Archives for posts with tag: multifamily

There seems to be a growing trend amongst Americans, and it is one that has the potential to largely affect the real estate market and the economy as a whole. Findings in the latest Census strongly suggest that more and more people are choosing to live alone. According to the findings, one-person households now account for more than one in four households in America.

In the past 40 years, the percentage of Americans living on their own has gone from 17 to 27. This share is greater than at any time in the past century. A close look at the numbers shows that around 33 million people in America live alone, a number that has tripled since 1970.

census

Graph courtesy of U.S. Census Bureau

There are many reasons that this phenomenon has taken place. An obvious reason is that less people are getting married and having children or, at the very least, they are waiting until later to do so. Since 1970, the Census has found that the share of households consisting of married couples with children has declined from 40 percent to 20 percent.

The advancement of technology has also played a tremendous role in helping connect the world in ways that do not require as many people to live together. Technological and medicinal advancements are also to thank for the fact that most people are living longer, which means many of these single person households belong to the healthy elderly folks who are no longer in need of nursing homes.

Most would assume that the recession had caused the pace of this trend to slow down, due to younger adults moving in with their parents and others moving into homes together in order to share expenses. However, the Census also found that since 2007, 2 million more Americans live alone. Surprisingly, the Great Recession may have contributed to the trend since marriage rates tend to hit a lull in poor economic times.

Overall, the trend may actually have a positive impact on real estate and the economy as a whole. Of course, less people sharing homes means more homes will be sold. This also means that less supplies and energy will be shared. While this naturally would not be ideal for the environment, it also points to an upward trend in the rate of consumer spending.

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Global CRE Advisors Point Out What They Like about U.S. CRE Markets

By Mark Heschmeyer
June 22, 2011

What better time than the summer solstice to shine a light on current commercial real estate market conditions. CRE firms and organizations released a broad array of mid-year market overviews and viewpoints this past week – all of which cast conditions with a fairly sunny outlook.

We report on the views presented by four respected analysts, including Credit Suisse, which is telling global investors to follow other world currencies flowing to the United States. Also, Maximus Advisors and Fannie Mae both say the U.S. multifamily market is poised for a four-year upswing. And RREEF Global Real Estate Investment says U.S. investors would do well to look closely at the industrial and retail property sectors.

We’ve summarized their reports below.

Credit Suisse: Follow the Money

After suffering through the credit crisis, commercial real estate macro indicators are beginning to show signs of improvement, according a paper from the Customized Funds Investment Group (CFIG) of Credit Suisse’s Asset Management division.

Entitled, “Commercial Real Estate: Has the Tide Turned?” authors Kelly Williams, head of CFIG, Nadim Barakat, CIO of CFIG, and Peter Braffman, a partner on the CFIG Real Estate team, discuss the sector’s uneven global recovery, and how the U.S. commercial real estate market may well provide the most compelling opportunities in the first phase of the recovery.

“We believe that the U.S. commercial real estate market will likely provide the most compelling opportunities in the first phase of the recovery,” the authors write.

This is a result of:

  • Stabilizing debt markets and the re-emergence of commercial mortgage-backed securities (CMBS) issuance;
  • Property demand improvements, as shown in vacancy and absorption trends;
  • Favorable commercial property valuations;
  • Macro-economic tailwinds; and
  • Significant level of capital ready to be deployed for U.S. real estate.

“Many of the world’s largest investment firms, institutional investors and pension plans have been increasing allocations to this asset class. Starting in 2009 and throughout 2010, institutional capital poured into core and stabilized real estate in primary U.S. market regions in search of reliable, long-term yield,” the authors write. “Public pension plans, such as California Public Employees’ Retirement System (CalPERS), have been restructuring their real estate initiatives to include a greater allocation to core commercial property.”

“This investment activity has led to a meaningful recovery for these properties as yields re-approached pre-financial crisis levels,” the authors write. “The growing liquidity has also made possible the re-opening of the initial public offering market for real estate ventures.”

Of note, the authors point out that Archstone, one of the largest real estate firms focused on the development and management of multifamily (apartment) properties, has been exploring the possibility of a $5 billion IPO, which would be the largest real estate IPO in history.

Low interest rates in the U.S. have also been instrumental in containing the cost of capital for real estate investors and making property returns attractive in comparison to other asset classes, such as fixed-income instruments.

The authors say that investors may be able to take advantage of the changing real estate conditions in the U.S. by considering a number of specific strategies, including income-generating value-added commercial property, opportunistic distressed commercial property and certain other niche income-generating real estate such as senior housing, student housing, medical offices and self-storage.

