Toyrantula Real Estate

It may feel like we’re in uncharted waters with COVID-19, but Lee Menifee, PGIM Real Estate’s Head of Americas Investment Research, says there are things we can learn from history.

“I absolutely do think there are clues from past downturns,” Menifee says. “The thing that I’m looking most carefully at [this time] is how real estate is priced, both in an absolute sense and versus other asset classes, in this downturn relative to previous downturns.” 

In past downturns, real estate values have fallen for two reasons, according to Menifee. One reason was that the underlying income in properties fell. The other was that investors attached a higher risk to certain properties.

Previous economic cycles have also shown that investors favor real estate, but they see a significant distinction between the different types of real estate. That should play out again in this cycle.

Given what is happening with interest rates

While the housing market appears to be faring well against the current recession, multifamily real estate in particular traditionally performs best under economic distress. In other words, the expectations for the post-pandemic housing market are compelling, and this is especially true for multifamily real estate since it is often regarded as “the most resilient property sector to recessions.” For example, during the 2001 recession, US multifamily property rents fell by 6.7%, whereas office rents fell by 7.4% and industrial rents fell by 17%. Furthermore, post-recession, US multifamily property rents grew at considerably higher rates than the rents of office properties and the rents of industrial properties. The multifamily housing market exhibited similar behavior in 2008. During the 2008 recession, US multifamily property rents fell by 7.9%, whereas office rents fell by 17.7%, industrial rents fell by 17.5% and retail rents fell by 14.1%. After the 2008 recession, multifamily rents exhibited