CBRE is forecasting a record 2022 for investment in commercial real estate due to the added momentum in the economic and real estate recoveries, fiscal stimulus projects, and a rebound of big cities and downtowns—as long as the pandemic is held at bay.
According to CBRE, it is anticipating a 4.6% gain in U.S. gross domestic product in 2022 as businesses and real estate hit their full stride in the recovery from the pandemic and related restrictions. Investment volumes are expected to increase 5% to 10% as low interest rates and the return of international travel create more demand.
“Our outlook for U.S. commercial real estate next year is positive due to a number of tailwinds overriding deterrents such as inflation,” said Richard Barkham, CBRE’s global chief economist and head of Americas Research. “COVID-19 flare-ups still pose a risk, but governments and health authorities appear to have made progress in containment and treatment. We see this rising tide further buoying the capital markets, multifamily, and the industrial and logistics sector, and aiding the burgeoning recoveries of the retail and office sectors.”
CBRE’s 2022 U.S. Real Estate Outlook is forecasting a record-breaking year for multifamily, citing solid fundamentals, heightened investor interest, ample liquidity, and a growing range of debt products.
Overall occupancy and net effective rents are expected to be above pre-pandemic levels by the end of 2021. Even though there are some challenges facing the market, that overall health is expected to continue in the new year.
“The growing economy is boosting household formation, which had been artificially suppressed by the pandemic. New households are catalyzing demand for rentals, which is expected to match pace of new deliveries in 2022. We forecast multifamily occupancy levels to remain above 95% for the foreseeable future and nearly 7% growth in net effective rents next year,” according to the outlook.
CBRE also predicts construction to remain elevated in the near term, with completions this year reaching a new high and another 300,000-plus units delivered in 2022. Providing context, CBRE added that deliveries have averaged 206,000 units annually since 2010.
However, despite the strong demand for multifamily, CBRE said the volume of new Class A product coming online will limit the performance of those higher-quality communities. While Class A rents were most negatively affected during the COVID-19 crisis, there remains more room to recover. CBRE projects 8% growth in urban effective rents in the year ahead but a moderation to 3% in 2023.
Other key findings for multifamily from the CBRE 2022 U.S. Real Estate Outlook include:
Urban properties are filling back up, with occupancy rates nearing the pre-pandemic levels, as the nation sees fewer restrictions on urban amenities, higher vaccination rates, and more workers returning to offices. As of the third quarter of 2021, urban vacancy rates averaged 5%, 70 basis points higher than the pre-pandemic level. They are expected to fall to 4% by the end of 2022; investment volume for multifamily is expected to reach nearly $213 billion, a record, in 2021, which is above 2019’s $193 billion. CBRE is forecasting at least a 10% increase to $234 billion in 2022. Trends on the investment front include the acceptance of strong non-coastal markets and the growing interest in favoring ESG-compliant assets, especially from European investors; and the level of liquidity from the 2022 increased caps on multifamily purchase volumes for Fannie Mae and Freddie—$78 billion for each government-sponsored enterprise—should facilitate strong value growth, according to CBRE. It also expects foreign capital to return as well as liquid multifamily debt capital markets, including traditional lending sources and alternative lenders such as debt funds and mortgage REITs, to further stabilize and perhaps even compress cap rates even as interest rates increase.
The CBRE outlook also highlighted trends to watch for 2022, including the growing single-family rental market and the return to the office.
The attraction of single-family rentals is expected to increase for both investors and renters as more millennials reach the child-rearing life stages. This will push urban operators to focus more on Gen Z renters to fill the resulting vacancies.
CBRE also anticipates that rising office occupancy will provide a boost for urban multifamily demand, projecting that office workers will spend an average 3.4 days a week in the office, down from the average 4.4 day per week average in 2018. Living near the office may longer be as important for renters, but it will still be a key consideration.
