Top 3 Macro Forces Impacting Real Estate Investing

Just as nobody could foresee the pandemic that started in March of 2020, nobody could predict the many changes that happened in the country, nor their impact on a real estate deal’s performance. The macro force changes that occurred during the past year have had significant impact on a variety of real estate projects, including multifamily properties.

As a sponsor and investor in multifamily properties across the US, I’ve had an opportunity to see firsthand the impact of those macro force changes. What is most surprising to me is the magnitude of those macro forces, because their scope is impacting real estate performance in many areas of the country. I’ll share what I know to be the three main factors impacting real estate and take a closer look at each.

Macro Factor 1: Internal Migration to Secondary Markets

Internal migration relates to population shifts, and it’s what is driving demand for multifamily properties in a specific market. COVID has accelerated this migration for a variety of reasons. First, companies have shifted to a work-from-home model, which means that as employees work remotely, there’s no real need to have large conference rooms and office spaces, along with the associated large office rents.

Avoiding living in high-rent, congested cities is another COVID-related fallout from the pandemic, with New York leading the migration for this very reason. People are moving out of New York, which began before the pandemic hit the US, and they’re moving to cities with better climates and lower rents. For example, a studio apartment in New York City can cost up to $3500 per month, which is a high number at any time, but even worse during a pandemic. Two of the cities benefiting from the New York City migration are Atlanta, GA and Miami, FL.

While Atlanta doesn’t have the city vibe that one would find in Miami, it’s a more affordable city with a dynamic restaurant scene with many growing entertainment opportunities. But it’s not only people that are moving - it’s companies that are choosing to make the move as well. Many tech and other companies are choosing to move to secondary markets like Atlanta and Miami and other cities, as avoiding high rents helps to boost their bottom line.

New York is not the only city experiencing migration, although their numbers are soaring. Just as an example, in 2019 it was reported by online moving resource guide that 18,887 people moved out of New York City. In 2020, that number jumped to 110,978. That’s a staggering number of people leaving their apartments and homes to move to other states and cities.

California is another state that is experience internal migration. People are moving from California to Texas and Arizona to enjoy better weather and lower taxes. Dallas and Austin have experienced huge gains, with many large and small tech companies moving to Austin as it’s a business-friendly city and has a huge high-tech talent pool to draw from. This creates higher demand for multifamily properties, which helps landlords raise rents. One example of how the high demand impacts rents is our own property in Atlanta, where we were able to raise rents by 29%, despite the pandemic.

Macro Factor 2: Unemployment is Going Down

Unemployment has had a major impact on multifamily properties. While the vacancy rates never approached the numbers that were originally predicted for multifamily properties, the problems with rent collections and an inability to increase rents can have a huge negative impact on a property’s bottom line.