Multifamily Forum Southeast

 

The Marcus & Millichap / IPA Multifamily Forum Southeast brings together the most active multifamily developers, investors, owners, and operators in the region to create a marketplace for learning, discovery, networking, and deal-making. The event will be held on Thursday, March 31, 2022, at the Loudermilk Convention Center in Atlanta, GA. Meet with our multifamily and financial advisors and discover how our unique combination of expertise and experience can help you achieve your investment goals.

 

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https://www.creconsult.net/market-trends/multifamily-forum-southeast/

State of Commercial Real Estate 2022

 

On Tuesday, Feb. 15, eXp Commercial hosted a free virtual seminar in the eXp Commercial Campus metaverse featuring founder and president of Red Shoe Economics, KC Conway as the keynote speaker. The 60-minute "State of the Commercial Real Estate Industry" seminar is open to all eXp Commercial agents and other interested parties. 

With more than three decades of experience as an economist, Conway will provide industry research, data, analytics, and economic insight on the complex and changing commercial real estate market.

 

 

About KC Conway:

Economist and Futurist Kiernan “KC” Conway, CCIM, CRE, MAI is the mind trust behind Red Shoe Economics, LLC, an independent economic forecasting and consulting firm furthering KC’s mission as The Red Shoe Economist by providing organic research initiatives, reporting, and insights on the impact of Economics within the commercial real estate industry.  A proud graduate of Emory University with more than 30 years experience as a lender, credit officer, appraiser, instructor, and economist; KC is recognized for accurately forecasting real estate trends and ever-changing influences on markets all across the United States. With credentials from the CCIM Institute, Counselors of Real Estate, and the Appraisal Institute, KC currently serves as Chief Economist of the CCIM Institute and as an Independent Director for Monmouth REIT MNR. A gifted and prolific speaker KC has made more than 850 presentations to industry, regulatory and academic organizations in the last decade, and has been published in many national and regional newspapers and journals with frequent contributions to radio and television programming.

 

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https://www.creconsult.net/market-trends/state-of-commercial-real-estate-2022/

CNBC Features Marcus & Millichap CEO Hessam Nadji Commercial Real Estate Gathers Momentum

 

CNBC Features Marcus & Millichap CEO Hessam Nadji

 

Commercial Real Estate Gathers Momentum; Performance Gap Widens by Property Type

 

Why Broad-based Recovery Should Continue in 2022

Latest Perspective on the Office Sector, Suburban vs. Urban Outlook

Potential Risks and Headwinds

 

 

 

 

https://www.creconsult.net/market-trends/cnbc-features-marcus-millichap-ceo-hessam-nadji-commercial-real-estate-gathers-momentum/

Why Aren't There Any Vacant Apartments?

 

Apartment occupancy in the U.S. has hit an all-time high, meaning anyone looking for a new place is going to have a rough time of it.

Fully 97.5% of professionally managed apartment units are spoken for as of December, the highest figure on record, according to data from the property management software company RealPage. That’s more than 2 percentage points higher than the occupancy rate in December 2020, a difference that represents hundreds of thousands of households.

“I don’t think most people realize just how crazy that is,” says Jay Parsons, deputy chief economist for RealPage. “Not only is that a record, typically we consider 95 to 96% to be essentially full.”

But for most tenants, there may be a silver lining to the lack of options. Rents for available apartments have seen record increases over the last year, yet the occupancy rates suggest that most renters aren’t paying those prices.

High occupancy rates leave little margin for renters who need to relocate for jobs, education or other reasons. Winter is the shoulder season when it comes to these moves: Families typically settle in for the cold, the holidays, and the school year, then upend their lives over the summer. (The same seasonal pattern applies to forced exits through evictions.) In 2021, however, the occupancy rate rose steadily throughout the year, without the typical seasonal variation — another quirk of the pandemic.

Such low vacancy levels reflect a historically high number of renters renewing their leases. The lack of churn means that people hunting for new homes have fewer options. Apartments may be put on the market and leased before tenants leave the unit: “Clean, prep, paint, change the carpet, and get the next person in,” Parsons says.

