Multi-family investments remain attractive even during the pandemic. However, with massive job losses across the country and severe economic turmoil, the multi-family market fundamentals have shifted, and with them, the best and worst housing markets have changed too. A new report from Moody & # 39; s Analytics RICE ranks in the top 5 multi-family investment markets and in the bottom five.
The top five markets on the list include Lexington, Knoxville, Phoenix, Nashville, and Minneapolis. All five of these metropolitan regions, which are ranked by the best-performing markets, continue to see rental growth due to the pandemic. Lexington posted rental growth of 5.9% last year, while Knoxville and Phoenix posted rental growth of 4.9% and 4.6%, respectively. Nashville rents are up 4% and Minneapolis rents are up 3.7%.
These markets are in stark contrast to the national rental trends. Nationwide, both asking rents and effective rents fell by 0.4% in the second quarter of the year. Rents fell significantly in some markets. Effective rents in San Francisco fell 3.3% in the second quarter, the largest quarterly decline since the September 11 attacks, the report said. Unsurprisingly, San Francisco also tops the list for the worst performing rental markets in the country, with an overall rental decline of 2.7%.
Westchester, Fairfield Country, Palm Beach and Miami round out the worst housing markets in the country. While rents fell the most in San Francisco, the remaining markets are closer to the national trend. Rents in Westchester and Fairfield Counties are down 0.8%, rents in Palm Beach are down 0.7%, and rents in Miami are down 4%.
This is just the beginning of falling rents. According to a report by CBREBoth occupancy and rental prices are likely to fall further by the end of the year. The report shows that multi-family homes will bottom out in the fourth quarter, with rental rates declining 8.1% and vacancy rates rising 3.1% by the end of 2021. These projections assume the virus will be contained by the end of the year. If the outbreak continues through 2021, the market could see more trouble.
Despite these trends, apartment buildings remain one of the most attractive asset classes for investments. The same CBRE report also shows that multi-families will fully recover within two years, bottoming out in the fourth quarter, and recovering in 2021. This would make the asset class one of the fastest to recover.
While apartment buildings are likely to rebound once the public health crisis is resolved, investors continue to wait cautiously. In addition to the uncertainty about renting and leasing, choice will also play a crucial role in apartment investment decisions. Berkadia's mid-2020 survey predicts that multi-family investment will not return to normal until 2021 as the effects of the pandemic have not yet been recognized. Investors are also hoping for more government relief, making the elections even more important than in previous years.