Despite compelling opportunities, the paper also addresses the risks associated with the commercial real estate market and how investors should consider developing real estate investments in the context of their aggregate portfolio.

Maximus Advisors: 4 Years of Improving Multifamily Conditions Coming

As the U.S. economic recovery gathers sustained momentum and spending returns to pre-recession levels, fundamental shifts in consumer behavior are expected to have lasting effects on numerous real estate sectors, according to the latest national economic and property ratings report by real estate research and consulting firm Maximus Advisors.

“As we have previously predicted, the U.S. apartment market has been recovering at an astounding pace,” said Dr. Peter Muoio, senior principal of Maximus Advisors. “The sector will continue to benefit from the growing preference for renting over homeownership as well as rapid growth of the young adult population. We predict that vacancies will continue to decline while effective rents grow robustly during the next two years due to limited development of new multifamily properties during the recession.”

Key findings from the report include:

  • The apartment market will continue to improve over the next four years as renting remains more attractive than homeownership and there is little in the pipeline in terms of new construction.
  • The office/commercial market recovery has begun as supply and demand have crossed over. Office absorption has been positive for the past two quarters, driven by gains in office employment. However, further labor market weakness could inhibit recovery in the office segment in the short-term. According to Muoio, the market has bottomed and will see vacancies decline more rapidly in 2013 and 2014.
  • Retail real estate stands to benefit from consumer spending stabilization, though higher gasoline prices this summer will inhibit this trend. Additionally, the rise of online retailing will apply downward pressure on in-store demand, further threatening the retail segment.
  • The industrial segment is bottoming but demand appears to be picking up as industrial output continues to rise and exports are at all-time highs.

Maximus Advisors is an affiliated research provider of CW Financial Services, a vertically integrated commercial real estate debt platform.

Fannie Mae: Multifamily Demand/Supply Imbalance

Overall housing starts are at historic lows and multifamily new construction is no exception. However, Kim Betancourt, director, multifamily economics and market research for Fannie Mae, says that portends well for the multifamily segment.

Looking at the construction data, there are less than 230,000 multifamily and condo units under way. As a result, year to date completions through May 2011 totaled just 31,312 units — well below historic averages.

“Despite the oversupply of single-family housing, demand for multifamily rentals is outpacing supply quickly in many metros,” Betancourt wrote in a commentary this week. “Even at the national level, apartment rental demand has been quite robust, resulting in rising rents and declining concession rates.”

There are an estimated 77,600 apartment and condo units expected to complete in 2012, but beyond that timeframe the number of completions plummet, Betancourt writes that those numbers do not represent enough supply to meet demand.

With overall multifamily completions abating, developers have taken notice, she writes, noting that in metros such as Washington, DC, there are nearly 11,000 apartment units under way and 16,000 units under way in New York.

RREEF: U.S. Property Selection Should Be Overweighted to Industrial, Retail

Real estate fundamentals are improving globally and, with only a few exceptions, all property types and regions are in recovery, according to RREEF Global Real Estate Investment’s latest outlook.

The United States will continue to produce appealing risk-adjusted opportunities in the near term and benefit from having a deeper investable universe, RREEF said. In addition to office and shopping center properties, institutional investors can invest in the industrial warehouse, R&D space and multifamily sectors in the United States.

The United States real estate market is among the most transparent and liquid in the world. This is especially true for tier one markets, where international investors are most likely to place capital, RREEF said. Within the U.S., property type selection should have an overweight to industrial and retail properties and underweight to the apartment and office sectors relative to the NCREIF Property Index and a moderate overweight to the East and West regions with corresponding underweight to the Midwest and South.

Coastal, supply constrained, markets tend to have higher volatility than those in the interior, but will also tend to outperform during the next five years, RREEF said. It will be longer before meaningful amounts of construction commence in the supply-constrained markets and so vacancy will be able to compress further in these markets.

Seattle and Miami-Ft Lauderdale retail will outperform, with lower volatility. Office space in San Francisco, New York and Boston will also likely outperform, as will industrial space in Los Angeles, New York and Seattle.

Washington, DC

The improving economy and job creation mean growing demand for commercial real estate, according to the National Association of Realtors®.
Lawrence Yun , NAR chief economist, said job creation will be the biggest factor moving forward. “Job growth creates demand for commercial space, and the economy should be adding between 1.5 million and 2 million jobs annually both this year and in 2012, with the unemployment rate falling to 8.0 percent by the end of next year,” he said. “Given the minimal new supply in recent years, the rising demand means vacancy rates will be trending down in the commercial real estate sectors. Individual markets are now stabilizing and in some cases rising.”