Abnormal is the pandemic normal, of course. Rents for market-rate apartments cratered during the first year of the pandemic as some residents decamped from cities (and, more importantly, new renters didn’t move in to replace them). Rents fell furthest in high-cost cities but also dipped in the suburbs of New York, Los Angeles, San Francisco, and a few other places. This plunge led building owners to offer huge discounts and concessions to try to lure renters — followed by steep double-digit rent hikes in 2021 as tenants finally returned to those buildings.

It’s not just the large apartment buildings in major metros that are experiencing big swings in rental trends. Rental homes and apartments across the U.S. are witnessing the lowest vacancy rates in nearly 40 years. People just aren’t moving: Despite the scramble in spring 2020 following the arrival of the pandemic and the countless stories of Covid-fueled migration patterns, a record low number of households moved between March 2020 and March 2021, according to a report by the

Pew Research Center

.

For tenants who already signed a lease or never left in the first place, spikes in rent listings might not affect them much. Landlords face a loss on paper when it comes to filling units, known in the industry as loss to lease. This is the difference between the advertised rent and what renters actually pay. An apartment building owner in Dallas might list a vacant unit at $200 higher than what the renter down the hall is paying. Property owners want to narrow this gap, and in a tight market, they have more leverage. Yet that same Dallas landlord marking up vacant units might not want to risk maxing out a current tenant’s rent when their lease comes due. It’s easier and more cost-efficient to keep them in place paying a less-than-maximum rent than to search for a new tenant. Very few apartment operators are going to move a household up to full price, Parsons says. Keeping a paying tenant in place is a high priority, especially after the chaos of the last two years.“When you send a renewal notice, 90 days out, there’s a lot of uncertainty. Especially in the Covid era, so much could change,” Parsons says. “There’s a real risk that we could have another economic challenge. There’s a balance of a higher chance of collecting revenue in an occupied unit versus a chance of zero revenue. Do you want to roll the dice?”

Rents are rising, and the discounts and concessions of 2020 are likely a thing of the past. Moreover, demand for housing continues to outpace the supply. In this specific moment, with omicron surging and rental chaos a recent memory, many landlords will stick with their current tenants. No matter: The housing shortage is so severe that property owners likely don’t need to charge max rents to make a bundle.

End Google Tag Manager

Families that do need to move right now face tough choices — or rather, fewer choices.

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Source: Why Aren’t There Any Vacant Apartments?

https://www.creconsult.net/market-trends/why-arent-there-any-vacant-apartments/

Inflation: Why prices will keep soaring in 2022

 

Prices have climbed so high it will take some time for them to come back down to earth. In other words, the uncomfortable inflation numbers of 2021 will likely stay with us well into the New Year.

The most recent price data we have is from November when two of the most-watched inflation measures — the consumer price index and the personal consumption expenditure index — each climbed to a 39-year high.

The latter index is what the Federal Reserve pays the most attention to when assessing the nation's inflation.

There's some room for optimism: The central bank, which is tasked with keeping prices stable, is rolling back its pandemic stimulus and is expected to raise interest rates next year to tame inflation and stop the economy from overheating.

And last month's data actually showed that prices increased at a slower rate in November than in October for both the

CPI

and the PCE indices. That's good news, even though the slowdown was small at only 0.1 percentage points.

But here's the thing: Economists prefer to look at price movements over a period of time, usually 12 months. So a small slowdown like November's won't move the needle just yet.

In fact, it might take months for these incremental slowdowns to show up in the data. After a year of prices soaring on high demand and supply chain chaos, a lot of big numbers are baked into the 12-month data set. Even if inflation suddenly falls off a cliff, it would take time for the leading indices to reflect that. This is what Fed Chair Jerome Powell is talking about when he mentions "base effects."

Why will inflation remain high?

Several factors are keeping prices elevated. One is the supply chain chaos that came to a head last summer. Even though some bottlenecks have eased, the issues are not fully resolved. And as long as it's more expensive — and takes more time — to move goods around the world, higher transport costs will likely be passed down to consumers.

Another big contributor is the high cost of commodity prices, leading to surging energy and food costs. Prices in both sectors have soared this year and added a good chunk to the inflation we have already seen. In the case of food, high prices have forced some consumers to buy less or switch stores.

