A Consistently High-Performing Asset Class Due to Strong Fundamentals, Despite Shifting Market Dynamics amid Severe Economic Downturn. For example, during the Great Recession, multifamily rents declined the least and, Post-recession, multifamily rents recovered the fastest. Multifamily has continued to perform well during the pandemic and has been the top performer in rent collections.
Class B and workforce housing in many markets is dated and in short supply, as they are unprofitable to build due to rising land, labor, and material costs. This presents opportunity to acquire existing Class B and C multifamily and execute on value-add capital expenditure programs to refresh dated product and improve the renter experience by meeting changing preferences.
This strategy mitigates risk in the event of an economic downturn, as the rent premium for the upgraded product is not necessarily dependent on market rent growth, and presents an opportunity to capture outsized rent increases, even in a slower growth environment. Rent collections for 11.4 million units of professionally managed apartments tracked by NMHC has averaged over 95% since the start of the pandemic. August year-over-year rents across Class B and C multi-family were up 1.5% and 3.0%, respectively.
Although not immune, the knowledge and talent-based economies of class B and C units markets have cushioned the impact of past recessions. Fundamentals for B and C multifamily were strong going into the recession due to the limited supply of affordable housing, and so far, demand is holding up.