Multifamily Market Conditions Showcase Strong Improvement

 

Three key indicators continue their steady rise, according to the organization's latest survey.

The National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions for October 2021 show strong and ongoing improvement continues across the multifamily industry. For the third quarter in a row, the Market Tightness (82), Sales Volume (79) and Equity Financing (65) indexes reflected results considerably above the breakeven level of 50. And while the Debt Financing (48) index showed weaker conditions, most respondents felt conditions were unchanged from last quarter.

“Ultimately, this is good news for the multifamily industry,” Caitlin Sugrue Walter, vice president for research at Washington, D.C.-based National Multifamily Housing Council (NMHC), told Multi-Housing News. “This data highlights the ongoing strength of the sector based on the strong demand and fundamentals underlying the market.”

Sales Volume vs. Market Tightness. Data and chart courtesy of NMHC

Tighter conditions

The Market Tightness Index fell from 96 to 82, indicating tighter market conditions. Almost three-quarters (71 percent) of respondents reported market conditions were tighter than three months earlier. Only 8 percent reported looser conditions, and 20 percent felt conditions were unchanged from the second quarter.

The Sales Volume Index registered a 79, a number unchanged from a quarter earlier. That indicated ongoing robustness in apartment sales volume. More than half (61 percent) of respondents said sales volume was higher than it had been three months earlier, while 32 percent believed volume had remained unchanged. Only 4 percent felt sales volume was lower than the prior quarter.

The Equity Financing Index inched lower, from 69 to 65. Just about one-third (33 percent) of respondents saw greater availability of equity financing than they had in the quarter prior. Meanwhile, more than half (52 percent) felt equity financing conditions had remained unchanged. Only 4 percent found equity financing less available.

Representing the only index to dip below break-even level for this quarter, the Debt Financing Index dropped from 71 to 48.

Some 17 percent of respondents indicated conditions for debt financing were better in the third quarter than in the prior three months. But 21 percent believed financing conditions had worsened. The majority reported conditions in the debt market were unchanged.

The strong demand and fundamentals underlying the market are good harbingers for the future, according to Walter.

“Looking ahead, this demand is likely to continue, making for a positive short- to mid-term horizon for the industry,” she said.

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Source: Multifamily Market Conditions Showcase Strong Improvement

https://www.creconsult.net/market-trends/multifamily-market-conditions-showcase-strong-improvement/

More Tenants Working From Home Means New Expectations Of Landlords And Amenities

 

CLA's Carey Heyman, Universe Holdings' Henry Manoucheri, AXIS/GFA's Cory Creath, Roundtree Properties' Tammy Harpster and Greystar's Kesha Fisher

With more and more tenants working from home, multifamily landlords are making adjustments to interior design, property management and amenities to keep up.

Nearly 19 months after the onset of pandemic lockdowns, adjustments that might once have been predicted to be temporary — working from home, dealing with high package volumes — are still very much influencing the multifamily market and how owners approach attracting and retaining tenants, real estate industry professionals speaking at Bisnow’s Multifamily Annual Conference West event said Tuesday.

“I don't think that work-from-home is going anywhere,” Greystar Senior Director of Real Estate Operations Kesha Fisher said. “And so you're going to have to ensure that you have different types of amenities.”

Developers are designing spaces with the anticipation that tenants will be working from home through modern changes to common and private spaces. The shared business center of old has been replaced by a WeWork-type space with individual pods for working in, Fisher said. In-unit changes range from creating nooks that can function as workspaces or adding USB chargers to all the outlets, she said.

Resident services are also increasingly important, Fisher said. Greystar has started using third-party providers to accommodate higher package volumes that have increased exponentially in the wake of the coronavirus. Greystar has also noticed an 80% increase in pets across its portfolio, which has led landlords to introduce pet amenities — dog runs or so-called yappy hours — as a tenant retention tool.

“If I love my neighbor and our dogs are friends, I'm going to stay there longer,” Fisher said.

Residents working remotely and spending more time in their apartments has translated into some higher expenses for property owners. Roundtree Properties CEO Tammy Harpster said utility bills are higher, prompting the firm to look at solar panels as a possible mitigator to reduce some of the higher overhead costs.

Another owner side effect: Tenants are far more attentive to the time frame it takes for owners to respond to their requests for repairs. Because more people are spending more time in their homes, there is a greater urgency to respond to noncritical maintenance requests, Harpster said.

“It might not be an emergency, but when they see it all the time, it's an emergency for them,” Harpster said.

The rent debt that many tenants now carry in the wake of the coronavirus pandemic is still very much weighing on the minds and bottom lines of industry leaders.

