Multifamily and office sectors – what is the outlook?

Across the US, pipeline well dispersed

“With the exception of a few markets where supply is heavily concentrated, the pipeline is fairly well dispersed geographically,” Vance said. “There is a housing shortage in the US, and because it’s most significant in the single-family market, multi-family is playing this really important role in the overall housing supply for this country. The vacancy rate just crossed over 4% in late 2022, and while we expect softer demand and health supply to continue pushing that vacancy toward its long run trend of about 5% this year, it’s that below-trend vacancy between now and then we expect will support health rent growth – not anything like what we’ve seen the last couple of years, but above the 2.5% to 3% average rent growth we experienced in the years just prior to the pandemic.”

Moderator Julie Whelan, head of occupier research for the Americas at CBRE, responded: “We have to remember, even with multifamily, that if growth moderates from where it has been, it’s still historically in a good place.”

The state of the office market

Jessica Morin (pictured right), research director at CBRE, addressed the state of the office market in 2023.

“The structural and cyclical changes right now are top of mind for both occupiers and landlords, and they’re going to impact demand in the outlook this year,” she said. “The structural change is evident now. The physical occupancy of office buildings has really changed little since Labor Day, and nothing really points to a major shift in that, at least in the near term. Potentially, if we were going to see significant white-collar layoffs, it could give employers more leverage to mandate more days in the office. We’ve seen several large layoffs announced in the tech sector, and that’s really a sector that’s been the largest adopter of hybrid work. Because of that, the sector has really already scaled back on space over the last few years. The tech sector already has been the primary driver behind office leasing, so it is extremely influential to the health of the office market, and it’s definitely going to be a sector we continue to watch as it shapes our outlook.”

Cyclical changes loom large

“As we enter this recession, companies are going to look to cut costs and they’re going to look to prevent unnecessary spending,” Morin said. “So real estate leaders are going to use office utilization data to eliminate unused office space. Both these forces are impacting space decisions, and recently downsizing and relocation have been among the top 10 inquiries. The leasing data reflects this already, the average lease size last year was 18% smaller than what we saw in 2018 and 2019. But what’s interesting is even though it’s smaller, we actually saw more transactions last year than in 2018 and 2019. So what that tells me is the uncertainty around the structural change starting to weaken this wait-and-see strategy isn’t really going to be the strategy in 2023.”