1

National multifamily market fundamentals, which include factors such as vacancy rates and rents, have been 

negatively impacted throughout second quarter 2020 by the COVID-19 pandemic, which began impacting 

most local economies in mid-to-late March 2020. The softening of multifamily demand due to increasing 

unemployment and economic uncertainty has resulted in a weakening of occupancy and rental growth over 

the past three months. 

We expect the multifamily sector to be negatively impacted in 2020 from rising vacancy rates, as well as 

declining or negative rent growth, due to the economic dislocation resulting from the COVID-19 pandemic, as 

illustrated in the chart below.

Multifamily Vacancy Expected to Remain Elevated 

Multifamily Economic and Market Commentary

JULY 2020

2020 Mid-Year Multifamily Market Outlook – Expected Turbulence Ahead 

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

0

20

40

60

80

100

120

140

160

180

200

2016 Q12016 Q22016 Q32016 Q42017 Q12017 Q22017 Q32017 Q42018 Q12018 Q22018 Q32018 Q42019 Q12019 Q22019 Q32019 Q4

20202021202220232024

Vacancy (%)

Absorption & Net Delivered Units (000s)

Forecasted National Multifamily Trends

Absorption Completions Vacancy Effective Rent Growth

Source: Moody’s Reis

The national multifamily vacancy rate is expected to rise in 2020 despite the recent stay-at-home orders that 

were put in place in many metros over the past few months. Completions are expected to outpace demand, as 

illustrated in the chart above. The decline in multifamily demand is likely primarily due to negative job growth 

and future employment uncertainty, thereby dampening new rental household formations just as completions 

are expected to peak this year. As a result, we anticipate that the U.S. multifamily vacancy rate could rise to an 

estimated range of between 6.0 percent and 6.25 percent by year-end 2020, from the current estimated 5.75 

percent. 
Multifamily Economic and Market Commentary

2

Rent Growth Expected to Decline

Rent growth was positive in first quarter 2020 and is estimated to have been 0.5 percent quarter over quarter. 

However, since then, trends appear to indicate a curtailment in rent growth, as seen below. 

Rent growth was likely negative in second quarter 2020, at an estimated negative 0.25 percent, taking back 

part of the increase from a quarter earlier. We expect that the negative rent growth trend will continue into the 

second half of the year, resulting in an estimated 1.0 percent to 1.5 percent decline in rents for 2020.

Source: CoStar Advisory Services

Multifamily 14-Day Rent Change as of July 9, 2020 – All Property Average 

Multifamily 14-Day Rent Change as of July 9, 2020 – By Class Average 

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

2019 2020

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

1 & 2 Star 3 Star 4 & 5 Star
3

Multifamily Economic and Market Commentary

Concessions Up but Stabilizing

Although rent growth trends appear to differ by class, as seen in the charts on the previous page, national 

multifamily concessions for all property classes have risen over the past few months, as seen in the charts below. 

As of second quarter 2020, 25.5 percent of all multifamily units are offering concessions, according to data from 

RealPage, Inc., with the average concession rate at 4.1 percent. 

Class A concession levels remain higher than for class B and C units, indicating that property owners are likely 

offering more generous concessions upfront for newer class A units due to increasing competition from new 

completions. For those class A units offering concessions, the average concession rate as of June 2020 was 8.1 

percent, or nearly a month’s free rent. And it was slightly more than three weeks of free rent for those properties 

offering concessions on class B and C units, at 6.5 percent and 6.2 percent, respectively, reflecting the ongoing 

demand for more affordable multifamily rental units. 

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

A B C

2.5%

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

A B C

All Property Average

Properties Offering Concessions

National Concession Rates by Class

Source: RealPage, Inc. 
Multifamily Economic and Market Commentary

4

Demand for multifamily rental units has slowed and could result in negative net absorption for the second half 

of 2020. Net absorption is estimated to have totaled about 317,000 units last year, according to data from 

CoStar Advisory Services, Inc., which was down compared to 2018’s estimated 366,000 units absorbed. Net 

absorption for the first half of 2020 is estimated at 118,000 units, according to CoStar, but is expected to turn 

negative for the second half of the year, at an estimated negative 34,000 units. Despite the precipitous decline 

during the third and fourth quarters, the total year’s net absorption is expected to remain positive, but at just 

84,000 units, according to CoStar. 

