One of our resident board members, Jonathan Chambers, shared the Delta Associates Spring 2020 report, “Covid-19’s Impact on the Economy and the Washington Multifamily Market” he helped write. Below are some of the highlights, if you lack the time to review the entire report, which is actually quite interesting.
Washington metro area job growth in April was an unprecedented -319,200, or a loss of approximately 10% of the region’s total employment. The regional unemployment rate also skyrocketed to 9.9% in April, compared to 3.3% in March 2020 and 2.8% in April 2019. The economic impact of the COVID-19 crisis has been wildly uneven among individual business sectors, with some faring far worse than others.
Commercial real estate in the region has been moderately affected by the pandemic, although much of the industry is in a wait-and-see pattern. According to a survey by The Associated General Contractors of America of the Northeast region, 15% of respondents mentioned they have been notified to cease projects that were underway in May. About 33% of respondents are experiencing project delays due to a shortage of
personal protective equipment, and another 28% reported a shortage of construction material. However, domestic production of materials and a national slowdown in construction activity has resulted in a reduction in some construction costs.
Delta conducted a survey of multifamily real estate developers in the Washington metro area to gauge the impact of COVID-19 on scheduled groundbreakings. About half of the respondents have experienced delays due to the difficulty in obtaining financing. Despite delays for some planned multifamily projects, several have started construction amid the pandemic.
A Delta survey of property management firms showed that the pandemic has significantly altered operations of multifamily buildings, including: the closure of common areas, adjustment to cleaning routines, the closure of leasing offices to the public, and the widespread use of virtual tours. During the months of April and May, data from the National Multifamily Housing Council (NMHC) shows that rent collection rates in the U.S. were down in 2020 compared to the same months in 2019, but not as much as expected.
They determined that while the Washington multifamily market has underperformed rapidly growing metros in the Sunbelt and West Coast since the Great Recession, it is better positioned to weather a down cycle than nearly all its peers. They expect minimal delays in deliveries of apartment projects already underway due to the pandemic. The pandemic will likely cause delays in projected construction starts n the second half of 2020, which will reduce the number of deliveries in 2022 and into
2023, well after the end of the medical emergency (hopefully); however, the short-term impacts will be minimal.
They project that deliveries of Class A office space will outpace absorption in all three substate areas over the next year. In turn, they project a rise in vacancy in office space by Q1 2021, reaching close to 5.0% in the metro area compared to 4.4% as of the first quarter of 2020. Rent growth will remain below average and likely turn negative in several submarkets.
While the pandemic will likely not lead to large, permanent migratory shifts away from urban areas, there may be some changes to the design of existing and new multifamily buildings. Some building design features and trends that are likely to become more prevalent going forward include: retrofitting buildings with contactless opening technology, redesigning common areas and amenity space to accommodate social distancing, such as creating office pods or spacing equipment in the fitness center, and adding a greater amount of dedicated workspace in units. COVID-19 will leave its mark on multifamily design just as other market disruptions have over the years.