5 Key Trends Shaping the Rental Housing Market in 2024

As 2024 nears, the rental housing market grapples with challenges and opportunities in a fluctuating economic landscape, shaped by inflation and rising costs. Here are 5 key trends expected to influence the sector in the coming year.

1. Market stabilization: The rental market in 2024 is expected to continue the stabilization trend seen in 2023, following a period of high demand. However, this stability will not be uniform across all regions. Local market conditions, influenced by factors such as pandemic-era policies and economic circumstances, will lead to varied trends in different areas. This regional divergence is a critical trend to watch as it will dictate market strategies for housing providers.

2. Supply and demand: A significant trend in the rental market is the ongoing construction of new rental units, which is expected to balance and potentially lower rental rates. This influx addresses the longstanding issue of housing undersupply. However, a recent decline in construction permits suggests this increase in supply may not sustain, potentially leading to a quicker absorption of new units and a rise in demand. The future of supply dynamics remains a key factor in shaping the market.

3. Mortgage rates: With homeownership becoming increasingly unaffordable due to high mortgage rates and soaring property prices, more people are turning to renting. This shift has reinforced the rental market’s strength, making it a more attractive and financially feasible option for many. The gap between the costs of owning and renting is a major trend that will likely maintain the high demand for renters.

4. Economic uncertainties: Global economic challenges, including persistent inflation and geopolitical tensions, are impacting individuals' decisions regarding housing. Many are delaying home purchases, leading to increased demand for rental housing. This trend underscores the rental market's sensitivity to broader economic factors and highlights its role as a buffer in times of economic uncertainty.

5. Operational costs: Rental housing providers face increased pressure from rising operational costs, including interest rates and insurance premiums. Adapting to these financial pressures through effective insurance management, investments in property resilience, and leveraging AI for operational efficiency is becoming increasingly crucial.

➥ THE TAKEAWAY

Looking ahead: The rental housing industry stands as a resilient and essential player in the commercial real estate world, despite facing a mix of challenges and uncertainties. Supported by a robust job market and increasing wages, the industry is well-equipped to handle short-term pressures that may squeeze profit margins. As 2024 approaches, the sector is not just prepared to tackle forthcoming challenges but is also strategically positioned to seize new opportunities, further cementing its vital contribution to the overall economy.

 

Source: 5 Key Trends Shaping the Rental Housing Market in 2024

https://www.creconsult.net/market-trends/5-key-trends-shaping-the-rental-housing-market-in-2024/

Commercial Real Estate Prices to Remain Low for the Foreseeable Future

Property values might start rising up to two years following a sales activity rebound.

 

Commercial Real Estate Prices Unlikely to Reach a Bottom Any Time Soon

The U.S. commercial real estate market is facing a continued sales decline due to high-interest rates and investor caution. While some experts have called for a bottom soon, history tells a different story in property prices.

Where we are now: Investors are currently adopting a wait-and-see approach due to the uncertainty brought on by higher borrowing costs. This cautious stance has slowed down the price discovery process in commercial real estate. Historical patterns suggest that it may take time for sales activity to pick up and for prices to stabilize. CoStar's research delves into previous commercial real estate market downturns, providing insightful projections on the expected recovery timeline.

Office sector: Looking back at the 2007 downturn, office real estate transaction volumes peaked and then significantly declined, taking two years to hit a low. Despite a 63% increase in transaction volumes over the following two years, office prices per square foot continued to drop, indicating that increased transaction flows can exacerbate price declines.

Industrial and Retail sectors: Similar trends were observed in the industrial and retail sectors. The industrial market saw a 61% decrease in deal flow, followed by a significant increase in transactions but a continued decline in overall value. Retail properties experienced a recovery in transaction counts, but it took even longer for retail prices to reach their lowest point, demonstrating a lag between transaction recovery and price stabilization.

Multifamily resilience: The multifamily sector deviates from these patterns. Due to its short lease structures, this sector is more responsive to economic changes. In the last downturn, transaction volume slowdown and price declines in multifamily occurred simultaneously, with prices stabilizing much faster than in other sectors. This rapid adjustment could offer insights into the broader commercial real estate market's future trajectory.

➥ THE TAKEAWAY

Where is the bottom? The past may be a precedent. The current state of the commercial real estate market suggests that prices may not bottom out soon. Based on historical data, it could take up to two years after a rebound in sales activity for property values to start increasing. The multifamily sector's quicker response in past downturns might provide some clues, but overall, the market is likely to experience continued price adjustments in the near future.

