The commercial real estate market saw a 15% decline in transaction volume in 2022, according to MSCI Real Assets. However, the year still remained strong in historical terms as the level of deal volume achieved in 2022 was the second-highest in MSCI’s data set, trailing only the peak reached in 2021. The last three months of 2022 saw a 62% annual drop in commercial property sales by dollar volume, and annual price growth in Q4 slowed to its lowest pace since 2011. While prices started to fall in September, 2022 remains a strong year for commercial real estate.
The retail segment finished on top in terms of individual asset-class growth for 2022, with a year-over-year dollar-volume gain of 4%, according to MSCI. Retail sales of individual assets reached a record high last year, whereas multifamily remained the largest sector by investment volume with full-year sales of $294.1 billion. Multifamily deal volume declined by 17% year over year, and the fourth quarter saw $50.4 billion in investment activity, down 69% annually – the largest decrease among major property sectors for this period.
Multifamily rents increased by 6.2% in 2022, reaching a national average of $1,715, according to Yardi Matrix. This marks the second-highest year-over-year increase since 2000. However, weakening demand, an uncertain economy, and inflation caught up to the apartment market, causing rents to fall in the fourth quarter. In December 2022, annualized rent growth was down 80 basis points from November, reaching 6.2%. On a national basis, asking rents fell by 0.6% ($10) over the final three months of the year.
The U.S. student housing sector saw a record high of $18.9 billion in transaction volume in 2022, which is a 64% increase from the previous full-year high of $11.5 billion set in 2021, according to JLL. Foreign-based funding sources were a driving factor in this jump, with capital from other countries holding a 20% share in the U.S. student housing market in 2021. This influx of capital inflated both per-unit sale prices and rental rates, with student housing rents growing by 8.8% annually in 2022.
Investment in alternative sectors of commercial real estate took a step back in Q4 2022, putting a stop to eight straight quarters of annualized deal volume growth, according to MSCI. Transaction volume for alternative asset classes totaled $14 billion, which is down 66% from Q4 2021. Every alternative sector saw double-digit declines in transaction volume during this time, pulling the full-year 2022 alternative-sector volume 12% below that of 2021. The Q4 pullback across all sectors was sharp enough to reflect weakness within the entire commercial real estate market, rather than a weakness in any specific sector.