A Statement On Ukraine from Kevin Maggiacomo, SVN President and CEO

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Looking to the Future: The Disruption of COVID-19 and the Transition into the Next-Normal

Exactly one year ago, eight governors across the US took the initial move to close bars and restaurants, and the Dow Jones posted its largest one-day drop ever, finishing down a record 2,997 points. The world as we knew it was hitting the proverbial fan. New incoming information —none of which was encouraging — came across our screens at a frantic pace, causing our stomachs and portfolios to drop in tandem. 

With a full year now passed by in the COVID economy, the universe of uncertainty has thankfully compressed. While it was not an advanced degree that any of us had applied for, the pandemic has imparted a lifetime of lessons, offering clear clues about the future of commercial space demand and the ways we as humans interact with the built environment.   

Macroeconomy

Starting first with the economy as a whole, I know we have all become a bit numb to sideways numbers during the past year, but to dig ourselves out of this hole, it is important to understand just how deep we are. Early last year, while we were all still finishing our champagne and settling in after the holiday season, the Congressional Budget Office released its estimates of 2020 economic growth, serving as a reliable benchmark of where the economy would have stood without the pandemic. Actual output last year fell short of the CBO’s early 2020 forecast by $1.2 Trillion Dollars, good for an average loss of $3,560.06 for every American.

More workers filed for initial unemployment claims in the first nine weeks of this crisis than during the entirety of the 2007-2009 recession, and the unemployment rate hit a stratospheric high of 14.8% last April. Through the most recent Jobs report, it looks like we are once again starting to see some positive momentum toward an eventual recovery. The civilian unemployment rate ticked down 6.2% through February as the economy added back 379,000 jobs. We remain a long way to go, but between vaccination rollout and the onset of warmer weather, the W-shaped recession we have seen so far should have enough fuel in the tank to prevent another near-term downturn.   

Multifamily

An often-peddled refrain during the early days of the pandemic was that the multifamily, and apartment sector as a whole, would maintain its stability by the simple fact that people will always need somewhere to live. If anything, the same optimists argued that the resiliency of cashflows could actually improve as renters were spending more time in their homes due to involuntary quarantines. With a year of data available now supplanting conjecture, we find that residential rentals have indeed performed up to expectations. No, conditions have not been ideal, and distress is not too hard to find, especially in gateway markets. However, compared to worst-case scenarios, the apartment sector has lived up to its reliable bedrock status. According to the National Multifamily Housing Council’s rent tracker, which follows the performance of more than 11 million professionally managed apartments, 93.5% of renter households paid rent in February— only a 1.6% drop off from the same month last year. These data may, however, likely understate some sector-level underperformance, as they do not include vacant units or self-managed “mom-and-pop” properties. According to Freddie Mac’s latest forbearance report, we know that small balance originations, which tend to cater to the “mom-and-pop” investor class, make up 75% of loans in forbearance.1 

The CDC’s eviction moratorium remains a pressing challenge for the industry and an impediment to its return to pre-pandemic health. The market for rental housing is a circular flowing ecosystem between lenders, investors, and renters. There is no net-positive corrective policy that achieves more benefit than harm by breaking the symbiotic process, much as the moratoriums have.  The NMHC offers that moratoriums “fail in their purpose of addressing renters’ underlying financial distress” and “jeopardize the stability of housing providers and the broader housing market.” Despite two different federal judges ruling against the CDC policy in the past month, the ban remains in place. There are, however, green shoots forming, which could signal a return to more normal conditions in the near future. At the end of this month, the moratorium is scheduled to expire— a deadline that we should accept with a coarse-grained piece of salt. Nevertheless, the appropriations bill passed at the end of the year, and the American Rescue Plan of 2021 passed last week collectively set aside $46.6B for rental assistance programs. A CPPB analysis of Census Bureau survey data finds that roughly one-in-five renter households are behind on rent— a crisis that should see meaningful relief as funds are released.2

The permanence of COVID-induced migration will be a hot-button topic as more jabs land in arms. Taken together, the trifecta of New York, California, and Illinois, the states that are home to the three largest US cities, collectively lost more than 275,000 residents in 2020. The human density that has historically attracted demand toward superstar cities has had the complete opposite effect in the past year. Without accessible cultural amenities or the need to be in an office Monday through Friday, a significant share of the workforce became untethered to their home cities and have made their way toward the exit. According to CoStar, New York, LA, San Francisco, Chicago, Seattle, Boston, and Washington DC are all among the list of cities to post year-over-year declines in asking rents through Q4 2020. 

