Freddie Mac Projects Multifamily Origination Rebound Boosted by Smaller Markets

Freddie Mac, McLean, Va., projects overall multifamily origination volume will rebound, growing to $340 billion by year-end as the economy is boosted by another federal stimulus package.

The multifamily market has grown significantly in recent years. Multifamily origination volume equaled just $69 billion in 2010.

Freddie Mac noted smaller markets such as Tampa, Fla., are supporting the growth and said it expects larger cities to recovery more gradually. But the overall market is bolstered by sustained demand for multifamily properties as investors take the long view of rents and vacancies, which although temporarily affected by the pandemic are expected to rebound in a move toward reestablishing the trends of the past decade.

“We believe the market is set up for a solid year in 2021 after facing many challenges in 2020 brought on by the COVID-19 pandemic,” said Freddie Mac Vice President for Multifamily Research and Modeling Steve Guggenmos. “The impact of the pandemic is more severe in larger gateway markets, such as New York and San Francisco, but many smaller cities and secondary markets continued to see rent growth through 2020 and will perform well in the year ahead.”

Guggenmos noted multifamily entered the pandemic on a very strong footing, “so although the impact of the crisis was felt, the industry as a whole performed well given the circumstance,” he said.

Other findings from the report include:

–Year-Over-Year Rent Growth to Remain Positive in Most Markets: Multifamily construction is expected to match 2019 levels despite a slow spring and summer. Freddie Mac projects nearly half of all metros will have positive rent growth this year. But large markets including New York, San Francisco, the District of Columbia and Miami will likely continue to see falling rents. The net effect: vacancy rates could increase to 5.8 percent and gross income could decline by 50 basis points.

–Investor Demand is Strong Despite Drop in Originations: Investment activity rebounded significantly in the second half of 2020 after a sharp decline in the first six months, Freddie Mac said. But cap rates remained stable and property prices continue to increase, indicating strong investor demand. When final multifamily origination figures for 2020 are calculated, they will likely be less than $290 billion, a nearly 20 percent drop from 2019.