Multifamily Transactions See Dramatic Drop in 2020

Multifamily transactions were down sharply in 2020 due to the COVID-19 pandemic, according to a Yardi Matrix report.

Through the first three quarters of 2020, $50.6 billion of multifamily property sales had been completed nationwide, dropping 41.7% from $86.5 billion through the same period in 2019. According to Yardi Matrix, it will be a challenge for full-year volume to get close to 2019’s record high of $127.8 billion.

Multifamily transaction activity plummeted to $9.4 billion in the second quarter after stay-at-home orders were issued in March. The second quarter had the lowest quarterly total since the first quarter of 2011 and a 62% drop from the first quarter of 2020, according to Yardi Matrix.

However, deal flow started to pick back up in the third quarter, with $16.5 billion in multifamily property sales. However, that was still a 51.1% year-over-year decline from $33.8 billion in the third quarter of 2019.

The impact varied regionally, with gateway and coastal metro areas seeing a larger decline in deal flow through the third quarter than secondary and tertiary markets in the Sun Belt and Southwest.

“Much of the change could be described as a ‘filtering’ effect: investors moving from urban cores to inner-ring suburbs, from primary to secondary metros, and from secondary to tertiary metros. This phenomenon results from several factors, including owners putting fewer properties on the market, disagreement between buyers and sellers about prices, the composition of buyers, and the competition for assets,” states the report.

Secondary markets dominated activity through the third quarter, representing 55.6% of all property sales, with $28 billion of transactions. Only one of the 30 largest markets—Austin, Texas—had in increase, 1.6%, in year-over-year sales through the first nine months of 2020. Washington, D.C., was the top metro for sales volume through the third quarter. The other six metros with $1.5 billion or more of volume included Atlanta, Phoenix, Denver, Dallas, Houston, and Austin—all growing secondary markets.

Metros that saw transactions decrease included San Diego, down 76%; Philadelphia, down 74.9%; California’s Inland Empire, down 71.3%; and Boston, down 70.1%.

Although uncertainty remains as the pandemic continues to impact the nation, transaction activity is poised to rebound this year closer to pre-pandemic levels, according to Yardi Matrix, with multifamily fundamentals holding up than other commercial property segments. The industry will continue to see strong demand for rental housing as well as continued availability of debt and equity.