Source: Commercial Real Estate Prices to Remain Low for the Foreseeable Future

https://www.creconsult.net/market-trends/commercial-real-estate-prices-to-remain-low-for-the-foreseeable-future/

Signals Emerge It's Prime Time to Invest in Multifamily

With strong fundamentals, new construction starts, and a sizable amount of capital on the sidelines, the multifamily sector is attracting the attention of eager investors.

'Enormous' Amount of Capital on Sidelines Means Now Is Time to Buy Multifamily

With strong fundamentals, new construction starts, and a sizable amount of capital on the sidelines, the multifamily sector is attracting the attention of eager investors, saying now is the time to start deploying capital.

Market dynamics: According to John Sebree, the senior vice president and national director of the Multi Housing Division at Marcus & Millichap, the market is seeing an occupancy surge, consistent rent growth, and a housing shortage. Over the recent years, there's been an influx of new market deliveries, although multifamily starts have decreased by more than 50% from Q4 2022 to Q3 2023. This has led to a minor spike in vacancy rates, but as new units get absorbed, an imminent scarcity will likely drive rents higher.

Capital on deck: Sebree emphasized the vast capital awaiting an opportune moment to re-enter the market. Quoting Lloyd Blankfein, he stressed that investors shouldn't wait for a market bottom signal but act proactively. With limited deals, he anticipates intensified competition as sidelined capital re-engages. For eager investors, Sebree advised determining their expected cap rates, hinting they'd likely be between 5.5 and 6 in the current market.

Shifting investor interest: Global investors are also considering a shift from the US office sector to residential properties. The American Federation of International Real Estate (AFIRE) predicts investors will increasingly focus on multifamily due to changing market dynamics and the allure of stable returns. This shift reflects growing optimism in the multifamily market and its potential for long-term growth.

➥ THE TAKEAWAY

New investment horizons: With high occupancy rates, robust rent growth, and the housing shortage, multifamily properties continue to provide stable returns. While challenges such as high interest rates and constrained debt markets persist, the significant amount of capital waiting on the sidelines offers an opening for eager investors to enter the market. As regional market preferences shift towards suburban areas, multifamily assets in these locations may present lucrative investment opportunities for those seeking long-term growth.

Source: Signals Emerge It’s Prime Time to Invest in Multifamily

https://www.creconsult.net/market-trends/signals-emerge-its-prime-time-to-invest-in-multifamily/

Grand Prairie 2nd

NEW LISTING: 4,408 SF Medical-Dental | Dallas-Fort Worth Market
eXp Commercial is pleased to present to the market a fully built-out, free-standing 4,408-square-foot medical/dental office building in Grand Prairie, Texas, centrally located 22 miles southwest of downtown Dallas and 26 miles southeast of downtown Fort Worth. Though the current use is for a dental office, the property is zoned PD267A (commercial development), allowing for a variety of medical and dental uses. The property is owner-occupied and will be vacated at closing, providing an ideal opportunity for another dental practice or any number of medical office users to utilize the property for their practice or an investor who works with medical office tenants to take advantage of an investment opportunity.
Listing Brokers:
Tyson Grona | tyson@tysongronagroup.com | 936.444.3635
Randolph Taylor | rtaylor@creconsult.net | 630.474.6441
https://properties.expcommercial.com/1253332-sale

A Look at Metro Cities Leading and Lagging in Apartment Rental Growth

National supply-demand imbalances in multifamily housing affect pricing, leading to varied rent changes in different metro areas over the year.

National imbalances in multifamily housing between supply and demand can influence pricing power, with certain metro areas experiencing either oversupply or undersupply. The differentiation in these areas impacts how much rents have shifted over the past year.

National overview: As per a new report from Yardi Matrix, a straightforward indicator of these imbalances is the year-over-year change in rent prices. On a national scale, single-family rents have decreased for the second month in a row, landing at $2,104, marking a 0.4% year-over-year growth. Occupancy, however, remains steady at 95.9%, indicating strong demand.

Leading metros for growth: Diving into metro-specific data, areas in the Northeast and Midwest showed strong growth, likely due to limited new constructions there compared to the Sun Belt and West. The top five metro areas witnessing the highest growth include New York City (5.6%), New Jersey (5.2%), Chicago (4.0%), Indianapolis (3.8%), and Kansas City (3.6%).

