This past year was a record setter for many aspects of commercial real estate — none more so than multifamily housing, where values, rents and occupancy rates were near all-time highs. Led by the Sun Belt states, U.S. multifamily markets saw effective rents rise by nearly 8% between the second and third quarters of 2021, according to Moody’s Analytics Reis.
This past December, Cushman & Wakefield’s David Bitner spoke with Scotsman Guide. The company’s head of capital markets insights and global research offered his perspective on how the multifamily sector and other areas of commercial real estate will fare in 2022.
What is the overall state of the multifamily housing sector right now?
The sector is incredibly strong — far stronger than anybody expected. The strength is broad across the leasing markets and the capital markets. There’s even more activity in many of the suburban Sun Belt markets. But really, at this point, we are seeing strength in just about every market, every product segment and every level of quality. We came into 2021 very bullish on multifamily and it has surpassed all possible expectations.
Will this sector continue its hot streak in 2022?
I think the multifamily market will continue to be strong. We can’t expect another increase in rents and valuations like in 2021. I expect there to be some level of pullback. A big part of what’s happening now is that there’s a lot of money in the system. Multifamily and industrial investments are absorbing the lion’s share of the acquisition energy. I think once we get to 2023 and maybe even late 2022, things will start to tack back to a more balanced market. That would mean a bit of a slowdown in the industrial and multifamily transaction velocity, and an increase in activity in the office and retail sectors, which still have a ways to go to recover.
I think the story is going to be that more financial institutions will be allocating aggressively to buy properties.
Which multifamily markets should continue expanding?
When you are a market like the Sun Belt and 20,000, 30,000, 40,000 people a year are moving there, that creates very strong demand. But I think, broadly speaking, property occupancies will be roughly stable. It’s hard to see them getting any higher on a net basis. They are already at 96% or 97% in a lot of cases. I do think we will see urban cores continue to make up ground on the suburbs.
How do you view overall market demand for commercial real estate in 2022?
I think demand will be very high. There’s a ton of money available, so every capital group is active. I think the story is going to be that more financial institutions will be allocating aggressively to buy properties. I also think there will be more foreign capital, particularly from Europe, in the market. We already saw money from Southeast Asia and the Middle East get involved in 2021. We will also see the REITs (real estate investment trusts) raising money and buying assets.
Do you see the retail and office sectors bouncing back this year?
Retail has moved through difficult phases, including the (pandemic- related) lockdowns. That said, when it comes to retail, we’ve seen the fundamentals turn around and sales per square foot have come back. We also see the importance of having vibrant retail amenities combined with both multifamily properties and office locations. If you can get the three together, it creates an attractive place to live and work. That mix has helped the office sector of midtown Manhattan and some other places recover much more quickly than places such as San Francisco’s Financial District, where not a lot of folks live.
Where will the strength come from this year and what could derail this continued expansion for commercial real estate?
It will be much like 2021 with industrial, multifamily and life sciences being very, very strong. The data-center sector is growing rapidly, mostly through development. Senior housing is turning a corner and medical offices have been heating up. We are in a strong economy, so everything is turning green again.
I think things look good, but there are certainly risks. Obviously, if the economy was forced into a recession because of monetary policy or something along those lines, that would be bad. The omicron variant is definitely something we need to follow. ●