CRE Markets Poised for Growth in 2024

CRE Markets are poised for Growth in 2024

Distress in the commercial real estate market has bottomed out, and conditions will soon be on the upswing as more investors from the private equity world seize opportunities to jump into the space, according to Newmark (NMRK) CEO Barry Gosin.

“I think the good news is that we’re at the point where I don’t think it’s going to get worse, and sequentially, it’s going to get better,” Gosin said Tuesday during the Real Estate Board of New York’s (REBNY) annual commercial brokerage holiday luncheon at the Metropolitan Club in Manhattan. “I’m fairly optimistic about the next couple of years.”

Gosin said in the keynote interview, moderated by Cathy Cunningham, executive editor at Commercial Observer, that the commercial real estate market is poised for improvements as more understanding is reached on the future of cap rates after the Federal Reserve raised interest rates by nearly 300 basis points to fight inflation. While property owners have lost 40 to 50 percent of the equity in their investments as a result of the Fed’s policies and $800 billion of loans are due over the next two years, Gosin stressed that the CRE markets are close to gaining more clarity on future valuations.

The market environment is paving the way for new investors to emerge in the CRE space, according to Gosin, especially among private equity firms, given the decreasing amount of lending from banks in the past 18 months.

“It will be really mercenary money, and it will be expensive money, but it will take some time to develop,” Gosin said. “They are just waiting for the moment, and I think the moment is pretty close.”

With individual CRE markets, Gosin said he feels positive about the future of San Francisco despite having lower office occupancy than other large cities. He added that New York is also well positioned for a bounceback with its "middle-of-the-pack" metrics with occupancy and vacancies.

“There is no city that has the energy of New York,” said Gosin, a Brooklyn native. “There is nothing like this city."

The dislocation in the CRE debt markets has been felt even with a successful brokerage like Newmark, where capital markets business is down 60 percent, Gosin said. However, the firm has found other ways to stand out amid the volatility, including increased leasing volume.

Newmark has a “talent first” mentality and added investment sales giants Doug Harmon and Adam Spies along with their team from Cushman & Wakefield last February. The firm was selected by the Federal Deposit Insurance Corporation shortly thereafter to sell roughly $60 billion of loans from Signature Bank after the bank’s March failure.

As the year draws to a close, Gosin said he is bullish on 2024 for not only Newmark but also the CRE market as a whole.

“In a weird way, if the cap rates go higher, the next run will be longer,” Gosin said. “We just have to live through the period of uncertainty, which we’re in, but in my view, I think it’s over."

While he has encountered a myriad of market challenges throughout his lengthy CRE career, Gosin stressed that brokers can persevere through any cycle by working hard and building relationships. He recalled the stock market crash of Oct. 19, 1987, and how his team needed to adjust their plans based on the drastically new economic conditions that resulted.

When asked by Cunningham what the best holiday gift CRE could receive this year would be, Gosin answered “lower interest rates.”

 

Source: CRE Markets Poised for Growth in 2024

https://www.creconsult.net/market-trends/cre-markets-poised-for-growth-in-2024/

2024 Apartment Forecast: Strong Fundamentals Despite Twists & Turns

2024 Apartment Forecast: Strong Fundamentals Despite Twists & Turns Despite concerns about uncertainties and a potential recession, the 2024 forecast for the rental market shows robust fundamentals for multifamily.

Supply surge predictions: The number of new multifamily apartment units under construction reached a record 1M in late 2023. Origin Investments predicts a slowdown in new starts next year due to a lack of funding and ongoing uncertainties. Yardi Matrix analysis also aligns with this prediction.

Rent growth outlook: Rent growth, which cooled due to easing demand and rising supply, is expected to recover slightly in 2024 but remain in the low single digits. Negative rent growth is projected to return to the historic norm within a 2–4% range by 2H24, similar to 2022 levels.

Homeownership barriers: Systemic barriers to homeownership, such as high prices and spiking mortgage rates, contribute to the long-term renter trend. Few buyers can afford homes and existing owners are reluctant to sell. Consensus expectations suggest mortgage rates will ease in 2024 but won't significantly impact the for-sale market.