Economists don't expect that to get any better next year. Aside from high demand and shipping costs, rising prices for fertilizer and continued bad weather could keep food prices high even as other pandemic fueled inflation pressures ease.

Rising rents also remain a concern. This is important because housing represents a big percentage of what people spend money on. If rents eat up a bigger piece of the pie, consumers might wind up spending less, which would be bad news for the recovery.

In November, rent rose 0.4% for the third month in a row, according to economists at Bank of America, and that points to higher and more persistent inflation going forward.

The "recent broadening of inflationary pressure has coincided with a notable pickup in rental inflation," said Peter B. McCrory, economist at JPMorgan, "which jumped to its highest monthly rate in 20 years in the September CPI report and has stayed firm since then."

And then there's Omicron.

Several countries, including the United States, have seen record-high Covid-19 infections in recent weeks because of the rapidly spreading variant. If this leads to a new round of lockdowns, it could once again change the way consumers spend and boost demand for stay-at-home goods.

Perhaps more importantly, Omicron could impact energy prices: If restrictions return and people travel less, the lowered energy demand would mean prices ease, and that would help bring inflation back down.

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Source: Inflation: Why prices will keep soaring in 2022

https://www.creconsult.net/market-trends/inflation-why-prices-will-keep-soaring-in-2022/

Sticker Shock Coming for Renters Receiving Concessions

Fannie Mae forecasted that concessions will decline throughout 2022, returning to more normalized levels by the end of the year.

The multifamily sector has experienced the effects of an increase in pent-up demand this past year, resulting in higher-than-average asking rents as well as concessions, depending on the type of apartment and its location.

Class A concessions peaked in March at 9.9% and have been falling since, but they remain elevated at 9.2% as of October due to competing new supply entering many local submarkets.

Those renters who have received concessions might find their benefits fleeting in 2022 though. Discounted rent from the concessions is only good for a short period of time (typically anywhere from the first month or so of free rent to discounted rent over the period of the lease).

So, this suggests that there might be a form of “sticker shock” at the end of the lease term for many tenants. That is when the new rent increase will be based on the full amount of the rent, prior to the discount resulting from the concession, according to a report from Fannie Mae, supplemented by data from RealPage.

Renewals Likely Absent of More Concessions

It may be that some tenants are expecting another round of concessions to offset that increase, but whether that materializes remains to be seen. Although the national concession rate remains elevated, fewer units are offering concessions.

That trend is expected to continue over the coming months. And as seen in the case of Class C units—the most affordable units in a location—the declining trend in concessions offered has recently started accelerating, most likely due to the improving economy and increased job growth.

As a result, Fannie Mae expects that concessions will continue decreasing, particularly for Class B and C units. It expects that the trend trajectory for Class A units will lag slightly behind, as new supply delivers over the next several quarters.

“But with the economy expected to continue and rental housing demand remaining firmly in place, we believe that concessions will decline throughout 2022, returning to more normalized levels by the end of the year,” according to Fannie Mae’s report.

Classes B and C Not Immune to Discounts

Class B concessions ended 2019 at 5.5% but recently peaked at 8.1% during the summer of 2021.

Class C began 2020 at 5.4%, and while it surpassed Class B during the earlier part of 2021, it has now begun to trend downward, to 6.6% as of October 2021.

Typically, when Class A demand softens, some tenants use the opportunity to rent more expensive units with better amenities, given that rents for these higher-quality units are now within their reach. However, the reverse happens infrequently: Tenants tend to not move back into lower quality units when those rents fall.

So, as Class A rents declined and concessions rose, a similar trend occurred with Class B and C units. And now that Class B and C concession rates are trending downward, that suggests that demand is increasing, likely keeping asking rent levels elevated.

Concessions Higher in Expensive Markets 

Although approximately 430,000 new apartment units may be completed in 2021, these units are not evenly distributed on a national basis. As has been the case for the past several years, much of the new apartment supply is concentrated in specific submarkets in approximately 12 metropolitan areas.

