relative outperformance of the Southeast region both in the employment picture and multifamily fundamentals compared to the rest of the U.S. is causing investors to reallocate focus. While many of the most active Southeast buyers in recent years took a more cautious approach to investments in 2020, the void in demand was filled with new investors shifting away from parts of the Northeast and West Coast. In many cases, owners and operators in other real estate asset types are also now pursuing multifamily, further buoying interest in our space. Our expectation for 2021 is the “usual suspects” will return to the buyer pool in full to join the new entrants, which will further compress investment yields and boost pricing above current levels.
Temporary Boost for the Suburbs
A remote working culture sticking around coupled with the desire to live in less populated areas are causing shifts in the most sought-after real estate markets. Citing the mass exodus for the Bay Area, Dallas-Fort Worth and New York City among others from February to June, according to Zillow’s research, rent price growth has slowed in urban areas more than the suburbs. Also, there’s a notable trend toward residents seeking properties in more suburban areas, weighing the cost-benefit analysis of more space against the distance of a commute.
Investors should monitor this trend as we head into 2021. As states reopen and stimulate the economy, we’ll soon learn if this is a temporary shift or something more secular in nature. We have little doubt that many urban dwellers seeking refuge in less dense areas will return to the city in a post-COVID world to enjoy the urban amenities that attracted them previously. What is less clear is whether the impact from more telecommuting and therefore less weekly drive-time to major infill employment centers going forward will “tip the scale” for some and lead to permanent residency in suburbs and exurbs.
Mike Aiken is the senior vice president of Investments at Fogelman Properties. Since joining Fogelman in early 2018, Aiken has spearheaded the growth of the company’s investment holdings and enhanced its transactional platform. He is responsible for leading Fogelman’s multifamily acquisitions and capital formation through the sourcing, evaluation and closing of real estate investments.