Despite a slow start to 2020 due to COVID-19, activity picked up substantially in the second half with volume for this year totaling $138.7 billion. Sales volume was particularly strong in the fourth quarter with $56.7 billion in transactions led by $24.9 billion in December alone. Dallas attracted the largest capital flow while a handful of smaller non-major markets achieved record high volumes.
Multifamily rent collections have been resilient since the pandemic began, never dropping below 91.7% in 2020, according to NCREIF. Several markets improved collections in 4Q20 compared to the average since the onset of COVID-19. Markets like San Francisco and Miami that struggled early on experienced their highest collection levels compared with the April-December average.
Total returns accelerated in the second half of 2020, with 4Q20 returns rising 162 basis points from the 2Q20 low of - 0.6%. While multifamily values were negatively impacted by the COVID-19 pandemic, according to NCREIF’s Appreciation Index, the income generation for multifamily properties remained strong, keeping total returns up in 2020.
Quarterly rent growth for the US multifamily market fell to - 0.6% in 4Q20, while annualized rent growth dropped to 0.1%. Suburban markets greatly outperformed urban markets. Additionally, 6 of the top 10 markets in terms of annualized effective rent growth are located in the Sunbelt region, led by Phoenix at 4.5%.
Supply and Demand
New supply totaled 344,380 units in 2020, outpacing demand by 48,265. The pipeline of new supply for 2021 projects to grow even higher, at 2.2% inventory growth for the year. This would make new supply for 2021 14.7% larger than 2020 new supply. While most markets saw new supply outpace demand for the year, there was greater demand for apartments located in Sunbelt markets.
GSE debt accounted for nearly half of all multifamily debt outstanding at 48.4%, followed by banks and thrifts at 29.0%. 2020 was a record year for GSE lending, as volume was up 7.2% year-over-year. $61.8 billion was financed by Fannie and Freddie in 4Q20, 73.1% higher than the 4Q19 volume.