Before the pandemic, multifamily investment had been approaching a peak after a decade of expansion. In some markets, there was looming concern of a supply bubble and rent growth was beginning to slow to a crawl. After the disruption from COVID, there is now renewed enthusiasm for multifamily.
“There wasn’t a primary concern that we were in a supply bubble, but I think that there was concern in certain submarkets that you might see some occupancy slippage,” Blake Okland, head of multifamily and vice chairman at Newmark, tells GlobeSt.com. “There was a certain level of awareness. A year-and-a-half ago, there was a blinking light on some of these submarkets. Now, they are bursting at the seams.”
The pandemic ignited several bubbling trends in multifamily, and that has shifted the market back into growth mode. This means demand for new supply and strong rent growth in both established and emerging markets. “There were remarkable stats in the second and third quarter of this year regarding lease trade outs, which are only possible when there is very low vacancy,” says Okland.
Migration to new cities is driving the new period of growth in multifamily. Before the pandemic, people had been thinking about moving to new places. Those people finally made the move. “People made career decisions that they maybe were waffling on before, and those that were thinking that telecommuting was possible, banked on that,” says Okland. “All of those factors and many more contributed to this rapid acceleration of trends underway that had a significant impact.”
The new demand and the rent growth is only part of the story for multifamily. Okland has also seen interesting trends related to asset pricing. “When it became clear that the capital markets could wrap their head around the threats and solutions to multifamily more rapidly than other foods groups, and as a result, capital made its way to multifamily,” he says. “Not just Fannie Mae and Freddie Mac but also the CMBS market is favoring multifamily, which was another source of liquidity on the debt side. So, there are favorable tailwinds from a capital standpoint into multifamily.”
It’s a perfect storm for multifamily, and Okland expects these fundamentals to drive a new period of sustained growth. “It is also a general supply-and-demand dynamic that persists for a few years,” says Okland. “A lot of researchers are pointing to a sustained period of rent growth. When you put this together with the other factors, it has a real favorable impact on asset pricing.”