Commercial RE off to a big start in 2022

According to CBRE’s latest report, the US multifamily sector saw strong momentum at the start of 2022, with robust demographic trends underpinning record leasing activity, rent growth, and investment during the first quarter.

In Q1 2022, multifamily investment increased by 56 percent year over year to $63 billion, the strongest first quarter on record, bringing the four-quarter total to $374 billion. In Q1 2022, multifamily accounted for 37% of total commercial real estate investment volume, followed by office (21%), and industrial (20%).

In Q1 2022, the multifamily market absorption totaled 695,100 units, up 12% from the previous quarter and 77 percent higher than the previous annual record of 393,000 units set in 2000. The net absorption of 96,500 units in Q1 2022 was the largest since 2000.

“Strong multifamily fundamentals continue to support continued demand, with favorable migration trends, high household formation, and strong wage and job growth all contributing to continued demand,” and “there is still plenty of equity and debt capital available, albeit at significantly higher rates than in recent years,” said Brian McAuliffe, CBRE’s President of Multifamily Capital Markets.

The total multifamily vacancy rate fell to a new low of 2.3 percent, down 20 basis points (bps) quarter over quarter and 2.5 percentage points year over year. The average net effective rent climbed by 15.5 percent to $2,007 per month year over year. In all but two of the 69 areas studied by CBRE, average rents have already surpassed pre-pandemic levels (San Francisco and San Jose).

In Q1 2022, 66,400 new building units were delivered, bringing the four-quarter total to 292,500, the most since 1987. With over 400,000 units now under construction, 2022 is likely to surpass 2021 in terms of delivery.

The takeaway

What does this mean for you as the investor? The bottom line, there are not enough new units coming online to meet extremely high demand. This means that the current inventory of commercial multifamily apartments will be in high demand by tenants for a least a decade to come, if not multiple decades. As labor costs and material costs continue to rise (by almost 25% for each), as environmental-law barriers continue to exist for new construction, and as cities struggle with zoning permits, we will continue to see new construction lagging behind demand for rental apartments. The same goes for single-family homes which cannot keep up with Millenial demand. At this time Millenials are the oldest demographic to enter the single-family home sector, with many families continuing to rent well into their 40s. 

As an investor, you should look at the dip in the stock market and make wise decisions on where you put your hard-earned money. Commercial multifamily real estate continues to lead all commercial real estate sectors in any time frame longer than one year. Suppose you are looking to make safe and stable investments outside of the volatile stock market. In that case, you should strongly consider investing in hard assets like commercial multifamily real estate with Growth VUE Properties. 

If you would like to learn more about investing with Growth VUE please contact our team below.