➥ THE TAKEAWAY

New realities and opportunities: Next year’s apartment forecasts reveal new realities and new opportunities. Hybrid work, driven by the pandemic, will become the new normal, creating demand for rentals that accommodate flexible work-life balance. And insurance, which shot up in 2022 due to natural disasters, may stay high. Despite this, ongoing opportunities and potential returns, particularly in senior debt and preferred equity, are attracting plenty of attention.

https://www.creconsult.net/market-trends/2024-apartment-forecast-strong-fundamentals-despite-twists-turns/

Will the Commercial Market Hit the Reset Button in 2024?

Will the Commercial Market Hit the Reset Button in 2024?

As the real estate market adjusts to new norms in a post-pandemic world, the commercial and investment property sectors are shifting. A retail rebound, changing investor sentiment about climate risks, and eroding affordability are among the top trends commercial real estate professionals are contending with, according to the “Emerging Trends in Real Estate 2024” report from the Urban Land Institute and PwC.

“It is clear that the real estate industry is entering a new era of thinking, building, and operating,” says Anita Kramer, senior vice president of ULI’s Center for Real Estate Economics and Capital Markets. “The emergence of hybrid work models, the strength of the retail sector, and the growth of Sun Belt markets underscore the new reality on the ground, specifically in our top cities—Nashville, Phoenix, Dallas/Fort Worth, Atlanta, and Austin—to watch in 2024.”

The report also cautions about a slowdown in development and investment prospects heading into 2024. “Industry professionals are at a turnkey moment that will require both innovation and adaption to shape a resilient real estate landscape for the future,” Kramer says. Labeling it “The Great Reset” in real estate, ULI and PwC’s report notes some of the following “emerging trends” to watch in 2024.

1. The retail rebound. Demand for retail property has skyrocketed over the past 18 months, with about 35 million square feet of new retail space in the U.S. across all shopping center types. “The industry is coming to realize that the nation will keep shopping for most of its goods and many services in shopping centers indefinitely, even if e-commerce continues to take market share away from in-store retailers,” the report notes. Retail has strengthened as an investor preference compared to recent years, when it was deemed one of the most troubled asset types. The suburbs remain an attraction for retail investors, and grocery-anchored community or neighborhood shopping centers account for 25% of the nation’s retail inventory.
2. Hybrid work isn’t going anywhere. Office employees are showing their preference for a hybrid work setting, a mix between remote and in-person. As such, office buildings are losing their appeal with investors; transactions have fallen more than twice as much as any other major property type. Industry experts are growing concerned about what to do with the high vacancies in office buildings, turning to adaptive reuse or even demolishing and repurposing the land when buildings can’t be used as conversions.
3. Sunny prospects in the Sun Belt. The southern part of the U.S. has emerged as a magnet for growth. Firms and investors are being drawn to the region due to lower regulations, lower taxes, and a growing labor force. The ULI and PwC report notes that the majority of cities on its “markets to watch” list with the best real estate prospects in 2024 are located in the Sun Belt. Industry experts expect many areas in the Sun Belt to continue to see growth due to ongoing, robust migration trends. However, the report cautions that rising risks from climate change, such as excessive heat, could eventually affect the trend of positive investment in the area.
4. Debt comes to the forefront. “Rapidly rising federal debt could potentially ‘crowd out’ private investments in the industry, leading to slower economic growth and higher interest rates, both of which would create long-term delays on property construction, investments, and returns,” the report warns. Credit has become more expensive and more difficult to get. Still, despite the lack of credit availability, “some investors are cautiously pursuing deals and lining up to take advantage of undervalued assets. The industry is seeing its highest ‘buy’ rating since 2010, signaling a favorable entry point for acquisitions after a decade of unabated appreciation.”
5. AI advancements get CRE’s attention. Artificial intelligence will receive plenty of buzz in 2023. But CRE applications were “limited” and “most mundane to date,” the report notes. However, industry experts expect that to change, with greater applications starting to emerge that aim to enhance the property search and analysis process, reshape how investors assess potential investments, improve the customer experience, and provide greater fraud detection in real estate transactions. The report also points to the potential for AI to predict property climate risks, identify investment opportunities, and create higher-performing real estate portfolios. Expect greater offerings and experimentation with AI in the 2024 commercial market, the report notes.
6. Climate change becomes a pressing concern. Billion-dollar climate events in the U.S. are rising, which has led to government regulations and proposed ESG mandates. “Property owners and managers have more reasons than ever to make ESG a priority,” the report notes. Developments may need to be repositioned to spotlight their sustainability, and more buildings will likely need to be retrofitted. “Not every building will be converted; some assets will simply become obsolete and need to be demolished,” the report also notes. In those cases, developers and architects are exploring the design for “disassembly,” which allows for the easy recovery of products, parts, and materials when a building is disassembled or renovated.
7. Downtowns are poised for another reinvention. Urban economists are debating the future of downtowns and how economic forces have been hampering these once-bustling business hubs. Concerns are growing about an “urban doom loop,” as empty office buildings have been left behind in urban cores after employers relocated to the suburbs or downsized their office spaces. This has also led to a decrease in tax revenues, forcing cities to reduce services and possibly stall future commercial and residential growth. The report says downtowns likely will need to be redeveloped, as they have in the past, and focus on building up their “live/work/play” allure to compete with the growth in the suburbs. This may include the conversion of empty office buildings, addressing public transit deficiencies, and “third places”—community spaces where people congregate.
8. Housing affordability deteriorates. Like the residential market, affordability also continues to be a top challenge for the commercial sector. The U.S. has experienced the fastest-ever deterioration in real estate affordability over the past three years as housing prices soared during the pandemic. Further, mortgage rates have more than doubled in a short time. “After sharp rent escalations last year, rent growth has eased for now due to large supply deliveries but is expected to resume,” the report notes. “One answer has stood out to solve the affordability crisis: build more housing—preferably at all price points.”

