Apartment Rent Concession Utilization at All-Time Low

 

More apartment operators are ditching rent concessions offers as vacancies across the country have dropped to historic lows.

The share of apartment leases containing rent discounts is at the lowest ever in RealPage’s database that goes back to the early 1990s. This comes as occupancy remains at all-time highs and available apartment units are scarce. However, there are pockets of the market bucking that trend, and they tend to be pricey geographies where discounts are deep. The result is a larger-than-average rent discount for the nation overall.

As of 3rd quarter 2021, only 10.9% of units across the U.S. offered some kind of rent concession. That is less than half the rate seen just two quarters ago and hovers far below the long-term average of about 20%.

Such concessions generally come in the form of free rent, translating to a monthly discount. Over the past five years, monthly discounts for units offering concessions averaged about $50. As of 3rd quarter 2021, concession discounts had more than doubled to stand at $116 per month, on average.

Simply put, fewer units are utilizing concessions, but the value of those concessions has increased.

In another contrast from the recent past, the markets offering the most concessions as a percent of asking rent has drastically shifted since the pandemic. Prior to the COVID-19 pandemic, markets offering the steepest discounts tended to be high-development markets, such as Texas and Sun Belt locales. It was common for operators to offer move-in specials to entice renters at new properties. The pandemic changed that.

As of 3rd quarter 2021, the markets offering the largest discounts as a percent of asking rent tended to be pricey, gateway markets that were plagued with net move-outs and rent cuts throughout the earlier months of the pandemic. Many of these areas are also still seeing a larger-than-average number of units offering concessions as they continue to recover from the pandemic.

New York claimed the title for the market offering the highest concession value at over 12% of asking rent. That’s far higher than what the 7% average concession for New York over the past five years. In San Diego, average rent concessions account for nearly 8% of asking rent, far above the 3.6% average seen over the last five years. Other West Coast markets such as San Francisco, Portland and Seattle also have far higher concessions today compared to the five-year average. East Coast markets like Fort Lauderdale and Boston also top the list.

Across the U.S., concessions as a percent of asking rent averaged 6.4% in 3rd quarter, about 2.4% higher than the five-year average of 4%. Average asking rents registered at $1,589 in 3rd quarter, equating to about $1,473 after a concession discount of $116.

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Source: Apartment Rent Concession Utilization at All-Time Low

https://www.creconsult.net/market-trends/apartment-rent-concession-utilization-at-all-time-low/

Is It Time to Worry About Multifamily’s Slowing Rent Growth?

 

This could be a problem for investors as inflation continues to rise.

The pace of apartment rent growth is slowing, according to a report from RealPage. While it seems to be a seasonal issue, the news comes at a bad time for multifamily investors and property owners as rising inflation creates a greater need for investment hedging.

First the good news: Year over year, rents were up 13.1%. That compares to average annual rent growth between 3% and 4% during the last decade, the report noted. In 2015, prices jumped a bit more than 5%.

But, RealPage also reported that asking move-in rents were up in October 6% over September, the slowest pace since February.

The company called this “the normal seasonal pattern,” but other forces are in effect as well, such as progress in dealing with Covid-19 and uneven progress in pandemic rental assistance reaching tenants and then landlords. Also, in some major markets where vacancy rates went up as people bailed out, rental rates dropped, meaning a lower baseline that could make a return to normalcy look like growth when it was regaining lost ground.

Also, averages are never the whole story. Florida was a major factor in October growth, as “Florida markets accounted for nine of the country’s 12 metros with the biggest rent bumps in October.” A portion is likely due to the population shift from the Northeast. The resulting demand helps support higher prices.

 

Fort Lauderdale, Austin, Las Vegas, Jacksonville, Orlando, and Atlanta all saw annual growth of 20% or more in asking rents for new leases. Some larger metros, like San Francisco, San Jose, Chicago, Oakland, and Kansas City saw drops ranging from 0.1% to 0.9%. The apparent growth isn’t true for all geographic markets in the country.

There are also signs of backlash in some areas. “Despite the fact that rent growth in the Twin Cities rarely inches ahead of the national norm, voters in the city of St. Paul just approved one of the country’s most drastic rent control measures, and those in the city of Minneapolis granted local government office holders the right to enact unspecified rent control measures,” the report said.

The report noted all-time occupancy rates of 97.3% in October, though Apartment List’s numbers for September showed a slight rise in vacancies.

These figures take on a different meaning given the October consumer price index’s increase of 0.9%, making a cumulative inflation rate of 6.2% than a year ago. Real estate is considered a good inflation hedge because rent increases can cover the bite. But if rent increases start to drop, there may not be sufficient hedging ability. But then, it will take more data to understand trends more fully.

