A leading brokerage services company has revised its worst case scenario predictions for landlords trying to collect rent and renew leases in the wake of the COVID-19 pandemic, finding that many of the firm's initial dire predictions have not yet taken place.

However, the group also warned that landlords should still expect significant headwinds through the rest of the year.

On Friday, BTIG issued its Real Estate Industry Report Report focusing on apartments. The report said that it had initially been expecting landlords to see a cumulative decline in revenues in the second and third quarters of the year to be between 13% and 19%. However, given better than expected numbers in April, those predictions were adjusted downwards, with report saying the industry should expect to see a 7% to 12% cumulative decline in revenues.

Regarding April, the report said rent collections were better than expect, dropping only 1.4% to 4.6%. And management, according to the report, expects to be able to collect at least some of that difference.

"However, we remain cautious on the outlook for 2Q and 3Q 2020. Construction continues for most of the country, generating supply, and an outsized portion of leases renew in the summer months. We would expect additional occupancy declines and increased concessions to pressure revenue growth through the rest of 2020," the report said.

According to the report, non-payments anticipated from the pandemic are not expended to begin occurring until late 2020, or 2021, and although new lease growth is slightly worse than the firm originally expected, renewal growth, non-payment and occupancy should be better than originally expected. The report also said there may be some savings from repairs and maintenance not having to be done, but those savings would likely be eaten by additional cleaning and deferred maintenance expenses, so landlords' expenses are expected to be flat.

Rent growth also declined from March to April, the report said, with Seattle and Phoenix having the strongest growth, and Denver, Los Angeles, Orlando and San Francisco having the weakest new lease results, the report said.

"While the sunbelt appears to have held up better than the coasts through April, we caution that there could be significant adjustments in the data as additional unemployment claims are processed," the report said. "Additionally, there may be pressure on affordability as stimulus funds and savings are used up."

The report also said occupancy is down, and rental rates for new leases remained either the same, or were lowered. Demand, the report said, is expected to fall significantly, as renters either move in with roommates, or family to save money.

But, the report said, all of these headwinds may be temporary.

"The likely 2020 recession should be more like a 9/11 shock vs the Great Recession, in our view, leading to significantly improved conditions in 2021," the report said.

Instant Insights /

Buoyed By April Numbers, Brokerage Firm Revises Worst Case Scenario Figures for Landlords

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