Source: Will the Commercial Market Hit the Reset Button in 2024?

https://www.creconsult.net/market-trends/will-the-commercial-market-hit-the-reset-button-in-2024/

Miami Tops U.S. Hottest Markets, but the Midwest Heats Up the Competition

Miami Tops U.S. Hottest Markets, but the Midwest Heats Up the Competition

In 2023, the Midwest emerged as the most competitive rental market in the U.S., with three cities in the top five, driven by its affordability, ample space for remote work, and easy access to nature. But Miami still leads the nation.

Factors at play: The Rental Competitivity Index (RCI), developed by RentCafe, is used to gauge the competitiveness of rental markets, incorporating five key metrics: the duration of apartment vacancies, occupancy percentages, the number of renters vying for apartments, lease renewal rates, and the annual completion rate of new apartments. In 2023, the national average RCI was 59.5, but significantly higher in the most competitive markets.

America's heartland: Favored by remote workers for its affordability and space, the Midwest became the hottest region in 2023. High lease renewal rates intensified competition, with the Midwest boasting 10 cities in the top 30 most competitive markets. Leading the Midwest, Milwaukee was the third most competitive nationally, with an RCI score of 113. With most of its population renting and less than 5% of apartments available, finding a rental in Milwaukee was particularly challenging, as apartments stayed on the market for only 33 days, attracting about 14 renters per unit.

Magic in Miami: While the Midwest had the highest number of competitive cities, Miami ranked as the #1 most competitive U.S. rental market with an RCI score of 122. High demand, fueled by job opportunities and no income tax, coupled with locals buying condos, strained rental supply. A 71.2% lease renewal rate led to fierce competition, with 22 applicants per vacancy, twice the national average. North Jersey followed as the second hottest market, with an RCI of 116, appealing to Millennials seeking affordability near NYC.

Small-town living: In 2023, small-town rental markets were also intensely competitive, with Fayetteville, AR, and Providence, RI, leading the charge. Fayetteville, boosted by its university and startup focus, had a 97.2% occupancy rate, and apartments were quickly occupied within 18 days, despite a 2.3% increase in housing. Providence, a popular choice for relocators, faced a severe housing shortage with no new constructions, a 96.6% occupancy rate, and apartments filling up in 35 days, attracting 17 applicants each.

➥ THE TAKEAWAY

Zooming out: The 2023 U.S. rental market saw the Midwest becoming the most competitive region, led by three top-ranking cities, in contrast to a general softening in other areas. Miami emerged as the hottest rental market due to its thriving tech scene and favorable business climate. The RentCafe report revealed a trend of increasing apartment constructions and evolving lease renewal behaviors, highlighting diverse regional rental market dynamics and trends.

https://www.creconsult.net/market-trends/miami-tops-u-s-hottest-markets-but-the-midwest-heats-up-the-competition/

Another boon to the multifamily market: As housing becomes more expensive, more are making the move to the renting lifestyle

Another boon to the multifamily market: As housing becomes more expensive, more are making the move to the renting lifestyle

Not only are more people renting today, but more are doing this by choice. The reason? Housing prices and interest rates are making owning a single-family home more expensive than ever. And many consumers are choosing to avoid these costs by renting instead of buying.

