Colliers is forecasting the coming of more rental concessions in 2023, according to its recent 2023 Commercial Real Estate Outlook report.

The wave of new development will be completing itself throughout the year in many markets and with the uncertain economic conditions, landlords will offer concessions to lure in new renters or maintain existing occupancies, “which will in turn weigh on NOI growth and values.”

Key markets should again be in the Sunbelt, with a reported 400,000 new residents in both Texas and Florida in 2022.

Meanwhile, household formation overall is retrenching, and rents are high, which will lower occupancies.

“[Although] this isn’t what owners want, occupancies are coming off record highs and will still be relatively strong,” Colliers said.

Multifamily remains a highly desirable asset class, despite its cap rates facing upward pressure. Its higher borrowing costs are not unique, Colliers said, “so it can be expected to maintain its spot at the top of the investment mountain.”

Competition from the single-family home sector shouldn’t have too much of an impact. While mortgage rates dropped slightly by year-end from November highs north of 7%, “the cost of a 30-year mortgage is prohibitive to many buyers, slowing down home sales and keeping people in the rental market,” according to the report.

Nonetheless, higher housing costs are stressing renters’ budgets. A recent survey reported by Bloomberg noted a significant share of Millennials moving back in with family in the past year to save money and “because they couldn’t afford the rent.”

With transactions, Colliers expects multifamily to lead U.S. sales volume for a ninth straight year. Investors still rank multifamily as a top target, “but higher borrowing costs are slowing down sales volume,” it said. “How far and fast pricing adjusts will be an important factor in total sales volume.”