Commercial Real Estate Professionals Experience Increased Demand Following First Half of 2022
According to Berkadia’s 2022 Mid-Year Powerhouse Poll, investors remain focused on investment opportunities, technology advancements and meeting ESG requirements even amidst economic uncertainty
NEW YORK – August 23, 2022 – Berkadia’s 2022 Mid-Year Powerhouse Poll finds that overall, the multifamily market continues to experience increased demand despite rising rent and interest rates. Berkadia mortgage bankers and investment sales agents (80%) expect multifamily rental demand will continue to outpace supply for the remainder of 2022. The proprietary poll, conducted in July 2022, collected insights from 123 Berkadia investment sales agents and mortgage bankers across 65 offices to assess expected commercial real estate activity and opportunities for the second half of 2022 and beyond.
So far in 2022, investor demand in multifamily properties has differed across regions, with some seeing higher interest than others as migration patterns continue to shift as a result of evolving renter demands. Specifically, Berkadia professionals say that the Southeast region has seen an increase (79%) and the Western region has seen a decrease (45%) in demand. Additionally, survey respondents across the Southeast, Southwest and West agree that they have seen a moderate increase (30%) in property supply in their regions.
Following the same pattern as last year and despite rising rental rates, the market continues to see an increase in property supply and investor demand. Despite a steady increase in properties, Berkadia mortgage bankers and investment sales agents (80%) said that rising interest rates and inflation have a high impact on their local market. Additionally, 94% of Berkadia professionals agree that rent increases will have a significant influence on deal volume in the multifamily industry.
The Who, What & Where of Renters: Generational Trends
Increasing from 74% last year, when asked about the generation that will make up the highest percentage of multifamily renters in the next one to two years, 80% of Berkadia mortgage bankers and investment agents chose millennials (aged 25-40). Eighty-eight percent of Berkadia professionals in the West state that the majority of their renters are Millennials. Our survey indicated that Baby Boomers most commonly rent Single-Family Rental/Build-For-Rent (SFR/BFR) housing and Gen Z are often renting Workforce housing.
When asked outside of cost what is most important to renters today, 72% of advisors agreed on location. That said, while moving away from metropolitan areas, a trend made popular during COVID-19 as renters sought more space, continues, 59% of Berkadia professionals agree it’s not happening as rapidly as it was during the height of the pandemic. Additionally, investor focus remains on Class A (40%) Class B (25%), Affordable (15%) and SFR/BFR (13%), specifically with the Southwest seeing high Class A demand (74%) and the Midwest favoring Class B (47%).
“Despite rising interest rates and persistent inflation, the commercial real estate industry will continue to exhibit resiliency, proven by investor demand in our primary and secondary geographic markets across the country,” said Ernie Katai, executive vice president and head of production at Berkadia. “With the rising cost of homes and interest rates, the renter lifestyle has increased investor demand in primary and secondary markets across the country. While we will continue to navigate economic volatility in the second half of the year, our team provided a strong start to 2022.”
Opportunities for Institutional Clients
When asked what capital source would provide the most activity in 2022, Berkadians chose private investors (59%) and institutional investors (31%). Growing in popularity and importance to these investor groups is the integration of ESG within portfolios. When asked how investors are addressing this, most Berkadia professionals said investment properties are being used to meet ESG metrics (44%) or properties are being converted to comply with energy-efficiency policies (20%).
“The importance of ESG in our industry is undeniable, and these strategies have become imperative for portfolios to create a sustainable and responsible business,” said Katai. “While demand for ESG integration will continue to evolve, this is something that investors will focus on for years to come.”
Berkadians agree that production rates in the Northeast (42%) and Midwest (20%) have remained stable since January while other areas such as the Southwest, a normally popular location for transactions, has slowed (83%). Despite the market uncertainty, investors are still looking for opportunities to build out their portfolios. Particularly, Berkadia advisors say that long-term investments (55%) will be most attractive to institutional clients in the next one to two years, followed by single-family rentals (25%).
“Despite constant changes over the last two years through the pandemic and other unique circumstances within our industry, we feel certain that current conditions will remain favorable. As investors continue to build out and diversify their portfolios with properties across all regions, we expect demand and investment opportunities to remain steady,” continued Katai.
To meet investor and industry demand, Berkadia investment sales agents and mortgage bankers continue to prioritize advancement in technology. Certain platforms and programs are being used to help expedite the production process and provide more informed market data. In addition to technology being used in the deal process, Berkadia professionals agree that more resident-focused technology amenities are coming to the forefront, such as the installation of smart thermostats, locks and package systems increasing in popularity.
“As technology and consumer expectations advance, the CRE industry is beginning to see how we can utilize technology to our advantage. Berkadia continues to invest in people and technology to accelerate innovation in the CRE technology space to improve our team’s effectiveness and benefit our clients,” said Damodaram Bashyam, executive vice president and chief innovation officer at Berkadia. “While we continue to evolve, adapt and grow our team, our key focus is to deliver best-in-class experiences and data-informed counsel for our clients, and that starts with customer-focused solutions.”
About the Powerhouse Poll:
The 2022 Mid-Year Powerhouse Poll data was collected in an online survey by Berkadia through Microsoft Forms in July 2022. The sample was based among Berkadia’s 65 offices throughout the U.S., consisting of 51 investment sales brokers and 72 mortgage bankers, totaling 123 overall respondents. To read more in-depth data that was collected, please see our full Mid-Year Powerhouse Poll here.