That’s one of the key findings from a new survey by investment and management firm Knightvest. Knightvest conducted its poll from Nov. 20 to 30, surveying more than 4,100 U.S. apartment renters.

One of the more surprising results? A resounding 59% of respondents said that they chose to rent. Of course, that also means that 41% told Knighvest that they feel compelled to rent because of the prohibitive cost of homeownership. Breaking it down further, 51% of Millennials and 54% of Gen Z said that they willingly embrace the rental lifestyle.

2023 Knightvest Multifamily Renter Sentiment Report Infographic

The top three reasons for renting given by survey respondents are:

• The ever-increasing expense of homeownership (acknowledged by 62% of respondents)
• The allure of reduced maintenance and repair duties (claimed by 51%)
• And the flexibility to uproot and relocate at will (a factor of 35%).

In a surprising twist, 31% of renters express either ambivalence or disinterest in homeownership altogether.

“The decision between renting and buying has become increasingly nuanced within this dynamic macroeconomic environment,” said David Moore, founder and chief executive officer of Knightvest. “It’s intriguing to see our data align with the anecdotes we hear from residents. When communities are built on quality, service, and care, apartments transform into coveted havens where residents not only live but thrive across various stages of life.”

Another interesting fact? A total of 29% of renters surveyed said that they had owned a home in the past. Among Baby Boomers in the rental sphere, a substantial 71% have previously owned a home, with their decision to move to renting attributed to the appeal of fewer maintenance hassles.

The survey found that Gen Z is slightly more enthusiastic about homeownership than their Millennial counterparts, with 29% of the younger generation saying that they are enthused about owning a home, while only 25% of Millennials said the same.

The survey also highlights how difficult it is to buy a home today, with 74% of respondents admitting that their dream of homeownership has been pushed further away by the rise in mortgage interest rates. Of this group, 79% reveal that their homeownership timeline has elongated by several years or indefinitely.

How much money do different generations think they need to own a home? According to Knightvest’s survey, Millennials say that they need a yearly income of $139,000 to afford a home today, while Gen Z follows closely with a reported requirement of $137,000.

 

Source: Another boon to the multifamily market: As housing becomes more expensive, more are making the move to the renting lifestyle

https://www.creconsult.net/market-trends/another-boon-to-the-multifamily-market-as-housing-becomes-more-expensive-more-are-making-the-move-to-the-renting-lifestyle/

Multifamily update? Zumper releases 2023 annual rent report, makes 2024 predictions

Multifamily update? Zumper releases 2023 annual rent report and makes 2024 predictions

Yesterday, Zumper published its Annual Rent Report for 2023 which draws on the past year of data, knowledge of economic trends, Zumper surveys, internal data on renter search, and ongoing conversations with clients, experts, and others in the industry. All of this information offers a comprehensive view of the last year and a look at what’s to come in 2024.

Key Themes and Findings

There’s been a seismic shift in attitudes towards renting versus buying a home. Thanks to sky-high interest rates, an uncertain economic climate, changing priorities, and ongoing hybrid- and remote-work policies, consumer sentiment towards home ownership is at an all-time low. For the second year in a row, more than half of renters believe “the new American dream is being untethered to home ownership.” And more than 69 percent of renters said rising interest rates have deterred them from buying or looking into buying a home.

The national rent rate for a one-bedroom apartment is down year-over-year. At $1,496, the national one-bedroom median is down year-over-year by a tenth of a percent. This is a striking statistic, since year-over-year increases are typically a key barometer of healthy growth. The only other time Zumper reported negative year-over-year growth was during the pandemic.

The rental market strikes a more balanced relationship between supply and demand. While migration numbers settle down following a flurry of pandemic-era relocations, there is also a record number of new multifamily buildings coming online in many markets, which will help absorb demand from people opting out of buying a home.

Renters who move into a new home over the next six months will have more bargaining power. Property owners and managers are feeling the pressure, especially to lease up new builds. They’ll continue to offer concessions and move-in deals, which is reflected in the data, as there has been a 17 percent increase in listings offering deals on the platform since this summer.

Prices continue to decrease in many Sun Belt cities in a prolonged correction of drastic pandemic-era price hikes. This trend is most pronounced in some of the pandemic’s most popular Zoomtowns, including Miami, Phoenix, and Austin. Occupancy rates are declining in these areas, and prices will continue to fall as operators make concessions in an attempt to fill new buildings.

