In 2005 Hurricane Katrina devastated the infrastructure, economy and every aspect of normal life in the New Orleans and gulf region. Currently the world is experiencing a similar interruption and catastrophe with the COVID19 pandemic. The virus has made landfall in Washington State (and most of the US), and we don’t yet know how long the surge will last or how far reaching the devastation will be. Here’s a few miscellaneous thoughts from Sound Realty Group on how and what the aftermath of CoronaVirus will look like in real estate in the Puget Sound region, and specifically the multi-family scene.
- Economists are projecting this recession to have a V-Shape rather than a U or L shape which have defined other recession patterns- we will quickly hit a low, but bounce back forcefully and fast.
- We are simultaneously experiencing 2 different economies right now. One being the hard-hit sectors including service/hospitality where many Americans are jobless and financially hurting. Also - with the stock market fluctuations many Americans have seen their retirement and/or savings wiped out. The other economy is still robust and includes certain businesses and parts of the tech industry that are thriving right now due to lifestyle shifts and new consumer demands. America needs these two different economies to come back in alignment, but that will not be an immediate process.
- At SRG we have seen how real estate overlaps both of these economies with the stock market being so volatile right now, real estate is becoming a more desirable asset to many investors.. In several asset classes the real estate market is still robust, hot and strong! We’ve seen fierce competition in the residential and multi-family arenas. Here’s a few projections on how that will play out in the immediate and near future:
- Short Term Multi-Family: rent rates will flatline (we’ve experienced rapid appreciation over the last several quarters in the greater Seattle area). With the Government’s moratorium on evictions and enhanced guidelines for landlords we can count on rents to stay where they are at for the next few months.
- 6-9 months: We’re predicting vacancy rates to tick up some amount as the ripples of this disruption cause some tenants to move due to altered financial situations.
- Competition is still strong suggesting that values might hold steady.
- Multi-Family inventory has ticked up in the last few weeks, but it's too early to tell if this is a solid trend that will continue.
- Different asset classes will respond differently.
- Hospitality and brick and mortar retail are taking a huge hit and recovery will probably be slow.
- Office Space: in the greater Seattle area demand was high before COVID19, we have yet to see if all of that demand will return as many sectors/businesses learn to work from home.
- Senior Living is already taking a huge blow from COVID19, expect more regulations in the future, and consumer apprehension as a repose to the senior living facilities playing a role in the pandemic.
- Residential/Single Family Housing: currently residential construction is deemed non-essential so many projects are halted. This is cause for concern since inventory and supply was already limited before COVID 19. If these projects continue to be delayed we will continue to see an unbalanced seller’s market and lack of inventory.
- Multi-Family Housing is predicted to hold steady through this crisis. Rent rates and vacancy rates will probably fluctuate so an investor’s business model will need to shift, and we will see some fluctuation in cap rates, but this will remain a sought-after and stabilized asset class.
Want to discuss real estate investing and the economy more? Contact us to talk through your investment strategy amidst COVID19!