While the outgoing flow of residents has been lumped together as one homogenous cohort, there appear to be at least two major groups leaving. The first group of COVID-nomads is defined by those that already had eyes towards more affordable and spacious housing options over the next couple of years. Given the urban context in 2020 and the attractively low borrowing costs, many of these renters simply said, “Hey, why not now?” and moved up their progression timeline. These are the types of households that are more likely to be buying baby carriages before the next time they step on a subway, and their transition out of major metros is probabilistically permanent. The second group contains those who are transient, often early into their careers, working remotely, and still seeking the lifestyle amenities they had enjoyed pre-covid. Watching how this group behaves as large companies start calling workers back into the Office and cities look more like their pre-pandemic selves will be telling.   

Office

Today, there is no property type subject to more speculation than the Office.

Unlike multifamily, Retail, and industrial, where COVID has mostly magnified pre-existing trends, the pandemic has led to rampant reimagination in the office sector. Our understanding of how both firms and workers interact with physical office space to optimize productivity is permanently changed. According to the Census Bureau’s Household Pulse Survey, an estimated 38% of working American adults have transitioned to remote work in some capacity due to COVID. The share is even higher in large office markets like New York and Los Angeles, rising to 47% and 45%, respectively. En Masse, The American Workforce traded morning commutes for Zoom links, an illuminating natural experiment that has challenged the Office sector’s core-assumptions. When PwC launched its remote work survey in June, 44% of employers thought that the transition to remote work has allowed their teams to be more productive than before the pandemic.3 When the same employers were polled again in December, the share climbed to 52%, indicating that not only has a consensus emerged, but that efficiency has improved following the initial learning curve. The realization that companies can not only maintain but actually improve performance through a remote infrastructure is a ‘no turning back,’ Pandora’s box type of moment. It should therefore come as no surprise that, according to the same survey, only 21% Of US executives think that a full five days in the office every single week is the best setup to maintain a strong corporate culture. 

The likelihood that total office space demand will have a smaller footprint in the post-pandemic world is a consideration that we cannot afford to take lightly. A Fitch research report released just last week estimates that an additional 1.5 work-from-home days per worker would lead to a 15% reduction in property-level net cash flow— a development that would meaningfully recalibrate our understanding of risk and value. Given the long-dated lease structure common throughout the sector, it will take a few years for emerging preferences to filter through fully. Moody’s Analytics REIS forecasts that vacancy rates are likely to rise to near-record levels through 2023 before beginning a gradual recovery in 2024. 

Of course, not all metro-level office markets will move as one. Some of the migratory demand that is leaving large cities and contributing to localized weakness ahead will also lead to strength in other markets, particularly in major Metro adjacent suburbs. According to Real Capital Analytics, Central Business District-located Office properties posted a 0.2% decline in value for the year. On the other hand, suburban located office assets saw valuations continuing to grow at a healthy 6.6%.

Industrial

The industrial sector remained the undisputed top performer of commercial real estate through an otherwise challenging 2020. Secular tailwinds, such as e-commerce adoption, grew from a healthy gust to a sustained hurricane force. Over the past decade, online retail sales have increased by an average of 15.2% annually. Brick and mortar retail sales over the same period have only grown by an average of 3.4% per year. The share of total Retail sales satisfied by online orders has steadily risen, entering 2020 At 11.3%. In the second quarter, as nonessential retailers across the country closed their doors, this share skyrocketed above 16%. While the share has reverted down to 14%, the pandemic has permanently transitioned some in-person retailing onto online platforms. Online grocery delivery services, a concept that had faced greater consumer resistance than other E-platforms before 2020, stood uniquely positioned to benefit from the demands of a lockdown economy. According to grocery e-commerce specialist Mercatus and research firm Incisiv Projects, online grocers accounted for 3.4% of all US grocer sales in 2019, before swelling to 10.2% in 2020.4 Further, the same study estimates that online groceries will satisfy 21.5% of domestic demand by 2025. Surging demand for E-grocers also means an increased demand for distribution and fulfillment facilities in close proximity to consumers. In the most recent Emerging Trends in Real Estate report, fulfillment facilities ranked as the subsector with the best prospects for future investment and development opportunities. 

Another source of new industrial demand can be traced to the supply chain disruptions experienced this last year. The pandemic exposed critical sensitivities, and e-commerce retailers are looking to better safeguard their ability to match inventory supply with order demand. Doing so has meant a transition away from “just in time” distribution models in favor of “just in case” models instead. The latter requires excess warehousing space to stock contingent inventory. 

Retail

There was no shortage of pessimism surrounding the retail sector heading into 2020, even before there was a pandemic to contend with. Pre-pandemic, Retail was in the midst of what was widely expected to be a 10-year shakeout and a painful rightsizing process. As noted in the 2021 ULI / PwC Emerging Trends Report, the US retail sector had three major headwinds going into last year: the US has more retail square footage per capita than any other country in the world, an increasing share of core-retail activity has transitioned online, and domestic consumers have experienced a long-term stagnation of wages. Concepts that were on the path towards obsolescence, with hopes of maybe squeezing out a few more years of economic solvency, are those that have struggled the most during COVID— none more so than department store retailers.