Several cities in the Intermountain region are nearing oversupply. Denver, Las Vegas, and Salt Lake City are also seeing record numbers of new supplies come to market, and we expect prices in these markets to fall more quickly than the national average. New developments in these cities also lean heavily towards luxury, which means 2024 will be a good time for renters to snag a deal on an amenity-rich apartment that may have been previously out of reach.

New York City will remain the most expensive and sought-after rental market. The city’s ongoing popularity and low supply will continue to spill over into neighboring areas as well. Last year, Zumper predicted Jersey City would be a city to watch. That metro has held steady as the number two city throughout 2023 and is in the midst of an ongoing construction boom.

 

Source: Multifamily update? Zumper releases 2023 annual rent report, makes 2024 predictions

https://www.creconsult.net/market-trends/multifamily-update-zumper-releases-2023-annual-rent-report-makes-2024-predictions/

Unlocking Value: eXp Commercial and Taxonics Partner to Optimize Your Commercial Property Tax Strategy

Unlocking Value: eXp Commercial and Taxonics Partner to Optimize Your Commercial Property Tax Strategy

Navigating the complexities of commercial property taxes can be a daunting task for even the most seasoned investor. Overvalued assessments, opaque regulations, and ever-changing deadlines can quickly drain your bottom line and hinder your property's potential. At eXp Commercial, we understand the challenges you face, and we're committed to equipping you with the tools and expertise to optimize your property tax strategy and maximize your investment's value.

That's why we're thrilled to announce our partnership with Taxonics, a leading national platform for professional and cost-effective property tax management. More than just tax processors, Taxonics is a team of seasoned real estate tax specialists who leverage cutting-edge technology and comprehensive data analysis to deliver a data-driven approach to your tax needs.

Here's how Taxonics can empower your commercial property portfolio:

• Expert Assessment Analysis: Taxonics meticulously reviews your property assessments, identifying potential overvaluations and uncovering inconsistencies that could lead to unfair tax burdens. Their proven methodologies and deep understanding of local tax landscapes significantly increase your chances of securing a fair and accurate valuation.
• Proactive Tax Appeal Strategies: When overvaluations are identified, Taxonics doesn't just point them out – they take action. Their team of experienced professionals crafts and executes strategic tax appeal strategies, working tirelessly to ensure you receive a fair assessment and optimized tax bill.
• Enhanced Transparency and Control: Gain complete control over your property tax management with Taxonics' secure online platform. Access detailed assessment data, key deadlines, and communication history 24/7, enabling informed decision-making and proactive oversight of your tax obligations.
• Unleashing Cash Flow and Boosting Property Value: By minimizing your tax burden, you free up valuable resources that can be reinvested into your property, boosting its profitability and attractiveness to potential investors. This translates to a higher appraised value and a more competitive asset in the market.
• National Reach, Local Expertise: No matter your portfolio's size or geographic footprint, Taxonics' extensive network and deep local knowledge ensure seamless and effective service. Their team is intimately familiar with the nuances of local tax codes and assessment practices, ensuring you receive the most advantageous solutions wherever your properties reside.

eXp Commercial and Taxonics – A Partnership for Growth:

Our partnership reflects a shared commitment to empowering commercial property investors with the tools and expertise they need to maximize their returns and achieve their investment goals. By leveraging Taxonics' comprehensive suite of services, you can:

• Minimize tax liabilities and protect your bottom line.
• Maximize your property's value and market competitiveness.
• Focus on strategic investment decisions with complete financial clarity.
• Gain peace of mind knowing your tax obligations are handled by experienced professionals.

Take Control and Unlock Your Property's Potential:

Don't let property taxes be a roadblock to your investment's success. Take control and explore the benefits of Taxonics with eXp Commercial.

Schedule a free consultation with a Taxonics expert and unlock the true power of your property tax management

Tax Appeal Review Form

[row v_align="equal" h_align="center"] [col span__sm="12" align="center"] [button text="Submit" style="shade" size="larger" radius="10" depth="4" depth_hover="5" link="https://forms.taxonics.com/form-6394693/exp-tax-appeal-review-form-rtaylor-exp-2023" target="_blank"] [/col] [/row] https://www.creconsult.net/market-trends/unlocking-value-exp-commercial-and-taxonics-partner-to-optimize-your-commercial-property-tax-strategy/