Fisher, Harpster and Universe Holdings CEO Henry Manoucheri all said that money from more than $1B of state funds for rent relief has begun to flow in. Fisher said Greystar has received about $300K in rental relief for back rent at California properties. Manoucheri said he’d received about $600K so far, though he voiced a concern that many of his tenants who are receiving assistance don’t actually need it.

“You have to make sure that you're looking at the rental assistance portal, you have to make sure that you're talking to caseworkers, and we do see that that recovery in California is happening,” Fisher said. “It's happening slowly, but it is happening.”

AXIS/GFA Architecture + Design Founding Principal Architect Cory Creath also spoke on the panel, which was moderated by CLA Principal of Real Estate Carey Heyman.

 

Source: More Tenants Working From Home Means New Expectations Of Landlords And Amenities

https://www.creconsult.net/market-trends/more-tenants-working-from-home-means-new-expectations-of-landlords-and-amenities/

Is a Bubble Forming in Commercial Real Estate?

[video width="1920" height="1080" mp4="https://www.creconsult.net/wp-content/uploads/2021/11/Untitled.mp4"][/video]

• The big question on many investors’ minds – “Is a bubble forming in CRE?”
• From a macro level, Retail, Urban Office and Suburban Office are clearly not in a bubble
  • -  Price growth has been moderate, and fundamentals have kept pace with price gains
• While Apartment values have climbed considerably, historically strong vacancy and rent growth support strong appreciation – Structural housing shortage also a strong tailwind
• Similarly, Self-Storage price gains are backed up by record property performance
  • -  Vacancy at all-time low and rent growth is strong
  • -  COVID helped quell overdevelopment risk, keeping supply and demand in balance over the short-term
• Even Industrial, where exuberance has been strongest, is likely not in bubble territory
  • -  Vacancy, rent growth and NOIs support the aggressive price appreciation
  • -  eCommerce and supply chain disruptions provide long-term tailwinds to the industry
• Investors should closely monitor the supply and demand outlook for the next 3 to 5 years

 

https://www.creconsult.net/market-trends/is-a-bubble-forming-in-commercial-real-estate/

Is a Bubble Forming in Commercial Real Estate?

[video width="1920" height="1080" mp4="https://www.creconsult.net/wp-content/uploads/2021/11/Untitled.mp4"][/video]

• The big question on many investors’ minds – “Is a bubble forming in CRE?”
• From a macro level, Retail, Urban Office and Suburban Office are clearly not in a bubble
  • -  Price growth has been moderate, and fundamentals have kept pace with price gains
• While Apartment values have climbed considerably, historically strong vacancy and rent growth support strong appreciation – Structural housing shortage also a strong tailwind
• Similarly, Self-Storage price gains are backed up by record property performance
  • -  Vacancy at all-time low and rent growth is strong
  • -  COVID helped quell overdevelopment risk, keeping supply and demand in balance over the short-term
• Even Industrial, where exuberance has been strongest, is likely not in bubble territory
  • -  Vacancy, rent growth and NOIs support the aggressive price appreciation
  • -  eCommerce and supply chain disruptions provide long-term tailwinds to the industry
• Investors should closely monitor the supply and demand outlook for the next 3 to 5 years

 

https://www.creconsult.net/market-trends/is-a-bubble-forming-in-commercial-real-estate/

Millennials Aren’t Abandoning Apartments After All

 

One shift expected from the pandemic was the movement of millennials away from apartments and toward single-family housing. Recent data and analysis show, however, that this trend may be petering out, according to a new report from Moody’s Analytics. Instead, multifamily fundamentals look bright for both the short and medium-term, it finds.

Absorption was buoyed by job growth, as more than 3 million jobs were added to payrolls during the first half of the year, according to Moody’s economist Thomas LaSalvia.

“While the potential for impactful, structural changes in how we live, work, and play still remain, worries that large swaths of the population will head for single-family housing are losing steam,” LaSalvia writes in a recent piece in the Scotsman’s Guide. He recognizes that while millennials are indeed moving toward SFR, “the rapid acceleration in US home prices has – and will continue to – price out many of these potential homebuyers.”

Still, the asset class is facing some headwinds.

For instance, inventory gains have been lackluster relative to absorption, he says: US apartment completions hit around 60,000 units through the first half of the year, a rate that’s on pace for the sector’s slowest year in nearly a decade. Developers finished many projects in 2020, according to LaSalvia, but “they were also busy reassessing the prospect of lease-ups and potentially tighter financing for upcoming projects. This uncertainty, combined with rising material costs and labor shortages, has reduced construction activities in 2021.”

