Q3 2022 Commercial Real Estate Overview: Multifamily Dominates, Costs Rise, Retail Vacancies Decrease

November 18, 2022 COMMERCIAL

Q3 2022 COMMERCIAL REAL ESTATE OVERVIEW

The U.S. commercial real estate investment volume witnessed a decline of 24 year-over-year in Q3, amounting to $154.5 billion. Multifamily emerged as the leading sector with transactions worth $69 billion, followed closely by industrial and logistics sectors with investments totaling $31 billion each. Over the last four quarters, Los Angeles dominated markets with a significant transaction volume of $66 billion, trled by New York City's total of $64 billion, marking a 40 increase compared to Q3 in previous years.

INCREASING COSTS AND DEVELOPMENT RESTRNT

Construction and development costs continue to rise, leading to elevated replacement costs across all asset classes. Combined with escalating borrowing rates for developers, these factors have constrned the supply of new inventory generally.

U.S. COMMERICAL REAL ESTATE INVESTMENT VOLUME BY QUARTER

• Q1 2022: $XX billion

• Q2 2022: $XX billion

• Q3 2022: $XX billion down by XX from previous year

• Q4 2022 forecast: $XX billion

U.S. COMMERICAL REAL ESTATE INVESTMENT VOLUME BY SECTOR

• Multifamily: $XX billion

• Industrial Logistics: $XX billion

• Other Sectors: $XX billion including office, retl, hospitality

U.S. COMMERICAL REAL ESTATE INVESTMENT VOLUME BY MARKET

Top 5 Markets - Los Angeles $66 billion, New York City $64 billion, Market #3, Market #4, Market #5

MULTIFAMILY MARKET OVERVIEW

Q3 was marked by the second consecutive quarter of negative net absorption, with new units surpassing those rented. Despite seasonal demand traditionally peaking in Q3, cautious renters responded to growing economic uncertnties. Q3 saw the completion of 91,900 new multifamily units, a figure not seen since the 1980s.

INDICATORS AND ANALYSIS

• Vacancy Rate: Increased to 3.9 but remns below historical average 4.9 and pre-pandemic level 4.1.

• New Multifamily Development: Slowed due to financing challenges, construction delays, and supply chn issues.

• Spread between Class A and C assets has widened, pointing to a shift in demand toward lower-cost housing amidst economic uncertnty.

• Average rent: Grew 10.5 year-over-year yy, with cooling rent growth from Q2's 14.6 yy and Q1's 15.2 yy.

ECONOMIC OUTLOOK AND REVENUE

Nominal wages are rising due to inflation pressures, bolstering the long-term prospects for multifamily sectors. However, caution is warranted as the risk of contracting discretionary income looms due to increasing prices on consumer goods and services.

U.S. MULTIFAMILY MARKET KPIS

• Vacancy Rate by Class:

  • Class A: 4.5

  • Class B: 4.0

  • Class C: 3.1

RETL MARKET INSIGHTS

Retl vacancy rates decreased to 5.0 with a limited supply of new spaces entering the market. Asking rents grew by 2.5 year-over-year, despite record-low consumer sentiment in Q3 and robust retl sales performance.

• Consumer Retl Sales Growth: Stabilized, indicating resilience in consumer sping.

• Retl Sales by Category showed diverse trs across various sectors.

• Vacancy Rate by Property Type:

  • Traditional Retl: XX

  • Mall Power Centers: XX

  • Stand-Alone Stores: XX

U.S. RETL MARKET HIGHLIGHTS

High construction costs have led retl tenants to prefer renewing existing leases over searching for new spaces that often require significant tenant improvements.

FOR MORE INFORMATION, CONTACT

Grandway Group

Eml: [email protected]

Tel: +1 626-357-1200

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