Q1 Fundamentals Were Strong Prior to COVID-19

  • The COVID-19 pandemic has forced some states to impose strict stay-at-home orders that are adversely affecting many industries. This is leading the U.S. economy into a recession that will result in very sharp declines in GDP for H1 2020 and in job losses, particularly in the retail, food & beverage and transportation sectors.
  • The economic downturn is having a serious negative impact on the multifamily sector that is not fully reflected in Q1 2020 data given the late-quarter onset of COVID-19. Q2 will be much worse.
  • Overall, Q1 was characterized by relatively low vacancy, solid rent growth and dynamic investment and financing activity.
  • Q1’s vacancy rate was a healthy 4.2%, down 30 basis points (bps) year-over-year. Average rent rose by 2.7% year-over-year, down from the 3.1% rate of a year ago but slightly ahead of the long-term average of 2.6%.
  • Development remained robust with 49,600 units delivered in Q1. The 271,400-unit total for the year ending Q1 was on par with the year-ago total, but the construction pipeline rose to a new peak level for this cycle.
  • Q1 net absorption was low due to typical seasonal patterns, but the total for the year ending in Q1 rose to a very healthy 311,200 units and outpaced total completions for the same period.
  • Through most of Q1, investment and financing activity remained active. Acquisitions totaled $38 billion, down only 1% year-over-year. Financing activity was robust as well. However, COVID-19 began to disrupt capital markets activity in the second half of March, and Q2 will have much lower debt and equity transaction volumes.