Twice a year, we ask our investment sales advisors and mortgage bankers to share invaluable insights that will help us to guide our clients in the year ahead. Their knowledge is more crucial than ever as we continue to weather turbulent markets driven by inflationary environments and rising interest rates. The 2023 Outlook Powerhouse Poll focuses on forecasting commercial real estate (CRE) activity and potential opportunities for the first half of 2023 and beyond. By hearing trends and predictions directly from our teams, we empower our clients to align their investment priorities for the year ahead, ensuring they make informed and strategic decisions.
Despite Conditions, Multifamily Industry Remains Strong
Like other industries, CRE has been affected by the potential of a looming recession. Fifty one percent of Berkadians say they expect a recession to occur in the next 12 months and another 35% believe we are already in a recession. Inflationary challenges and investor uncertainty resulted in a decrease in investor demand, offset by a significant rise in apartment supply across regions.
Despite the decrease in demand, the multifamily market remains a resilient and profitable sector, even with headwinds and economic uncertainty. The industry is shifting back to pre-pandemic levels, but Berkadia remains optimistic for a strong market with the potential for substantial returns for investors.
In addition to overall market trends, we took a deep dive to gather knowledge related to investor demand, property supply, investment activity and more across regions to learn local market trends. For example, across each region, a majority of Berkadians agreed that investors are holding off on investments due to market uncertainty, particularly in the Northwest (73%) and Midwest (68%). However, investors are still active, as producers in the Mid-Atlantic (25%) report that investors’ primary focus is acquiring properties, and investors in the Northwest (18%) stated that investors’ are focused on recapitalization of assets.
Shifting Renting Patterns
As employees return to working in-person, renters have begun moving back to major cities and metropolitan areas. Berkadia professionals said that major cities and metropolitan areas and the most desirable for investors (39%) followed by secondary markets (36%) and suburban areas (25%).
Generationally, there were two groups that led the pack when it came to renting with Millennials (51%) still representing a majority and Gen Z quickly climbing (31%) as they begin entering the workforce. With interest rates and home prices on the rise, we expect younger generations to continue to choose renting rather than own a home.
The Digital Ramp Up
The CRE industry has not historically been known for its adoption of technology, but this is changing as digital advancements become more prevalent. In fact, 44% of Berkadia professionals believe the industry is currently undergoing a digital transformation, and 25% expect a significant increase in digital adoption in the next two years.
Investors are also taking notice, with 21% considering technologically savvy property amenities to be very important and 73% considering it somewhat important when assessing or growing their portfolio.
As demonstrated, our results show a variety of potential opportunities and provide valuable insight into the year to come. The multifamily market is characterized by ongoing changes on various fronts. Although we may face challenges during this transitional period, we remain optimistic and committed to the multifamily industry as a whole. To gain a more comprehensive understanding of our findings, be sure to read Berkadia’s full report here.
-Ernie Katai, EVP, Head of Production