The CRE industry's leading experts share their thoughts on the economic pressures facing multifamily and what's to come in 2022.
Cushman & Wakefield’s Chief Economist, Kevin J. Thorpe, believes that investors shouldn’t be overly concerned about inflation because the price pressures will fade as the pandemic fades. He also emphasizes that property returns have outpaced headline inflation in 34 of the last 41 years. Despite economic uncertainty, the odds of a recession occurring in 2022 are very low (under 10%) and the economic backdrop for the multifamily sector remains strong.
Here are some additional quick takes on multifamily for the coming year from Cushman & Wakefield:
Cushman & Wakefield's Global Head of Capital Markets Research, David Bitner, also weighed in on his view for the headwinds and tailwinds facing multifamily in 2022.
- While the leasing market will remain highly supportive, the current rate of cash flow growth will moderate. This could wrong-side some investors with particularly aggressive underwriting plans, particularly as some markets / segments are priced to perfection.
- Similarly, after 2022, the multifamily share of acquisitions is likely to downshift as investors consolidate their new portfolio allocations. The market will still be highly liquid but not growing at the present rate.
- More millennials are leaving the prime renter age cohort than Gen Zers are entering. This will place some demographic pressure on rental demand, particularly markets that are most dependent on young urban migrants.
- Pandemic shifts in housing preferences are likely to persist to some extent: a greater bias towards homeownership and more space in lower cost of living markets, particularly those with outdoor lifestyle amenities. Relative winners and losers result from this.
- Strong demand environment combined with structural supply deficits in many markets provide a positive leasing market backdrop for the sector.
- GSE (Fannie Mae & Freddie Mac) market share is likely to rebound due to confluence of 1) higher caps and less uncertainty over GSE future and 2) likely increase in short-term rates making fixed financing more attractive.
- Pandemic supercharged the institutionalization of the multifamily market. This is a long-term tailwind but will continue to drive above-trend activity in 2022.
- Foreign capital appetite for residential assets has structurally increased, and the U.S. will remain the largest target for this opportunity, having by far the most developed markets.