Based on a new report by CBRE, the U.S. multifamily sector saw strong momentum at the start of 2022, with robust demographic trends underpinning record leasing activity, rent growth and investment during the first quarter.
Investment in the multifamily sector increased by 56% year-over-year to $63 billion in Q1 2022--the strongest first quarter on record and bringing the trailing 4-quarter total to $374 billion. Multifamily accounted for 37% of total commercial real estate investment volume in Q1 2022, followed by office at 21% and industrial at 20%.
The multifamily market set a record four-quarter absorption total of 695,100 units in Q1 2022--up 12% from the previous quarter and 77% higher than the previous annual record of 393,000 units in 2000. Net absorption of 96,500 units was the highest Q1 2022 total since 2000.
"Strong multifamily fundamentals persist, with favorable migration trends, high household formation, and strong wage and job growth contributing to continued demand. An abundance of equity and debt capital remains available, albeit at significantly higher rates than enjoyed in the past few years," said Brian McAuliffe, President of Multifamily Capital Markets for CBRE.
"Looking ahead, while investors continue to have strong convictions on market fundamentals, bidder pools have reduced due to the increase in the number of offerings in the market and we are experiencing upward movement in cap rates as debt volatility impacts pricing," added Mr. McAuliffe.
The overall multifamily vacancy rate fell by 20 basis points (bps) quarter-over-quarter and 2.5 percentage points year-over-year to a record-low 2.3%. Average net effective rent increased by 15.5% year-over-year to $2,007 per month. Average rents now exceed their pre-pandemic levels in all but two of the 69 markets tracked by CBRE (San Francisco and San Jose).
New construction deliveries of 66,400 units in Q1 2022 brought the four-quarter total to 292,500--the highest amount since 1987. With more than 400,000 units currently under construction, 2022 deliveries are expected to eclipse 2021.
Q1 2022 Market Highlights: