Q4 2022 Commercial Real Estate Overview
U.S. commercial real estate investment volume fell by 63% year-over-year in Q4 to $128 billion. Total investment volume for the year fell by 17% from 2021 to $671 billion, which is still the second highest year in history.
In Q4, institutional and private investors were net buyers, while REITs and foreign investors were net sellers. Multifamily was the leading sector with $48 billion in transaction volume (down 70% year-overyear from 2021), followed by Industrial and logistics sector with $32 billion (down by 58% from 2021) and Office sector with $19 billion (down 66% from 2021).
U.S. Commercial Real Estate Investment Volume by Quarter
(USD Billions)
U.S. Commercial Real Estate Investment Volume by Sector
(USD Billions)
In 2022, Los Angeles was the most preferred market with total investment volume of $53 billion, followed by New York City with $51 billion and Dallas with $39 billion. Out of the 20 top markets nationwide, Nashville was the only city whose transaction volume in 2022 did not decline from the prior year.
U.S. Commercial Real Estate Investment Volume by Market (Last 4 Quarters)
(USD Billions / % Figures Shows Change from Trailing 4 Quarters in Prior Year)
Multifamily Market
U.S. multifamily investment volume in 2022 totaled $278.8 billion, down by 19% year-over-year, but was still the second largest annual volume on record.
Vacancy rate in Q4 rose 0.70% from the prior quarter to 4.6%, which is still below the long-term average of 5.0%. The increase in vacancy was likely a result of delayed household formation due to economic uncertainty, and a surge in short-term supply caused by some developers rushing to complete construction in response to rising interest rate and market uncertainty.
U.S. Multifamily Vacancy Rate and YoY % Change
Vacancy rates across all property types within multifamily sector increased in Q4 2022, however, Class C continued to have the lowest vacancy rate at 3.9% versus Class B at 4.6% and Class A at 5.1%. The vacancy rate of Class C properties (lowest cost) seems to be moving in the same direction as Class A and Class B properties (higher cost). This suggests that, at least for the time being, households seem to be willing to maintain their current standard of living rather than moving towards lower-cost housing, despite the economic uncertainty and rising mortgage rates.
U.S. Multifamily Vacancy Rate by Class
Average rent nationwide increased by 6.7% year-over-year in Q4. This is down from the record 15.2% year-over-year increase in Q1 but it is well above the historical average of 2.7% annual increase.
U.S. Multifamily Monthly Rent and YoY % Change
For the multifamily sector, Q4 marked the third consecutive quarter of negative net absorption (net balance of newly leased space minus new construction), with 100,300 newly completed units and 84,700 new leases, resulting in an estimated -15,600 units of net absorption. However, the surplus in new construction is substantially less than the prior quarter, and analysts expect the net absorption to turn positive in 2023.
New construction completed in 2022 totaled 341,200 units, which is the highest new construction volume in more than 30 years. However, data suggests that new construction starts in Q4 were down considerably as the cost of construction and the availability of financing have been negatively impacted by rising interest rates. As a result, we expect the growth rate of new supply to slow down and a shortage of supply to develop in the coming years.
Commercial Retail Market
Commercial retail sector saw its average rent increase and vacancy fall in Q4 and in 2022, primarily fueled by strong demand for retail space and a lack of new supply. Retail vacancy fell to 4.9% in Q4, driven by strong demand from retailers and a lack of supply of new spaces. Vacancy fell across the board for all sectors of retail.
U.S. Retail Vacancy Rate by Property Type
Average retail asking rent grew by 2.5% in Q4 from the same period in 2021, to finish the year 2022 at $22.78 per SQFT. Neighborhood, community, and strip centers had the strongest rent growth of 0.6% from the prior quarter and 3.0% from the prior year. Meanwhile, lifestyle and mall properties were the underperforming sector which saw its asking rents fall by 0.7% from the prior quarter but remains up 0.4% from a year ago.
U.S. Retail Average Asking Rent
Retail sales remained strong despite economic uncertainties, and sales during the holiday shopping season in Q4 were 7.6% higher than the prior year. There also seems to be a continuous return to brick-andmortar retail and a return to in-person shopping experiences by consumers, versus purely online shopping, which contributed to demand for retail space. Furthermore, a return of tourism and travel within the country also contributed to retail sales in luxury markets. All of these factors resulted in robust demand for retail spaces in Q4 and 2022 generally.
U.S. Consumer Retail Sales Growth and YoY% Change
U.S. Retail Sales by Category
Q4 was the ninth consecutive quarter of positive retail absorption, during which the net absorption (net balance of newly leased space minus new supply) was a total of 12.7 million SQFT. Approximately 5.4 million SF of new retail space was newly completed in Q4, which is substantially less than the 10-year average of 12.7 million SF. This brought the total new construction volume for 2022 to just 22 million SQFT, which is a new annual low and the third consecutive year in which new construction set a record low. Furthermore, new construction starts in Q4 fell by 40% from the prior quarter and 18% year-overyear to just 10.7 million SQFT.
Commercial retail space has demonstrated resilience in the face of shifting consumer trends from productfocused sales to in-person experiences and restaurants. Demand for physical retail space is now stronger than it was pre-pandemic while new construction volume is at a historical low. We expect the sector to show robust growth for the coming years.
Data Sources：CBRE Research, CBRE Econometric Advisors, J.P. Morgan Asset Management, CoStar Realty Information Inc., Bloomberg, WSJ.com, Zillow Group, Redfin, Bureau of Labor Statistics, & U.S. Census Bureau
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