Main Takeaway: Despite inflation, interest rate, and recessionary pressures, investor sentiment is still robust, particularly in the multifamily space.
Story: With everything going on in the economy, from rising rates to inflation to cooling prices, it’s easy for investors to get pessimistic. That said, there’s opportunity in all types of markets, including this current recessionary one. Let’s take a closer look at the state of investor sentiment and outline a few bright spots for multifamily investors and owners.
Lightbox recently released its bi-annual Investor Sentiment Report, highlighting the challenges that are keeping investors up at night. Here are some of the highlights:
- 70% of investors said they were either “concerned or bearish” about the commercial estate market for the rest of 2022.
- Although still elevated, this percentage drops to 58% for those who are concerned or bearish for 2023.
- 10% of investors are not concerned at all about a recession, and 55% are only somewhat concerned.
- Investors believe multifamily is a strong hedge against ongoing inflation.
Further, in a quarterly survey of investors, NHMC found that 66% of respondents indicated that market conditions were worse now than 3 months ago and that only 5% said conditions were better than three months ago.
In WMRE’s recent High-Net-Worth Investor Survey, they found that 67% of commercial real estate professionals believe that investment allocations of high-net-worth investors (HNWI) are increasing despite the current economic conditions. Further, the most favored sector among HNWIs is multifamily. A full 79% of respondents to the survey said that the multifamily sector was most favored, followed closely by industrial.
Vacancy rates are still at historical lows given the lack of supply and high demand for rental housing. According to NMHC, vacancy rates have been dropping year-over-year across the country, with the lowest rates in the Northeast (2.2%).
In terms of debt financing, a recent NHMC survey found that 90% of investors believe now is a worse time to borrow than the previous quarter, whereas a full 95% agreed to the same statement in July 2022. Although modest, it does appear investor sentiment toward debt is improving slightly.
Over the last decade, multifamily has outperformed all other commercial real estate sectors in terms of price growth, according to the Lightbox sentiment report noted above.
Finally, results from the H1 2022 WMRE/Marcus & Millichap Investor Sentiment Survey found an overwhelmingly positive sentiment among investors. The index jumped 5 points to 170, the highest level since 2015. According to the report, record-low vacancy rates in the apartment market are a driving factor for optimism.
Expert Take on Multifamily Investor Sentiment
“A lot of the capital that is allocated for commercial real estate, particularly for core investors, will go into industrial as well as multifamily, given the positive dynamics for both sectors.” – Mike Davis, Executive Vice Chair, Cushman & Wakefield
“Investors are continuing to increase allocations to real estate, because they believe in the long-term performance of their real assets and real estate portfolios,” — Heather Fernstrom Border, co-founder and managing partner of Alliance Global Advisors