Meanwhile, the recovery appears disparate across metros: while 80 of the 82 primary markets Moody’s analyzed posted quarterly rent increases, San Francisco apartment rents are not predicted to return to 2019 levels until 2027.

“While we remain bullish on the mid-to-long-term prospects of large, dense urban centers, divergent recovery rates are likely to continue in the short term – and potentially longer as remote-work policies continue to evolve,” he says.

LaSalvia’s end conclusion: While the rebound may be somewhat uneven across metro areas, robust economic growth and the potential for a sub-5% unemployment rate by the end of this year will undoubtedly lift the rising tide of the apartment sector.

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Source: Millennials Aren’t Abandoning Apartments After All

Senior Living Must Adapt as Demographics Transform Real Estate

 

The baby boomer generation will change senior living and long-term care even more than some experts predict, and the industry is not nearly prepared to handle the influx of boomers entering the space over the next two decades.

That is because the boomers are sitting on untapped wealth resources, and are willing to spend money to achieve positive health outcomes and prolong their lives for as long as possible. This is according to Ken Gronbach, a demographer and futurist who shared his predictions Tuesday during a webinar on how demographic trends drive transformation in real estate, hosted by real estate investment and services firm Marcus & Millichap (NYSE: MMI). The boomer generation, spanning 1946 to 1964, currently totals 78.2 million people, and the oldest wave is only beginning to consider senior living as an option. Gronbach believes the true transformation will take place when the final wave of boomers, born between 1960 and 1965, turn 75. He estimates that nearly 4 million boomers were born annually during that span. Collectively, the boomer demographic’s population total is nearly double that of the preceding generation and will bring enormous wealth with them, once they decide to exit the workforce. Gronbach estimates the boomers have a collective $12 trillion in banking assets, $20 trillion in stock, and $70 trillion in real estate holdings. Gronbach’s predictions are supported by other data and reporting. The boomers have held the most real estate wealth in the U.S. for nearly 20 years, peaking at 49.1% in 2011, according to a New York Times analysis of Federal Reserve data. And they still control 44% of the nation’s real estate wealth.

The boomers are holding on to their real estate longer than the preceding generation and preferring to age in place. This is opening up opportunities for senior living providers to offer home- and community-based services to older people in their homes, and could be further accelerated with the possible passage of the Choose Home Care Act in Congress. That bill would allow certain Medicare beneficiaries to receive extended Medicare services such as skilled nursing or rehabilitation services in their homes for up to 30 days following hospitalizations or surgeries, in addition to their usual home health allowance.

Additionally, the boomers were the only generation that did not recover their wealth lost during the Great Recession. While their average wealth is still higher than the recession low point in 2010, it remains far below what it was pre-2008. This leaves a wide swath of boomers in need of middle-market senior housing.

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Solving the middle-market equation will free up more personal resources for boomers to spend on health care, and Gronbach predicts spending in this sphere will increase exponentially. He is not alone.

In 2019, the Office of the Actuary at the Center for Medicare and Medicaid Services (CMS) predicted health care spending would top $6 trillion by 2027, fueled primarily by boomers. This will account for 19% of the country’s gross domestic product (GDP).

In other words, the aging population will transform real estate markets, and that extends to senior living — longer, healthier lives could mean that older adults defer moves into senior living, but providers also have a potential opportunity to appeal to this demographic and gain a share of their spending as they seek options to boost their health and wellbeing.

“[Boomers] don’t have dying on their punch list,” he said.

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Source: Senior Living Must Adapt as Demographics Transform Real Estate

US Real Estate Price Growth Gathers Pace in August

 

All four major U.S. commercial real estate types posted double-digit annual price growth in August, propelling the US National All-Property Index to a 13.5% year-over-year increase, the latest RCA CPPI: US report shows. The index rose 1.5% from July.

Apartment prices posted a 14.7% gain, the fastest annual growth rate seen since the housing boom before the Global Financial Crisis. Prices for the sector increased 1.6% from July.

Industrial prices climbed 13.6% year-over-year and retail prices jumped 12.1%. While the retail sector, in general, has suffered during the Covid era, some segments such as grocery-anchored centers have remained buoyant. The office sector index accelerated to an 11.2% year-over-year growth rate in August, again fueled by suburban office prices which increased 14.8%. CBD office prices continue to move in the opposite direction, posting a 3.7% annual decline in August.

Deal activity in the U.S. commercial real estate market rose at a triple-digit rate in August as the market continued its bounceback from lows of 2020, as shown in the latest edition of US Capital Trends.

 

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Source: US Real Estate Price Growth Gathers Pace in August