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February082022

Multifamily Real Estate – Outlook for the Urban and Suburban Markets

By Travis Ludden, CPA

2.8.22 | Industry Insights

On a global scale, even the ravages of a pandemic did not significantly impact interest and investment in multifamily real estate, and the outlook for 2022 is on track for breaking records.1 A recent white paper we developed in conjunction with Commercial Observer is equally optimistic for the outlook on the tri-state multifamily market. Within this context, it is worth looking deeper into the conditions facing the urban and suburban markets.

In urban settings, the COVID-19-inspired fears of a permanent flight from New York City never materialized. Some thought that the pandemic would direct demand toward single-family homes to the detriment of multifamily investment.  The evidence indicates otherwise, with the New York Metro drawing $14.71 billion in investment in 20212. In New York City, apartment rentals accelerated, and condominium activity is currently robust.3

Multifamily loans continue to rise even in the face of supply and demand issues coupled, in some places, with years of underproduction on the housing side which indicates that the future may be brighter. The steam is picking up over in the Garden State as well, where a 171-unit multifamily complex in highly urban Hudson County was picked up for $36.5 million back in October4 and the trend continues with more purchases in 2022, such as the nine building sells for over $6.8 million5 providing further evidence that confidence extending beyond the boundaries of NYC.

Following the Trends

Understanding the future of multifamily real estate in both urban and suburban settings required understanding of who the buyers are and what motivates them.

Confidence is key. Millennials, the generation fast becoming the drivers of this economy, are still emerging from the recent shocks to our economy and society, but being young, they want to get on with their lives … now. While the future of work from home vs. return to the office is still in the formative stages, the likelihood is that some hybrid will be the end result.  Nevertheless, proximity to the workplace is no longer the deciding factor it once was.

With that in mind, millennials are still weighing the advantages of urban vs. suburban lifestyles. Urban lifestyles present a wider availability to restaurants, bars, sporting events, and easy access to friends and companions. Commuting to and from offices, even on a hybrid basis, is still easier particularly as fear of contracting COVID-19 slowly fades. As public spaces continue to open up and once-frozen theaters and other entertainment venues again become attractions, the sociability presented by an urban lifestyle will gain a further shine.

For suburban multifamily real estate, there is the issue of a need for more living space as millennials do expect to be spending more time at home as part of the still-evolving refinement to work/life balance. The lure of additional space will continue to drive some to suburban settings. This is particularly significant as the millennial generation progresses into building families that will require more living space at prices that they can afford. This can drive down the attraction to urban settings but may be compensated by the younger generation spilling into the workplace with a natural desire to be on their own.

The Heat of Recovery

With the economy on a steady path of recovery and absent any out-of-left-field events as potent and far reaching as COVID-19, the outlook for multifamily investment in both urban and suburban settings in the tristate area remains positive for 2022. This is despite of ongoing supply chain disruptions, a labor shortage, and an uptick in mortgage rates which, nevertheless, are still quite low.6

Investors sidelined by the pandemic are coming back and offshore buyers — who are still waiting for travel restrictions to finally melt away — are waiting in the wings to potentially add further heat to the market. And there is capital on the sidelines that will eventually come into play to further fuel activity.

In short, exciting times are on the horizon.

Questions? Contact Travis Ludden at 212.331.7494 | tludden@berdonllp.com or reach out to your Berdon advisor.

Berdon LLP, New York Accountants

1 https://www.cbre.com/insights/books/us-real-estate-market-outlook-2022/multifamily

https://commercialobserver.com/2022/02/us-multifamily-investment-volume-sets-record-in-2021/

3 https://therealdeal.com/2021/12/15/as-rent-explodes-nationally-new-york-city-tops-the-charts/

4 https://therealdeal.com/tristate/2021/10/14/little-known-buyer-nabs-nj-multifamily-complex-for-36m/

5 https://jerseydigs.com/multifamily-portfolio-sells-northern-new-jersey/

6 https://www.bloomberg.com/news/articles/2022-01-27/mortgage-rates-in-u-s-cool-after-four-weeks-of-increases

 

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