The California multifamily market was hit hard by the pandemic. Through the year, fundamentals deteriorated rapidly. While that trend will continue into 2021, Daniel Withers of Matthews Real Estate Investment Services says that the market should hit its recover by the end of the year and into 2022 with apartment rents and occupancy levels returning to pre-pandemic levels by the end of the year.
“We anticipate multifamily in California to return to pre-pandemic occupancy levels by the tail end of 2021,” Withers, SVP and senior director at Matthews, tells GlobeSt.com. “Class-A assets that have been hit hard with increases in vacancies and softening of rents are going to take some time to stabilize, which we suspect will happen at the end of 2021 going into 2022. It is anticipated that renters will fight to obtain more affordable housing options, which will lead to more demand for class-B and C housing in strong in-fill locations.”
While there is a light at the end of the tunnel, the pandemic has had a significant impact on the California multifamily market. Withers also says that the statewide eviction moratorium has exacerbated the challenges for apartment owners. “The pandemic has significantly affected the California multifamily market, starting with the state-wide eviction moratorium that protects renters from being evicted,” says Withers. “Landlords feel as though their hands are tied due to nonpaying tenants, while at the same time are witnessing an increase in vacancies. This has put downward pressure on landlords’ bottom lines. With landlords having to absorb many of these costs, it has prevented them from being able to do major capital improvements to their assets, resulting in long-term ramifications. “
Despite the market challenges, Withers says that investors will still find opportunities to place capital in the market next year—and California will continue to be a core investment market. “There is a higher cost of entry when investing in California multifamily, but considering California’s economy is the largest in the United States and the fifth largest in the entire world, provides heavy security and stability for investors,” he says. “We see 2021 opportunities located in strong metro areas such as Los Angeles, San Francisco, and San Diego. Within Southern California, I see the San Fernando Valley and Ventura County as being great areas of opportunity as these markets have had decent employment growth and no overstock of new multifamily projects.”