Negative Net Absorption Expected to Be Short Lived 

Source: RealPage, Inc. Note: Rolling 7-day totals, same-store basis, sourced from RealPage systems. 

Although new multifamily leasing activity plunged at the end of March, the trend has reversed itself and has 

been on the upswing since the beginning of April. As seen in the chart below, based on leasing data from 

RealPage, new leases have increased week-over-week since April 4 and were at a year-over-year increase rate 

of just above 10% during the first week of July. In contrast, lease renewals peaked in April at a nearly 30 

percent year-over-year increase, but recently that trend has moderated and fallen into negative territory over 

the past few weeks. This trend suggests that multifamily tenants are increasingly becoming more mobile and 

appear to be taking advantage of the lifting of stay-at-home orders over the past few weeks to move into new 

units. 

Interestingly, lease renewals are stickier for class B and C units as opposed to class A units. According to data 

from RealPage, year-over-year lease renewals for class A units as of June 2020 were at 48.4 percent. But for 

class B units the renewal rate was higher, at 54.1 percent, and even slightly higher for class C units, at 58.2 

percent. 

New Executed Leases on the Rise 

Year-over-Year Change in Multifamily Executed Lease Signings
Multifamily Economic and Market Commentary

5

Multifamily Investors Remain Interested

Multifamily sales are expected to see a significant decline from last year’s $186 billion. As an example, in 2009, 

multifamily property sales declined 60 percent year over year. Year to date through May 2020, multifamily 

property sales totaled only about $47 billion compared to $67 billion for the same time period last year, 

according to data from Real Capital Analytics. Based on recent transaction trends, multifamily property sales 

could total less than $150 billion in 2020. 

Despite expecting a significant pullback in sales, we are not anticipating a significant spike in multifamily 

capitalization rates this year. It seems unlikely that sellers will go ahead and sell into a slowing market if they 

are not forced to sell. According to data from Real Capital Analytics, cap rates through May 2020 remained 

stable, ending the month at 5.4 percent. As a result, we expect cap rates to remain fairly stable for the rest of 

year, perhaps rising to 6.0 percent or higher if the economic recession continues late into the year. By 

comparison, multifamily cap rates last peaked at 7.0 percent in 2010.

Nevertheless, investors appear to remain interested in multifamily, and there are still reports of investors 

reaching out to brokers looking for potential “motivated seller” deals.

10-Year Treasury and Multifamily Capitalization Rates

Source: Real Capital Analytics, and Federal Reserve, Selected Interest Rates H.15, per Moody’s Analytics

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

10-Year Treasury Cap Rates
Multifamily Economic and Market Commentary

2020 Multifamily Mid-Year Outlook: Expected Turbulence Ahead

Our outlook for the multifamily sector in 2020 has taken on a more moderated stance. We expect the 

multifamily sector to be impacted in 2020 and possibly into early 2021 from rising vacancy rates and declining 

and negative rent growth, but overall we expect the sector to weather the storm better than other commercial 

real estate property types, most notably retail and hospitality. 

Multifamily rent collections have held up well for professionally managed properties, according to data from 

the National Multi-Housing Council’s rent tracker, but there may be dark clouds on the horizon. With the $600 

weekly unemployment insurance benefit expansion set to expire at the end of July, there are concerns that 

rent collections could be negatively impacted starting in September. Furthermore, if additional outbreaks 

continue and local economies endure rounds of additional shutdowns, multifamily fundamentals, as well as 

property values and cap rates, could remain stressed well into 2021. 

On an optimistic note, there are recent reports that Congress is working to extend economic aid to the general 

public soon. One possibility is another one-time stimulus payment. The other is a modified version of an 

extension of the enhanced unemployment insurance benefits, but possibly at a lower dollar amount than the 

current level. A continuation of these type of transfer payments would likely assist many renter households in 

making their rental payments over the coming months. And that could be enough of a lift to get the 

multifamily sector through the worst of the economic recession this year relatively unscathed. 

6

Kim Betancourt

Director of Economics

Tim Komosa

Economist Manager

Multifamily Economics and Research

July 2020

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Economic and Strategic Research (ESR) Group included in these 

materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of

assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although 

the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not 

guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the 

assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, 

forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily 

represent the views of Fannie Mae or its management.