Recession Talk Begins Again, And Multifamily Investors Are Cloudy On What Impact It Will Have On The Rest of 2023

After a relatively short quiet period, recent bank failures have fueled more talk of recession — especially its expected effect on the commercial real estate (CRE) sector. 

Since late last year, pundits and investors were not asking when a recession would occur but how long and how much impact it would have on the industry. 

Recently 55% of CRE leaders who were part of JPMorgan Chase’s 2023 Business Leaders Outlook, including those with multifamily property rentals, said they think a recession is likely this year. And while JPMorgan Chase publicly stated a recession will be relatively mild, recent banking failures and loan stress have some predicting a tough economic summer.

JP Morgan Chase Head of Commercial Real Estate Al Brooks said, “We’re not getting inflation tamped down as much as we'd hoped" but is still bullish on multifamily as a steady and consistent play. 

“Multifamily housing is absolutely where you want to be as an investor" despite the potential of the rental market may feel the impact of a recession, Brooks said. 

Sylvia Crawford, senior director of marketing strategy and planning for prop-tech company Arize AI, wrote in Newsweek, “What does the future hold for the multifamily industry with a looming recession? For multifamily property owners and operators, it looks brighter than you think. Cost-cutting is inevitable, but recessions present an opportunity to minimize losses and find new ways of attracting tenants.”

And while JPMorgan Chase’s leadership survey found that executives believe lowering costs could help multifamily investors prepare for an economic downturn, they also said investors would aim to position themselves as buyers. This position is a tough ask, with banks pulling away from multifamily loans and third-party lenders suddenly limited on their help. Most real estate investment trusts and family investors have told Benzinga this year they’re holding off on adding to their multifamily portfolios in favor of purchasing alternative properties ranging from self-storage units and RV parks to manufactured housing developments and marinas.

One aspect of multifamily housing that is not expected to worry investors is occupancy. With many buyers locked out of the residential market because of a lack of inventory and high mortgage rates, Berkadia’s 2023 Powerhouse Poll Outlook found that national rental occupancy is forecast to be at 95% by the fourth quarter, beating the pre-pandemic average of 94.7%.

But the Berkadia report is short on panic. “Given the economic backdrop of a possible recession, the number of units coming online and increasing vacancy days, markets with strong renewal rates will be able to withstand any unforeseen challenges that lie ahead,” according to the Berkadia report.