More than half of commercial real estate leaders—including those with multifamily property rentals—believe a recession is likely this year, according to JPMorgan Chase’s 2023 Business Leaders Outlook: Commercial Real Estate.
We asked three experts—Al Brooks, Head of Commercial Real Estate for JPMorgan Chase, Victor Calanog, Head of Commercial Real Estate Economics for Moody's Analytics, and Ginger Chambless, Head of Research for Commercial Banking at JPMorgan Chase—to weigh in on the impacts of a possible recession on the multifamily property market.
An economic downturn could have wide-ranging effects across commercial real estate.
They all agreed: Recent economic data has been mixed. And uncertainty is one of the few things you can count on in the current economy.
"The economy is continuing to expand," Brooks said. "But we're also not getting inflation tamped down as much as we'd hoped." As a result, interest rates are likely to rise even further.
"We expect the cumulative effects of the Fed's interest rate hiking cycle to more broadly slow economic momentum in the coming months. The U.S. could enter a mild recession later in 2023," Chambless said.
The good news? "Consensus expectations still suggest a recession in 2023 will last anywhere from three to six—at most, nine—months," Calanog said, "and won't be particularly deep."
"Surveys of most CEOs suggest that any planned layoffs to manage margins will be targeted to position firms for a quick recovery, given how tight the labor market is," he said.
Despite layoffs in the tech sector, more than half of commercial real estate leaders expect to maintain current headcount, according to the 2023 Business Leaders Outlook: Commercial Real Estate.
"If CEOs do end up making strategic job cuts versus wide-scale layoffs, the recession could be mild. We might even avoid a recession altogether. " - Victor Calanog, Head of Commercial Real Estate Economics for Moody's Analytics
"I think multifamily housing is absolutely where you want to be as an investor," Brooks said. The multifamily rental market may still feel the impact of a recession, but the effects could be mild depending on the downturn’s severity.
"Moody’s downside scenarios for either a minor or major recession have multifamily vacancies rising to 5.5% to 6.0% from its current 4.4% at the national level," Calanog said. "It's reasonable to expect some pullback in performance metrics, but multifamily is in a much better spot to weather any downturn compared to property types like office and retail."
A recession could also impact multifamily rental properties in other ways.
"There are a few reasons we expect an upcoming recession could be relatively shallow, including strong household and business balance sheets and tight labor markets," Chambless said. "In addition, there has been discussion of recession for the past nine months, which has given consumers and businesses plenty of time to prepare."
To become recession-ready, investors can:
JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/cb-disclaimer for disclosures and disclaimers related to this content.
© 2023 “January Existing-Home Sales.” National Association of REALTORS®. All rights reserved. Reprinted with permission. February 28, 2023, nar.realtor/research-and-statistics/housing-statistics/existing-home-sales