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Source: Is It Time to Worry About Multifamily’s Slowing Rent Growth?

https://www.creconsult.net/market-trends/is-it-time-to-worry-about-multifamilys-slowing-rent-growth/

How Was Commercial Real Estate Sales Activity in 2021?

 

How does transaction velocity in 2021 compare to past years?

What's driving such aggressive investment activity?

How does sales volume vary by property type?

 

 

https://www.creconsult.net/market-trends/how-was-commercial-real-estate-sales-activity-in-2021/

Chicago Rents Rising After Pandemic Slump

(iStock)

Chicago landlords may be back in the driver’s seat after being forced to offer concessions to lure tenants during the pandemic.

Rents rose steadily throughout 2021, though they were little changed last month, ReJournals reported, citing a report from ApartmentList. They jumped by about 8.5 percent in the past 12 months, half the national 16 percent rate and still behind 10 percent for the state of Illinois.

Median rents in the Chicago area now stand at $1,284 for a one-bedroom apartment and $1,415 for a two-bedroom. Rents rose fastest in Naperville, where they climbed 14 percent, followed by Arlington Heights at 13 percent. Two-bedrooms rent for a median of $1,990 a month in Naperville — the highest in the state.

Bolingbrook and Kenosha had smallest increases, at 7.1 and 5.7 percent respectively. Kenosha’s median rent for a two-bedroom unit was $1,190. The only area with a lower median rent was Waukegan’s $1,180. Evanston had the largest decrease, dropping 1.9 percent.

Chicago has the fourth-highest median rent among major metropolitan areas, lagging behind Washington D.C., New York and San Francisco. https://therealdeal.com/sanfrancisco/ New York, Baltimore and Columbus rents rose faster than Chicago.

The median rent in San Francisco at $2,770, an increase of 9.7 percent in the past year, while New York’s stood at $2,030, up 18.9 percent.

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Source: Chicago Rents Rising After Pandemic Slump

https://www.creconsult.net/market-trends/chicago-rents-rising-after-pandemic-slump/

More Tenants Plan To Increase Space Next Year Than Shrink It

 

Also, close to two out of five tenants said they will be preferring longer occupancy terms to get ahead of possible rent increases.

More than double the share of commercial real estate tenants are planning to increase rather than decrease their space next year, according to a survey by the Visual Lease Data Institute, a lease optimization software provider.

Seven out of 10 tenants predict they will be looking for more space while three out of 10 are preparing to downsize.

Close to half of the tenants (48 percent) said at least some of the expansion will come in existing spaces, higher than the 41 percent landlords are anticipating.

Sixty-one percent of tenants are forecasting 2022 commercial rents to be about the same or higher than rent prices were prior to the pandemic, an expectation held by 75 percent of landlords.

In signing new leases during the coming year, close to two out of five tenants said they will be preferring longer occupancy terms to get ahead of possible rent increases and save a significant amount of money.

Fifty-eight percent of tenants are prioritizing leases of at least five years in length, with nearly 20 percent interested in 10 or more years of occupancy.

All that said, a large number of tenants are still suffering financial fallout from the pandemic. More than a third said they are still behind in their rent after 61 percent said they lapsed during the worst of the crisis.

Post-pandemic, landlords are predicting a revival for major metropolitan areas like New York and Los Angeles in a general resurgence for cities.

“Increased interest in urban areas suggests many companies are considering how they will set up physical office spaces amid hybrid working conditions and whether they will be available to employees full-time or part-time,” said the report.

Visual Lease found the majority of landlords expect retail space, multi-tenant offices, single-tenant offices and industrial space to garner the most interest from tenants.

“While no universal blueprint for a return to the workplace exists, many companies that had a remote work option during the height of the pandemic continue to offer hybrid workplaces and still plan for some form of real estate presence,” the company concluded.

The findings were based on a survey of 400 senior accounting and finance professionals and commercial real estate executives, 200 of whom representing the perspective of tenants, and 200 of whom representing the perspective of landlords.

The findings dovetail with other reports of growing confidence in the resiliency of commercial real estate going forward. For instance, ULI is predicting the real estate market will return to pre-pandemic levels by 2023.

“The US economy remains relatively attractive for real estate, especially in contrast with the period immediately following the global economic downturn in 2008/9,” said Ed Walter, ULI’s Global CEO. “While prolonged high inflation could damage the viability of pipeline projects, the short-term spike predicted should have less impact. This is why we see transaction volumes recovering so quickly and investment returns for core property types looking so healthy. The real estate sector is in a strong position to build its way out of the pandemic and take the economy with it.”

ULI predicts GDP growth for 2021 will hit 5.7 percent, a decline from spring 2021 numbers but “still more than double the bounce back seen in 2010,” ULI analysts say. Longer-term forecasts are more stable and remain above the 20-year average of 2.5 percent.

