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Even if the job market stays strong, the price of real estate properties like office space and multifamily apartments will drop slightly next year, according to the chief economist of the National Association of Realtors.
Lawrence Yun said Saturday that the risk is particularly high for office space while discussing the outlook for commercial real estate at 2022 NAR NXT, the organization’s annual conference, according to an announcement documenting the discussion.
Lawrence Yun at the NAR NXT Residential Economic Issues and Trends Forum, November 2022
But high borrowing rates that pushed up cap rates are beginning to take their toll on commercial properties, Yun said.
“Nationwide, we are beginning to see some decline in commercial appraisal values,” Yun said. “Cap rates simply cannot match up with higher borrowing costs, especially among people who need to refinance their properties.”
While the dip for properties, such as multifamily apartments and office space will be slight, Yun said that some markets with strong enough job performance are still keeping prices high.
“Strong job growth is supporting prices in many markets,” Yun said, according to the statement.
The prediction follows Yun’s forecast that home prices will rise slightly and sales will dip in 2023 before making a strong rebound the following year.
Yun predicted that home sales would drop 15 percent in 2022 compared to last year and drop another 7 percent in 2023 before climbing 10 percent in 2024. He also predicted home prices will rise 1 percent next year and 5 percent in 2024.
Yun’s forecast for commercial properties didn’t specify how much prices would decline, and it came just before online retail giant Amazon announced it would eliminate 10,000 jobs. Meta, the parent company of Facebook, cut 11,000 people from its staff last week.
Real estate companies, too, have undergone staff cuts in recent months.
And regardless of whether the U.S. economy experiences widespread job losses, the market for office space will continue to face downward pressure from the lasting effects of the COVID-19 economy.
Yun was joined on stage by Matt Vance, senior director and Americas head of multifamily research for CBRE. Vance said he expects employees will spend 25 percent to 35 percent less time in the office than before the COVID-19 pandemic.
“That’s about a day to a day and a half less in the office,” Vance said. “We believe this will translate to a 15 percent reduction in office space demand per employee.”
San Francisco may be ground zero for the ongoing effect the pandemic is having on office space. The city’s office vacancy rate has spiked to 25.5 percent, according to CBRE, which the news outlet SFGate reported is an all-time high.
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