For instance, while Dallas, Orlando, Phoenix, and Houston all have a lot of new supply underway, their concession rates remain lower than those in the more expensive metros of New York, San Francisco, Miami, Boston, and Washington, D.C.—all of which have much higher asking rent levels, thus necessitating higher concession rates.

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Source: Sticker Shock Coming for Renters Receiving Concessions

https://www.creconsult.net/market-trends/sticker-shock-coming-for-renters-receiving-concessions/

Expect still more uncertainty in commercial real estate this year

PHOTO BY DEBBY HUDSON ON UNSPLASH

While it’s true that real estate is generally one of the most reliable markets for investment, it’s also a fact that the industry runs on cycles. The COVID-19 pandemic accelerated and even upended many of those cycles. Even now, nearly two years after it took hold in the United States, the pandemic continues to have a see-saw effect on markets.

Consider the industrial sector’s upward trajectory in relation to retail’s brick-and-mortar downturn. This inverse relationship resulted from the accelerated adoption of e-commerce, which was accelerated by the pandemic. The commercial office market has taken a hit in urban centers, but suburban office leases are on an upward swing. Hospitality is beginning to come back to life after a prolonged slowdown. But now the industry is reeling from a labor shortage.

The pandemic is not the only factor that is driving rapid change, of course. Multifamily housing continues to surge, thanks in part to a lack of single-family housing stock. The cost of living and discontent are also prompting people to rethink where they live and work. Population shifts are disrupting long-standing real estate investment strategies across geographical boundaries.

In short, 2021 was a year of flux, and 2022 looks to promise more of the same. So how can investors, developers, owners, and buyers prepare? Here are the trends to watch in the coming year:

A return to the ‘burbs: Generous work-from-home policies, cost-of-living considerations, and social unrest are fueling a shift from urban centers to the suburbs. Likewise, the success of remote-work arrangements has many commercial office occupiers rethinking just how much space they really need – and where it’s located. For now, suburban rings and smaller cities are the best bet for stability and investment opportunity.

The great migration: The migration of people isn’t limited to the urban/suburban divide. People are also moving away from the coasts and across state lines in search of lower-tax communities where their dollars will go farther. This movement will have far-reaching implications across all real-estate sectors, from housing to industrial to hospitality.

Housing demand: A lack of housing stock, soaring housing prices and the movement away from the urban core means multifamily housing should remain strong in 2022, particularly in suburban and rural communities. However, a buyer’s market may be around the corner. As housing inventory increases, prices should come down and the demand for multifamily housing may likely level off over time. Expect to see a shift occur in late 2022 or early 2023.

Evolving consumer behaviors: Even as people talk about a return to pre-pandemic normal, some things may never be the same – including retail shopping. E-commerce adoption by U.S. households skyrocketed during the early months of the pandemic. Now consumers have become accustomed to the convenience of on-demand delivery. It’s no surprise, then, that retail will probably see anemic growth while the industrial and logistics sector will flourish in the coming year.

Workforce challenges: The COVID-19 pandemic has reshuffled the workforce in ways that could not be anticipated last year. The hospitality sector was particularly hard hit as millions dropped out of the workforce or found work in other sectors that offered more stability. Now, as people return to traveling, the industry is scrambling to find enough help. This staffing shortage may depress growth until more people re-enter the workforce.

Tax changes: Tax hikes appear to be on the horizon in the form of the Build Back Better Act. Owners, developers and investors will need to wait until a final bill is voted on before making long-term investment decisions. The good news? Many of the strategies that have been used in the past to defer tax liabilities will likely be available going forward.

Accelerated technology adoption: Technology services and solutions are rewriting how the real estate industry does business – and not just in terms of bridging the home and office environments. The ease of working with and for a company is emerging as a deciding factor in winning over clients and talent. Stakeholders will need to invest in a strategic digital transformation plan if they want to keep pace with stakeholder expectations. Digital capabilities will also be key to managing data and predicting outcomes – both of which will be necessary in this dynamic landscape.

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Source: Expect still more uncertainty in commercial real estate this year

https://www.creconsult.net/market-trends/expect-still-more-uncertainty-in-commercial-real-estate-this-year/