Metros with declines: On the flip side, metros in the Sun Belt and West experienced a decrease in rents. The bottom five metros, based on approximated data, were led by Seattle (with an estimated decline of around -4.7% or -4.8%), followed by Atlanta, Las Vegas, Phoenix, and ending again with Seattle's -2.5%.

Between the lines: When dissecting the data based on lifestyle and "renter-by-necessity," the top lifestyle regions were New York City, Kansas City, Chicago, New Jersey, and Boston. The most significant drops in this category were seen in Austin, Atlanta, Phoenix, Portland, and Nashville. In contrast, for renters-by-necessity, who typically have fewer choices, New Jersey led the growth, followed by Indianapolis, New York City, Chicago, and Miami.

➥ THE TAKEAWAY

Big picture: The world of renting isn't one-size-fits-all. Different cities are seeing shifting trends, and the whole picture can be complicated. While national averages provide a broader picture, dissecting the data by metro and renter type offers critical insights for investors. The pandemic's impact, coupled with shifts in capital seeking yield, has notably influenced the balance of supply and demand, particularly in lifestyle rentals.

Source: A Look at Metro Cities Leading and Lagging in Apartment Rental Growth

https://www.creconsult.net/market-trends/a-look-at-metro-cities-leading-and-lagging-in-apartment-rental-growth/

1120 E Ogden Ave

New Listing | Retail-Office For Sale Naperville IL
eXp Commercial is pleased to present to market 1120 E Ogden Avenue, a highly visible 10,860 square foot retail-office property on 1.26 acres in desirable affluent Naperville, Illinois, along the I-88 E-W corridor approximately 28 miles west of Chicago. The property is currently owner-occupied and will be fully vacated shortly after closing, with the seller seeking approximately 60 days of post-closing possession. Flexible B3 zoning allows for a number of retail and office uses, ideal for an investor, owner-user, or redevelopment of the property.
Listing Broker: Randolph Taylor | rtaylor@creconsult.net

https://www.creconsult.net/retail-office-for-sale-1120-e-ogden-ave-naperville-il-60563/

Multifamily's Complicated Supply Issue

The multifamily sector faces a complex supply challenge, with abundant ongoing development and varied implications across different locations and property types.

A Glut in Growth: Inside the Oversupply Problem in Multifamily Housing

The multifamily sector is experiencing a supply challenge, with an abundance of development in progress. However, this issue might not be as simplistic as it appears, with different implications based on location and property type.

Market segments: The impact of supply is not uniform, varying across low- to middle-income neighborhoods and wealthier suburban areas. Notably, affordable housing remains stable due to its long-term horizon and resilience against short-term market fluctuations. Rochelle Mills from Innovative Housing Opportunities indicates that public funds lend stability to this segment, with occupancy rates being consistently high.

Historical context: Jay Lybic of CoStar Group emphasizes that the current supply issue differs significantly from previous ones, particularly in terms of which market segments feel the impact. Unlike scenarios in the late 1990s, the present situation sees the “pain” of oversupply being mostly felt at the top end of the market, safeguarding the middle market to some extent due to a substantial price difference.

The demand: Despite high deliveries, long-term projections by institutions like the National Multifamily Housing Council estimate a requirement of 3.5 million new multifamily units over the next decade. Paul Fiorilla from Yardi Matrix notes that while the number of units under construction is substantial, rising rents — up 22% combined in 2021 and 2022 — indicate robust demand, as the market seeks to compensate for under-building following the global financial crisis.

Regional insights: The geographical aspect is pivotal in understanding supply and demand dynamics. While the Sunbelt is grappling with an oversupply, other areas, especially in the Midwest and Northeast, show stability or even a surge in their markets. The supply tends to be concentrated in rapidly growing markets like Austin and Phoenix, where population and job growth seek to balance the increasing housing units.

➥ THE TAKEAWAY

Big picture: Although oversupply poses short-term challenges, several experts predict the market will stabilize in the long run, as new units are gradually absorbed and demand stabilizes. Consequently, the forthcoming 12-18 months may be balanced as the market navigates through rent growth and stable investment options. Industry insiders like Jay Parsons suggest that a strategy centered around long-term views and patience will likely be rewarded, pointing to a potential equilibrium around 2025 when supply catches up.

Source: Multifamily’s Complicated Supply Issue

https://www.creconsult.net/market-trends/multifamilys-complicated-supply-issue/