Multifamily Rental Homes in Metro Detroit during COVID

COVID-19 has changed the world in more ways than one—affecting the economy as a whole, and the individual investments you’ve made in real estate. How has this situation played out in markets like Metro Detroit, and how has it affected multifamily rentals, in particular?

With the pandemic having a highly variable impact on different property markets and housing types, landlords and investors need to stay on top of the emerging trends and current forecast for 2021 and beyond to best position themselves to weather potential storms of market volatility.

As we’ve already gone through the outlook on commercial renting in Metro Detroit, this article will focus on what’s happening with multifamily housing in the area (e.g., apartments, townhouses, condominiums, duplexes, and quadruplexes).

Multifamily rentals are particularly challenging during the pandemic for landlords to manage, since they have more health and safety concerns than with single-family portfolios. As multifamily investors, you need to go a step further and ask: “How has COVID changed the multifamily landscape? What can I do about it?”

The following insights come from our knowledge as a property management company in the Metro Detroit area, the Multifamily 2021 U.S. Real Estate Market Outlook provided by the CBRE, and the 2021 Multifamily Rental Market Outlook report of the Apartment Association of Michigan.

What’s happening with multifamily homes during COVID?

On a national scale, CBRE reported that the multifamily market weathered the 2020 recession better than most property sectors, and deteriorated far less than past recessions. Even though landlords experienced income loss from waived fees, missing or deferred rent, and delinquencies from their tenants, the demand for multifamily and affordable housing remains strong.

Looking at the quality of life during the pandemic, 45 million Americans filed for unemployment due to shelter-in-place orders and closures of many businesses—including many of the tenants in multifamily and affordable homes. Multi-Housing News pointed out that tenants in 43 million rental properties struggle with paying monthly rent—undoubtedly aggravated by the gradual lift of eviction protection measures.

Here’s how each property class reacted to the pandemic situation:

• 1. Class A homes suffered from higher turnover rates, which may not recover until mid-2021.
• 2. Class B units maintained low vacancy rates with modest rent growth—predicted to remain stable.
• 3. Class C properties and below experienced more payment delinquencies.

With COVID is slowly releasing its grip on the economy, many people will cautiously but quickly find their footing once more, returning to their old jobs or finding new ones.

Overall, CBRE forecasts the vacancy rate of multifamily housing to return to pre-COVID levels within the year, with an increase of 6% in net effective rent soon after. They are predicting a full market recovery by early 2022, leading to a rise in demand thanks to work-from-home / remote working trends.

The housing market will also remain robust in 2022, with most deliveries that started pre-COVID times (and originally scheduled for 2021) reaching 280,000 units on top of the 300,000 this year.

What about the ones in Metro Detroit, specifically?

Looking at our focus area, we exceeded expectations with growing rent and demand, bumping quarterly occupancy rates up 80 base points (BPS) to 96.9% in the third quarter of the pandemic year:

Source: Apartment Association of Michigan

Rent collection in Metro Detroit is also better than the rest of the nation, as 94.5% of Metro Detroit’s apartment renters paid rent (from September 1 to 20) versus 90.1% nationwide:

Source: Apartment Association of Michigan

In terms of rent and concessions, apartments in Metro Detroit fared better even when compared to major metros such as Chicago, Washington, New York, and San Francisco:

Source: Apartment Association of Michigan

The Future of Multifamily Rentals in Metro Detroit and Nationwide

With improving market conditions and greater clarity in our lives post-COVID, investments for multifamily housing are expected to increase across the country. CBRE Research predicts the nation’s multifamily investment volume to achieve $148 billion next year—lower than 2019’s $191 billion, but definitely higher than 2020’s estimate of $111 billion.

Source: CBRE

For landlords in Metro Detroit who plan to expand their multifamily portfolio, interest rates are also predicted to remain low next year. Favorable mortgage rates will have people invest more—and lenders Fannie Mae and Freddie Mac should have sizable capital availability to meet the increased demand from home buyers.

Source: Association of Michigan

The local development firm Bedrock is also growing the supply of multifamily units in Downtown and Midtown areas, forecasted to meet the demand by the year 2023:

Source: Apartment Association of Michigan

RE/MAX of Southeastern Michigan also reported that the number of homes sold in Metro Detroit in October increased by 14.6% to 5,609 versus the same period last year, the median sales price increased by 16.7% to $237k, and houses spent fewer days on the market before being scooped up.

Conclusion:

Without a doubt, the pandemic has brought great uncertainty to our economy.

However, the housing market in Metro Detroit only hit a short pause for a few months before unrelentingly climbing back up soon after, just as it was before the pandemic.

Demand for multifamily rentals remains strong in this region, with tenants here paying rent more consistently than other US cities (probably due to the more affordable rents than other metropolitan areas). This means that the MFR market has fortunately remained strong and stable here, despite the impact of coronavirus.

Considering this outlook, would you invest in multifamily rentals and apartments in Metro Detroit in 2021?