Berkadians expect high demand for multifamily housing as the pandemic environment continues, despite potential inflation and rising interest rates, according to Berkadia’s 2022 Outlook Powerhouse Poll
NEW YORK – January 31, 2022 – Berkadia’s 2022 Outlook Powerhouse Poll finds that the multifamily market is expected to continue to see strong demand this year following a positive previous year of investment activity. A majority of the firm’s mortgage bankers and investment sales advisors (82%) say they expect multifamily rental demand to continue to outpace supply in 2022, and 36% expect the number of transactions within the multifamily industry to increase from last year, even with the potential of rising interest rates and inflation. The proprietary poll, conducted in December 2021, collected insights from 188 Berkadia investment sales advisors and mortgage bankers across more than 60 offices to assess expected multifamily market activity and opportunities for 2022.
With the pandemic environment still lingering, the need for multifamily housing continues to remain evident. Investment opportunities within the sector this year are expected to be abundant given market liquidity. For example, for financing deals, Berkadia mortgage bankers expect to see the most activity in 2022 from GSEs (66%) and private funds/debt funds (24%), whereas for investment sales deals, Berkadia investment sales advisors expect the most activity this year to be from private domestic capital sources (58%).
“As we saw last year, multifamily remained a strong market with major returns compared to other sectors of commercial real estate that continue to face major impacts from the pandemic. With the widespread understanding for the need of quality multifamily supply and sustainability, as well as the enhanced availability of capital and financing sources, the multifamily industry has hopes set high for an even better year in 2022,” said Ernie Katai, executive vice president and head of production at Berkadia.
Multifamily Renters & Investors Flock to Secondary Markets
While major cities began welcoming back investors and renters with open arms last year, there continues to be steady interest for growing markets across the country in the months ahead. Berkadia mortgage bankers and investment sales advisors agree (94%) that since the COVID-19 pandemic began, renters have flocked more to suburban areas instead of urban cities. With the opportunity for more square footage and lower prices, as well as booming employment hubs near several metro areas, this trend is expected to stay for 2022. In fact, Berkadia professionals (61%) say investment sales activity in 2022 will be highest in secondary markets. Survey respondents also anticipate that Class B (48.8%) and Class A (31.4%) properties will be two types of housing to be of most interest to investors this year.
“Though large cities began making a comeback last year after the initial exodus of renters and investors due to the COVID-19 pandemic, secondary markets are consistently keeping the interest of renters and investors,” said Katai. “The boom in interest of secondary markets is likely here to stay as more people find work opportunities and improvements in quality of life within these markets.”
In addition to the projected sustained appeal of secondary markets, Berkadia professionals expect investors to be actively pursuing acquisitions (61%) and looking to sell properties they currently own (17%) as major trends this year.
Affordable Housing Interest Remains Steady
Throughout the past few years, the multifamily industry has seen interest in affordable housing investments grow. According to Berkadia professionals, investors are more interested in Affordable housing properties (LIHTC/HAP) now than they were last year (89%). Specifically, Berkadia mortgage bankers and investment sales advisors say the Southeast is expected to see an increase in Affordable housing (LIHTC/HAP) development over the next two years.
With much more work to be done to combat the affordable housing crisis, Berkadia professionals agree modifying tax credit policy (49%) is a potential solution that could help improve the current crisis. Berkadia mortgage bankers and investment sales advisors anticipate existing Affordable housing property acquisitions (31%) and rehabilitations of existing Affordable housing properties (29%) to be most attractive or see the most investor interest over the next two years.
“With rising investor interest, ample capital and caps for mission-driven lending, new developments, acquisitions and rehabilitations in Affordable housing look promising this year. As more industry leaders advocate for affordable housing, we can further serve those in our community who need it,” said Katai.
Institutional Investors React to Migration Trends
Demographic and renter migration trends changed over the course of the pandemic as remote work increased and the suburban living became more appealing. As more people seek the hassle-free living of apartment life along with the space and privacy of a single-family home, our Berkadia professionals expect single family rentals and build for rent properties to be most attractive (72%) to institutional clients over the next two years.
Additionally, as ESG investments continue to be broadly adopted into business planning decisions, investors are using investment properties to meet metrics (47%) and converting to energy-efficient properties (23%) to address true ESG integration, as along with hiring appointed ESG members (17%) to achieve their ESG goals.
While the state of financing for the CRE industry is likely to shift in our ever-evolving landscape, Berkadia professionals predict the top three financing options institutional investors will be most interested in exploring will be value add funds (50%), core plus funds (26%) and debt funds (17%). The Southeast (73%) and Southwest region (59%) are also piquing the interest of institutional investors looking to diversify their portfolio in the year ahead.
About the Powerhouse Poll:
The 2022 Outlook Powerhouse Poll data was collected in an online survey by Berkadia through Microsoft Forms in December 2021. The sample was based among Berkadia’s 60 offices throughout the U.S., consisting of 71 investment sales brokers and 117 mortgage bankers, totaling 188 overall respondents.