Evaluating How Coronavirus Impacts Apartment Markets

March 12, 2020

Evaluating How Coronavirus Impacts Apartment Markets

March 12, 2020

As the stock market enters bear-market territory, there is growing concern about how the coronavirus impacts apartment markets and the multifamily industry as a whole. The reality is that the situation continues to change considerably on a day-to-day basis. The head of the National Institute of Allergy and Infectious Disease recently warned that the situation is bound to get worse before it gets better.

That said, much of that concern (and negative stock performance) is rooted in the fact that we are treading into unknown territory. When considering how the multifamily industry should move forward, it makes sense to perform a clear-headed projection with the best available information and move forward to mitigate the fallout. The following analysis outlines the most likely short-term impacts of the coronavirus on apartment markets and the multifamily industry.

More Fed Rate Cuts Coming Soon

Coronavirus Having Impact on Seattle Apartment Market
Seattle is among the hardest-hit metros both in terms of community spread and retail spending.

It is very likely that interest rates are going to get cut again by the Federal Reserve in the short term. Considering the recent performance of the stock markets, planning for this trend seems more prudent at this point than not.

Will the next round of cuts be severe to bring the national interest rate to 0% or lower, a repeated request from the Trump Administration? That would have seemed unlikely until the last 24 hours. Either way, the Fed has already signaled it will discuss the matter at its Federal Open Market Committee scheduled a few days from now on March 17.

That said, there will be plenty of available capital for good deals, shrinking interest rates present a unique and timely opportunity for investment in the multifamily space. These unique opportunities will be most readily identified by those who have the technological capabilities to model the economic impact of the pandemic and differentiate between areas that will be impacted by delayed economic growth rather than undermined economic growth.

This access to actionable insights is especially important when considering critical multifamily markets, areas that have been hardest hit by the novel coronavirus (Washington, California, and New York) and those where cases are mounting the most rapidly (Texas, Oregon, and Georgia).

Do Consider This Pain Point. A drop in consumer confidence may lead to an extended period of slowed lease-ups that is drawn out through 2020 and into 2021, rather than falling in step with seasonal expectations. Investors can expect that markets with industries accommodating to flexible work arrangements will be more insulated than those markets that do not.

Travel Restrictions Become New Normal

Fundamentals will weaken in key metros as drivers like tourism take a beating from the coronavirus.

Several international travel restrictions have already been imposed by the Trump Administration to limit exposure of American citizens to infection. The most significant, signed on January 31, ban all entry by foreign nationals who have traveled to China and Iran during a certain designated period. Additionally, the Trump Administration recently announced a 30-day travel ban to 26 European countries.

The Centers for Disease Control and Prevention have also made recommendations regarding cruise trips and travel to South Korea, Italy, and Japan. Locally, the state of Alaska recently banned all out-of-state travel for state employees, a potential precursor to additional intranational travel restrictions.

Multifamily advisors and investors alike will look to technology to continue operating as close to business-as-usual as they can. Several industries, ranging from major news media to the federal government, are already discussing major paradigm shifts toward teleworking.

For the foreseeable future, those advisors with access to the best tools for getting in touch with clients, keeping them informed, and pushing deals across the finish line using remote technology will find the most success navigating the significant impacts of the coronavirus.

Do Consider This Pain Point. Expect fundamentals in markets highly dependent on tourism to begin to see headwinds as a result of the coronavirus. Sports and entertainment hubs nationwide are already grappling with the cancellation or suspension of major economic drivers, like the National Basketball Association and the NCAA March Madness Tournament. Likewise, keep a close eye on metros dependent on the oil industry as the OPEC/Russia price war boils over into uncharted territory.