From the second quarter of this year to the second quarter of 2012, NAR forecasts vacancy rates to decline 1.0 percentage point in the office sector, 0.9 point in industrial real estate, 0.5 point in the retail sector and 1.1 percentage points in the multifamily rental market.
The Society of Industrial and Office Realtors® , in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 360 local market experts,1 shows a firming up of market fundamentals.

The SIOR index, measuring the impact of 10 variables, rose 6.8 percentage points to 57.5 in the first quarter, the highest since the fall of 2008. The Northeast and South drove improvements in market conditions. Vacancy rates are improving, but concessions continue to make it a tenant’s market.
Although the SIOR index remains notably lower than a level of 100 that represents a balanced marketplace, this is the sixth consecutive quarterly improvement after almost three years of decline. The last time the index was at 100 was in the third quarter of 2007.

A separate NAR commercial lending survey shows 65 percent of Realtors® report lending conditions have tightened thus far in 2011, and six out of 10 failed to complete a transaction this year due to financing problems. Regional banks provide the majority of commercial loans, followed by private investors. National banks are a distant third.
“Just as in the residential sector, lending problems are the biggest issue impacting commercial real estate,”  Yun noted.
The multifamily sector is the only area that has clearly turned the corner, resulting in consistently falling vacancy rates and rising rents. “Solid rises in apartment rents will force some renters to consider home ownership,”  Yun said.

NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK2 offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.

Office Markets

Vacancy rates in the office sector are expected to fall from 16.3 percent in the second quarter of this year to 15.3 percent in the second quarter of 2012.
The markets with the lowest office vacancy rates currently are Honolulu and New York City, each with vacancies below 9 percent.
Office rents are projected to rise 0.3 percent this year and another 4.3 percent in 2012. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, is likely to be 26.6 million square feet in 2011.

Industrial Markets

Industrial vacancy rates are expected to decline from 13.9 percent in the current quarter to 13.0 percent in the second quarter of 2012.
At present, the areas with the lowest industrial vacancy rates are Los Angeles and Salt Lake City, with vacancies in the 7 to 8 percent range.
Annual industrial rent should decline 1.5 percent in 2011 before rising 2.0 percent next year. Net absorption of industrial space in 58 markets tracked is seen at 126.1 million square feet in 2011.

Retail Markets

Retail vacancy rates are forecast to decline from 13.1 percent in the second quarter of this year to 12.6 percent in the second quarter of 2012.
Markets with the lowest retail vacancy rates currently include Honolulu; Long Island, N.Y.; and San Jose, Calif., all with vacancies below 8 percent.
Average retail rent is expected to decline 1.4 percent in 2011, and then rise 0.7 percent next year. Net absorption of retail space in 53 tracked markets is projected to be 5.4 million square feet in 2011.

Multifamily Markets

The apartment rental market – multifamily housing – is continuing to tighten as household formation grows. Multifamily vacancy rates should drop from 5.8 percent in the current quarter to 4.7 percent in the second quarter of 2012.
Areas with the lowest multifamily vacancy rates presently are Pittsburgh; San Jose, Calif.; and Portland, Ore., with vacancies below 3 percent.
Average apartment rent is likely to rise 3.4 percent this year and another 4.3 percent in 2012. Multifamily net absorption is forecast at 250,800 units in 59 tracked metro areas in 2011.
The COMMERCIAL REAL ESTATE OUTLOOK is published by the NAR Research Division for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.
The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, Realtors® Land Institute, Society of Industrial and Office Realtors®, and Counselors of Real Estate.

Approximately 79,000 NAR and institute affiliate members specialize in commercial brokerage services, and an additional 171,000 members offer commercial real estate as a secondary business.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

1 The SIOR Commercial Real Estate Index, conducted by SIOR and analyzed by NAR Research, is a diffusion index based on market conditions as viewed by local SIOR experts. For more information contact Richard Hollander, SIOR
2 Additional analyses will be posted under Economists’ Commentary in the Research area of Realtor.org in coming days.
The next commercial real estate forecast and quarterly market report will be released on August 25.
Information about NAR is available at www.realtor.org. This and other news releases are posted in the News Media section. Statistical data, charts and surveys also may be found by clicking on Research.
REALTOR® is a registered collective membership mark which may be used only by real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS® and subscribe to its strict Code of Ethics. Not all real estate agents are REALTORS®. All REALTORS® are members of NAR.
 
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