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Source: More Tenants Plan To Increase Space Next Year Than Shrink It

https://www.creconsult.net/market-trends/more-tenants-plan-to-increase-space-next-year-than-shrink-it/

How Millennials Are Reshaping the SFR Market

 

“They desire more space for raising a family in a room for a home office, and they want better access to good schools, jobs, and amenities.”

The population surge of millennials, coupled with the housing supply shortage endemic across the US, will drive demand for single-family rentals in infill neighborhoods in high-growth markets, a SFR exec told investors recently.

“We believe that the operating fundamentals for our business remain fantastic and that the environment for growth remains favorable with our opportunities to creatively deploy new capital among the best we’ve seen in recent years,” Dallas Tanner, president and CEO of Invitation Homes, said on a recent earnings call.

Tanner said Invitation’s average occupancy is at “historically high levels,” with turnover trending lower and rental rate growth surging well past the traditional summer leasing window. One reason? Demographics.

“I’ve spoken previously about the population surge of millennials and how we expect many within this cohort to transition into single family homes over time. They desire more space for raising a family in a room for a home office, and they want better access to good schools, jobs, and amenities,” he said. “They also value the convenience of a worry-free subscription-based lifestyle.”

Chief Operating Officer Charles Young described Invitation’s resident base as “strong and stable,” noting that the company’s average new resident today is a family with at least one child and pet. The adults are 39 years old on average, both work and together earn more than $120,000 per year, equaling an income to rent ratio of more than five times.

That’s particularly true in the Sunbelt and across the West, where Invitation is deploying the bulk of its capital.

“In specific markets like Las Vegas and Phoenix, the Southwest Sunbelt type markets have seen an outperformance over really the last eight to 10 years, in terms of what we’re seeing with net migration, household formation,” Tanner said. “And ultimately, that’s showing itself in home price appreciation and the rate growth that we’re seeing with the corresponding growth in the home pricing. We will continue to invest capital in the parts of the country, where we believe we’re going to continue to see that outperformance.”

Institutional investors have allocated more than $10 billion to the SFR sector over the last few years. And according to a midsummer report from YardiMatrix, the Southwest (4,896) and Southeast (3,978) have the most SFR units under construction. They are followed by the Midwest (1,716) and West (1,522). Only 134 units are being built in the Northeast. Phoenix leads the way with 6,000 existing SFR communities and more than 2,500 under construction. Jacksonville (766), Charlotte (719), Houston (644) and Atlanta (544) have the most SFR communities under construction.

In July, Invitation Homes and PulteGroup announced they had formed a partnership in which PulteGroup will supply the REIT with new houses.  At the time, Invitation Homes said it expected to purchase approximately 7,500 new homes over the next five years from PulteGroup, the nation’s third-largest homebuilder.

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Source: How Millennials Are Reshaping the SFR Market

https://www.creconsult.net/market-trends/how-millennials-are-reshaping-the-sfr-market/

Just Sold Amber Ridge Apartments & Indian Creek Apartments Aurora IL

 

Just Sold!

Aurora, IL, December 6th, 2021 – Marcus & Millichap (NYSE: MMI), a leading commercial real estate brokerage firm specializing in investment sales, financing, research and advisory services, announced today the sale of two adjacent 24-unit apartment properties located in Aurora, IL, according to Steven D. Weinstock, regional manager and first vice president of the firm’s Chicago Oak Brook office. The assets, Amber Ridge Apartments and Indian Creek Apartments, sold for $1,850,000 and $1,885,000 respectively.

The sellers and buyer of both properties were secured and represented by Randolph Taylor, Senior Associate, and an investment specialist in National Multi Housing Division in Marcus & Millichap’s Chicago Oak Brook office.

The properties are located at 1015 N Farnsworth Ave and 991 Tollview Ave in Northeast Aurora, IL. The properties were sold to a repeat buyer for the agent and the firm and were financed by the Marcus & Millichap Capital Group. 

 

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About Marcus & Millichap (NYSE: MMI)

With over 2,000 investment sales and financing professionals located throughout the United States and Canada, Marcus & Millichap is a leading specialist in commercial real estate investment sales, financing, research and advisory services. Founded in 1971, the firm closed 9,726 transactions in 2019 with a value of approximately $50 billion. Marcus & Millichap has perfected a powerful system for marketing properties that combines investment specialization, local market expertise, the industry’s most comprehensive research, state-of-the-art technology, and relationships with the largest pool of qualified investors. To learn more, please visit: www.MarcusMillichap.com.

 

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https://www.creconsult.net/market-trends/just-sold-amber-ridge-apartments-indian-creek-apartments-aurora-il/