California Multifamily Investor Sentiment Rebounds at End of Year

Investors have shown a renewed outlook on the multifamily market in California. The winter commercial real estate survey from Allen Matkins and UCLA Anderson Forecast shows improved multifamily sentiment in most California markets compared to the mid-year survey in June.

“There is a little bit of a dichotomy in the multifamily market. Early in the pandemic, there was a movement out of dense urban markets for some people, and there was no demand. Therefore, prices fell,” John Tipton, a partner at Allen Matkins, tells GlobeSt.com.

The improved sentiment was a surprise considering that California’s major metros have continued to suffer from declining fundamentals. “The key thing to consider is that our survey looks three years out,” explains Tipton. “We are asking how investors view the world for a 2023 start. The reality is that most people are thinking that in 2023, the pandemic is behind us and we will return to normal supply-and-demand criteria. including job growth, inward migration, real estate pricing. All of those things will be positive for multifamily housing.”

Multifamily and industrial were both strong markets coming into the pandemic, and that has also helped to give investors confidence that there will be a healthy rebound once the pandemic subsides. “Pre-pandemic, multifamily was a good market. In multifamily, there was a blip caused by the pandemic,” says Tipton.

Other asset classes, on the other hand, were already experiencing wavering sentiment. “In retail, you have a sector that was already struggling mightily in part because of the overbuilding of retail and an increase in online shopping pre-pandemic,” says Tipton. “Now the pandemic is exacerbating what was already a challenged sector in real estate. It was a doubling or tripling down, and it will continue the trend that was already there of converting retail into a higher-and-better use.”

Office is yet another model. Prior to the pandemic, many investors felt that office was at a cyclical high, according to Tipton. Now, the pandemic has potentially permanently changed the pandemic. “Office is the biggest question mark in the survey,” says Tipton. Before the pandemic, it had a good run and values were very high, so the question is, why would this be different than multifamily? The question in office is that no one is quite sure how people will use space.”

Much like retail, office was undergoing a change before the pandemic. Many users were moving to a dense, shared office model. After the pandemic, there is a case to be made that people will want more space after the pandemic for health and safety concerns. However, remote work could also lead to less office demand as well. This is why so many investors are struggling to forecast the office market activity. As Tipton says, “There is just a big question mark in office.”