The economy is recovering quickly after severe impacts from pandemic shutdowns over the last year. That was the top line good news from April 15th’s webinar on the multifamily industry, presented by Jeff Adler, vice president of Yardi Matrix. The recovery timeline is expected to be around 18 months.
“The economy is heating up as the job market strengthens,” said Adler. “A recovery in gross domestic product is clearly under way. I would liken this to a shot out of a cannon.” Inflation is a short-term concern, however. Hear the full analysis and insight in the webinar recording.
Rents are on the rise across the country, and that’s a positive indicator for the industry and the economy at large. Multifamily rents increased by 0.6% on a year-over-year basis in March, with the national average rising by $6 to $1,407. Out of 134 markets surveyed, 114 had flat or positive YoY rent growth.
Impacts vary, however, across states and cities. Gateway markets like Boston, Chicago, Miami, New York, San Francisco and Washington D.C. appear to have now hit bottom in rents and are positioned for gradual recovery. Leading the way in March’s rent increases were affordable cities and suburbs in the West, with the Inland Empire (8.3%), Sacramento (7.3%) and Phoenix (6.9%) leading national tallies in year-over-year rent growth.
“It will take several years for gateway markets to recover, under the best of circumstances,” said Adler. “There has been just as much movement within metro areas at about a 30-40 mile radius. People are moving out of the urban core and into surrounding suburban areas. That’s a meaningful amount that will make coming back to the office problematic, but they aren’t detached from the metro area entirely.”
Single family rentals and the build-to-rent sector have also been positively impacted by the pandemic. Home sales have been on steroids, fueled by low interest rates. According to John Burns Real Estate Consulting and National Rental Home Council, 59% of newly signed SFR leases are from households leaving cities. Rent growth and occupancy in the single family rental sector is solid in most markets.
Built-to-rent homes currently make up 5-10% of new home stock, and this number is expected to grow. Yardi Matrix will expand its coverage of this area in the months to come.
Longer-term outcomes for gateway cities and other large urban cores will be dependent on what happens with the future of office-based work. Prior to the pandemic, about 10 percent of the labor force worked remotely full time. Matrix performed in-depth analysis and determined a likely future breakdown:
- 20-25 percent of office workers will likely work remotely full time
- 40-50 percent of office workers will likely work on a hybrid schedule
- 30-35 percent of office workers will likely work in the office full time
“The concept of ‘work from anywhere’ has fueled migration all over the place,” said Adler. “And there’s a new attitude that work is not somewhere you go, but something you do. This is a big deal that will have long term impacts. The notion that you must be spending five days a week in an office to get work done has been busted up. But there is still some work that needs to get done, like training, that will require office time.”
As a result, many employees have taken the opportunity to move far afield of their corporate headquarters. Those who are most likely to be able to stay remote long-term are highly skilled, sought after workers, especially in the tech sector. How many workers return to hybrid and full time in-office employment is likely to have a definitive impact on urban real estate and commercial office space.
Check out the video below and find in-depth analysis of national multifamily trends in the new Matrix Multifamily National Report.
This article was originally published on The Balance Sheet – Yardi Corporate Blog.