Adam oversees ArborCrowd’s corporate growth strategies including business development, digital technology and sales initiatives.
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The Covid-19 pandemic took the economy on a wild ride in 2020, and this is projected to persist well into 2021 as the gradual rollout of vaccinations continues across the U.S. The real estate market was also impacted with many operators having to adjust their business plans to fit a new reality. After a months-long slowdown in investment and development activity, real estate picked up in the latter half of the year, albeit with much of the deal-making and diligence being done remotely.
Unsurprisingly, transaction activity has varied between different asset classes, as some (e.g., retail, hotel and office) have been more deeply impacted by the pandemic than others. For its part, the multifamily industry overall has continued to perform, and we’ve seen relatively little disruption in pricing or asset values on the whole based on the trades that are occurring. However, certain market and demographic themes have emerged during the pandemic that are influencing which assets are trading and where.
In examining these trends, it appears that some are specific to the pandemic and are likely to revert once it’s passed, while others were emerging prior to the onset of Covid-19, which then only served to accelerate the changes.
Here are some of the trends I believe will be temporary and others that are more permanent.
Temporary Trends
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Flight from urban cores. As local legislators issued social distancing policies in response to the pandemic, access to cultural amenities that make city life attractive disappeared. With museums, performance venues and nightlife shuttered, many city dwellers who had the means or alternate accommodations fled dense urban cores across the country in favor of suburban neighborhoods with more space. While some of those who fled will never return, over time, this trend is expected to reverse once people feel it’s safe to return to urban areas again, as the fundamental elements that make cities attractive will continue to do so post-pandemic.
Household consolidation. During economic downturns, we tend to see more household consolidation due to financial necessity. While we’ve seen an uptick in household consolidation throughout the pandemic, particularly among younger renters, it’s important to note that financial need is not the sole reason in this case. Younger renters who are still employed are opting to move back home with their parents as their jobs are remote and they can no longer enjoy the same benefits of independent living that they had prior to the pandemic. Much like the flight from urban cores, we expect this will reverse once the pandemic has passed and social lives return to normal.
Employment. It’s no secret that the pandemic has had a devastating impact on a number of industries, leading to high levels of unemployment, and it may be some time before the unemployment rate returns to pre-pandemic levels. A recent report from the nonpartisan Congressional Budget Office projects that the nationwide unemployment rate will gradually decline over the course of the new decade with the total number of people employed expected to return to pre-pandemic levels by 2024. The unemployment rate hit a peak of 14.7% in April 2020 but has steadily dropped each month as businesses reopened, and it was just 6% in March 2021. This recovery in jobs is expected to continue as the vaccines impact Covid-19 infections and industries that were hard hit by the virus, such as airlines, hotels, and retail, return in full force.
Here To Stay
Migration to the Sun Belt. Even prior to the pandemic, there was a noted uptick in people and businesses moving from high cost-of-living areas to more affordable cities with milder climates in the Sun Belt region, like Dallas, Austin, Atlanta and Denver. This trend rapidly accelerated during the pandemic as remote working made it possible for people to untether their homes from their workplaces. We anticipate this trend will persist over the medium to long term, especially as the ability to work remotely is expected to continue long after the pandemic has passed.
The rise of single-family rentals. Single-family rentals were already growing in popularity prior to the pandemic as the aging millennial cohort has begun starting families in larger numbers, and the desire for more space rapidly accelerated following the onset of Covid-19. This trend is also being driven by the growing populations in the Sun Belt region, as previously mentioned, where it is cheaper to acquire and develop the large parcels of land required for single-family rental communities. Over the last decade, the single-family rental space has transformed from a mom-and-pop industry into an institutional asset class, and we don’t think it’s going away anytime soon.
Accelerated leasing technology adoption. The rise in technology adoption among multifamily owners and operators was slow prior to the pandemic. Once in-person tours and visits became challenging, however, industry professionals turned to technology. This allowed for a tsunami of activity throughout the pandemic as leasing and operating teams worked to adjust to new safety protocols while maintaining leasing velocity. Now that virtual and self-guided tours have become routine in socially distant leasing efforts, we anticipate they will remain commonplace moving forward.
While it’s impossible to know for sure how trends will play out in the future, a close examination into what’s driving near- and long-term change can help lead to more informed real estate investment decisions.
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