The second quarter of 2022 displayed increasing uncertainty and volatility across political and economic spectrums, with a historic Supreme Court ruling overturning Roe v. Wade punctuating a quarter that saw major equity market downturns, continued and worsening inflation and the continuation of Russia’s war on Ukraine.
Commercial real estate activity began to show some signs of slowing in the quarter. The combination of economic pressures and rapidly increasing interest rates prompted a more cautionary approach to deals from buyers, who showed signs of being less willing to pay premiums for assets with more doubt around sustained rent growth and major concerns around operating expense inflation and financing costs.
- Equity markets tumbled in the second quarter as all three indices were down, giving up a large portion of their gains over pre-COVID levels.
- Multifamily rent growth has continued at historically strong levels, with year-to-date rent increasing 5.4% with a trailing 12-month rent growth at 14.1%.
- Uncertainty still clouds the future of the office sector, as nationwide vacancies remain elevated and leasing activity stayed flat.
- Despite rising inflation, economic concerns have not yet soured consumer spending. Persistent sales have fueled strong retail asset performance and expanded interest in the sector.
- The industrial sector continued to experience high-growth rates and compressed capitalization rates due to continued demand for warehouse and logistics space in a construction market that has surged to keep pace. Domestic companies have ramped up efforts to bring more manufacturing jobs back to the U.S. to combat coronavirus.
- Rising interest rates paired with declining share prices are likely to dampen REIT acquisition activity as deal economics become difficult to rationalize.
Continue reading the Q2 2022 report for further analysis, insight and outlook into the multifamily housing, office, retail, industrial and capital market sectors.