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The First Half Of 2021 Is The Real Test For Multifamily And CRE As A Whole: Texas A&M Economist

Reports showing a majority of apartment dwellers are making their monthly rental payments amid the pandemic is a positive development, but the real test for commercial real estate comes next year, Texas A&M Real Estate Center Chief Economist Jim Gaines said. 


The first part of 2021 is when the real estate economy is expected to feel the full impact of foreclosure and eviction moratoriums expiring, Gaines said. It's also when millions of Americans working in the hardest-hit sectors, like the service and hospitality spaces, could find themselves without a crutch to lean on. 

The restaurant industry added 133,600 jobs in August, but staffing levels still remained 2.5 million jobs below pre-coronavirus levels, the National Restaurant Association reports. 

"The recovery at best is going to be an elongated U," Gaines said while speaking at Bisnow's BMAC South online summit Tuesday. "A lot of the negative impacts, for example, the foreclosures and delinquencies, are not going to hit until the first and second quarter of next year."

Up until August, the economy appeared to improve after the pandemic outbreak with the help of federal and local stimulus, Gaines said. But, the July expiration of a $600 supplemental unemployment benefit (replaced by a more convoluted $300 benefit) may have kick-started a period in which commercial real estate begins facing the realities of a sluggish economy, Gaines added.  

Data from the National Multifamily Housing Council shows 86.9% of the nation's renters paid their monthly rent by mid-August. That figure dropped to 86.2% in mid-September.

September rents also rolled in more slowly, with only 76.4% of U.S. apartment renters making full or partial payments by Sept. 6, according to NMHC

While the numbers still show a majority of renters making their payments, NMHC President Doug Bibby warned in a recent statement that "the second week of September figures show ongoing deterioration of rent payment figures — representing hundreds of thousands of households who are increasingly at risk."

Federal eviction moratoriums are slated to last through Dec. 31, Gaines noted. And even though there are other moratoriums in place at the state and local levels, enforcement activities remain spotty at best, leaving a great deal of uncertainty around multifamily rent payments in 2021, he said. 

Gaines also warns of ongoing financial struggles when it comes to employees working in struggling industries like hospitality, restaurants, spa services, travel, transportation, health and beauty.

Many of these industries are at risk of having their businesses close permanently, and these fears are already trickling into the multifamily market. Data from a late July U.S. Census Bureau survey indicates that out of 6.7 million Texas renters, roughly 870,000 had no confidence in their ability to pay their next month's rent.  

The fate of those working in the hardest-hit industries, which have many employees living in apartments, will greatly determine the strength of multifamily in 2021. 

"These people are going to be having a lot of problems in terms of maintaining their rent or in their ability to rent because quite frankly, they are not going to have a job if these [businesses] close down permanently," Gaines warned. 

The overall U.S. economy is expected to grow in 2021, according to a new report from the Federal Reserve. The Fed now expects real gross domestic product for 2020 to drop only 3.7%, compared to its negative 6.5% projection in June.

Looking into 2021, the Fed projects GDP growth of roughly 4% and an unemployment rate of 5.5%, which is improved from its 6.5% unemployment rate projection in June.