Increasing Costs and Delays Hamper Multifamily Development

 

As evidence that builders are facing the combined headwinds of rising material and labor costs as well as supply chain delays, the pace of multifamily development is down.

Multifamily starts slipped 5.1% to 467,000 units in September from August’s revised annual rate, while building permits fell 21% to 498,000 units, according to the U.S. Census Bureau. However, for the year, multifamily starts are up 38.2% and permits are up 18%.

As further evidence that multifamily builders are facing headwinds, the seasonally adjusted annual rate (SAAR) for multifamily completions plunged 18.1% from last month and 41.8% from last year to just 280,000 units, while at the same time the rate of units under construction edged up 1.4% to 701,000 multifamily units, its highest total since 1974.

Single-family homebuilders are facing the same industry headwinds for development with the addition of low inventory of developed lots. Single-family starts were unchanged from last month at 1.08 million units but are down 2.3% from September 2020. Building permits for single-family homes were also virtually unchanged (-0.9%) from August at 1.04 million units and were also down for the year (-7.1%). The number of single-family homes currently under construction is also elevated at 712,000 units, the most since the waning period of the housing bubble bust in 2007.

Together, total residential permits were down 7.7% from August to 1.589 million units and total residential starts were down 1.6% to 1.555 million units. Compared to one year ago, total residential permits were unchanged while total starts were up 7.4% due to the sharp increase in multifamily starts from September 2020.

The annual rate for multifamily permitting was up in three of the nation’s four Census regions, with the largest annual increase in the West (up 36.7% to 142,000 units). The Midwest’s annualized rate increased 29.8% to 79,000 units from last September while the South was up 24.6% to 223,000 units. The small Northeast region decreased 30.2% to 56,000 units. Compared to the previous month, all regions decreased, with the Northeast down 28.6% and the South and West down about 23% each. The Midwest region had a more modest decline in annual permitting from last month of 2.8%.

Regional annual multifamily starts were up significantly in the South (+72.2% to 201,000 units) and West (+64.4% to 136,000 units), while the Northeast region fell 8.4% from last year to 52,000 units started and the Midwest slipped 4.6% to 78,000 units. Compared to August’s pace, the South (-5.2%) and Northeast (-45.8%) regions declined while the Midwest (+6.8%) and West (+22.5%) had increases in multifamily starts.

At the metro level, nine of the top 10 permitting markets in September returned to the list from August with only the first two in order and several others changing places. New York continues to lead the nation in multifamily permitting with about 32,200 units but the market’s pace is continuing to slow. Austin again ranked #2 with 23,313 units permitted, an almost one-quarter gain from last year.

Dallas replaced Houston at #3 this month with 16,914 units permitted, an increase of more than 27% from 2020’s slower pace. Houston continues to slow its multifamily permitting despite ranking at #4 this month. More than 15,300 units were permitted in the year-ending September but that was a decline of nearly one-third from last year.

Seattle returned at #5 with about 14,600 units, up about 13% from the previous year, while Phoenix jumped up two spots to #6 with 14,238 units permitted, only an 8% gain over September 2020. Los Angeles ranked #7 this month with about 14,200 units permitted in the year-ending September, up about 10% annually.

Washington, DC and Denver each inched up a spot to #8 and #9 with 14,123 and 13,612 units permitted, respectively. DC grew by 36% annually, while permits in the Mile-High City were up more than 63% from last year. Last month’s #7 – Philadelphia – dropped out of the top 10 this month, replaced by Minneapolis-St. Paul at #10 with annual multifamily permitting of 13,507 units.

Eight of the top 10 multifamily permitting markets boosted annual totals from the year before and they were generally large increases, ranging from a low of 1,107 units in Phoenix to more than 5,200 additional units in Denver. Austin’s increase of almost 4,600 units was second only to Denver and was about 1,000 units more than in Dallas and Washington, DC’s increases over last year (around 3,600 to 3,700 additional units each). The remaining top 10 with increasing permitting averaged about 1,500 additional units permitted over last year’s totals.

Other markets outside of the top 10 that saw significant year-over-year increases in annual multifamily permitting in the year-ending September were Philadelphia (+7,954 units), Jacksonville, FL (+4,028 units), Charlotte (+3,493 units), Raleigh/Durham (+3,438 units), and San Antonio (+2,240 units).

Only two of the top markets saw decreases in the year-ending September 2021. Houston permitted almost 6,500 fewer units than last year and New York’s annual permitting fell by 5,363 units. Significant slowing in annual multifamily permitting also occurred in the non-top 10 markets of Cape Coral-Fort Meyers, FL (-2,972 units), San Jose (-2,714 units), Kansas City (-1,744 units), and Bridgeport, CT (-1,180 units).

Six of the top 10 markets had more annual multifamily permits than the previous month, with Dallas jumping almost 7% from August’s annual total. Phoenix, Washington, DC, Minneapolis-St. Paul and Denver were up an average of about 5% from last month, while Los Angeles improved only about 1%. Houston fell 11.6% from last month with Austin and New York retreating close to 7% from the previous month’s annual totals. Seattle slipped only 1.4%.

The annual total of multifamily permits issued in the top 10 metros – 172,036 – was about 7% more than the 160,754 issued in the previous 12 months. The total number of permits issued in the top 10 metros was almost equal to the number of permits issued for the #11 through #35 ranked metros.

All of last month’s top 10 permit-issuing places returned to this month’s list with five remaining in the same order. The list of top individual permitting places (cities, towns, boroughs, and unincorporated counties) generally includes the principal city of some of the most active metro areas.

The city of Austin returned as the #1 permit-issuing place with 12,235 units. However, that annual total was 1,329 units less than last month’s. The city-county of Nashville-Davidson and the city of Los Angeles returned in order, permitting 11,526 units and 10,850 units, respectively.

The city of Seattle replaced the city of Houston at #4 on the list with about 8,100 units permitted, a decrease of 1,039 units from August, while the cities of Denver and Houston came in at #5 and #6, permitting about 7,800 units for the year each. The borough of Brooklyn permitted almost 7,200 units for the year-ending September, ranking at #7.

Mecklenburg County (Charlotte) moved up to #8 from #10 last month with 6,378 units permitted, close to last month’s total. The city of Phoenix remained at #9 in September with almost 6,300 units permitted, while the Bronx borough slipped two spots to #10 with about 5,800 multifamily units permitted for the year.

Texas still dominates the list of permitting places with seven of the top 20 permit-issuing places, while no other state has more than two spots on the list. While the list of top markets for metro-level multifamily permitting generally saw increases over last month, only three place-level cities or counties had increased permitting from August’s annual totals.

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Source: Increasing Costs and Delays Hamper Multifamily Development

https://www.creconsult.net/market-trends/increasing-costs-and-delays-hamper-multifamily-development/

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