While the outgoing companies will argue otherwise, a case can be made that 2020’s pain will help the retail sector pave a quicker path back to recovery. The sector has gone from Darwinism to ‘Darwinism on steroids.’ Though, before we can imagine a radical future where physical retail demand sits just a bit higher than supply, the existing glut of obsolescent space needs to find adaptive reuse. After all, not every struggling mall will be turned into an Amazon distribution center. Lifestyle centers, where fitness centers, housing units, and mixed Retail are blended together, are one of the leading concepts to aid in re-positioning and re-absorption. According to Real Capital Analytics, Lifestyle Centers have an average price per square foot that is almost three times higher than average assessed for Mall assets, reflecting some of the value that can be recaptured through re-positioning.  

As Retail continues to match physical footprints with the forward-looking consumer behavior, the short-term reversion back to normalcy will at least provide some much-needed relief. Cabin-fever-consumers armed with unspent stimulus checks should give Retailers a potent shot in the arm, even if the upside effects are only temporary.

Outlook

Whether it be the public health front, the economy, commercial real estate, our lives in general, or how all the above are inexorably linked, 2021 has all the makings of a year defined by recovery. The Federal government’s push to have vaccine availability for every US adult by May 1st means that herd immunity is not too far behind. 

Between the safe resumption of our pre-pandemic lives, the commitment by the Federal Reserve to maintain low interest rates even as inflation pressures rise, and the unprecedented level of stimulus in the hands of consumers, a perfect storm of economic momentum is brewing just offshore. If anything, there is increasing concern that the economy has the potential to overheat in the year ahead as too much fuel enters the fire all at once. According to the February and March iterations of the Wall Street Journal’s Economic Forecasting Survey, a majority of leading economists believe that this year will have more upside risk than downside risk, and more than 80% think that the newly passed stimulus will generate inflation higher than the Fed’s 2% target.

In many ways, we as an industry remain in wait-and-see mode, with questions over a return to the office timing and rightsizing are still swirling overhead. Although, overly conservative and reactive strategies rarely make winning formulas in Real Estate. Now is the time for landlords to engage tenants and companies to engage employees about emerging preferences, then execute on a strategy. If 2020 has taught us nothing else, it’s that the pace of change can accelerate quickly, and falling behind the curve of innovation is a costly and often un-correctable mistake.

 

Endnotes
1. https://mf.freddiemac.com/docs/January_forbearance_report.pdf
2. https://www.cbpp.org/research/housing/housing-assistance-in-american-rescue-plan-act-will-prevent-millions-of-evictions
3. https://www.pwc.com/us/en/library/covid-19/us-remote-work-survey.html
4. https://www.supermarketnews.com/online-retail/online-grocery-more-double-market-share-2025

Tampa, FL | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Tampa, FL

Tampa has recovered significantly after experiencing deep impacts from the recession and is now growing jobs at an annualized pace of 3.6% with an unemployment rate of 4.8% as of January ‘16, according to the Bureau of Labor Statistics. Job growth also helped sustain population growth of 6.8% from 2010 to 2014, according to the Census Bureau. This growth has caused the multifamily sector in Tampa to expand with growing rents, falling occupancies, and lots of new supply. 2016 should bring approximately 5% rent growth with stable occupancy levels. The city is approximately 50% rental housing based and should demand more units as economic expansion continues. Top sectors for employment growth include Construction, Professional and Business Services, Leisure and Hospitality, and Financial Activities which have annualized growth rates of 7.1%, 7.1%, 6.6%, 3.4%, respectively.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

 

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Seattle, WA | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Seattle, WA

Seattle - Top Multifamily Market to WatchSeattle is one of the fastest growing cities on the West Coast, with a population that grew 9.8% from 2010 to 2014, according the Census Bureau. Job growth continues at an annualized pace of 3.0% while unemployment has been stable with the latest reading in January ‘16 of 5.6%, according to the Bureau of Labor Statistics. Seattle is an expensive city to live in and as such approximately 54% of the housing units are rentals, according to the Census Bureau. The need for ample housing is real and multifamily assets should perform well for 2016 and beyond. Rents are expected grow over 5% as new supply hits record highs to fill new demand. The best sectors for job creation include Information, Leisure and Hospitality, Trade, Transportation, and Utilities, and Financial Activities, which are growing at 8.1%, 5.0%, 4.2%, and 4.1% annualized rates, respectively.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

2016 Multifamily Market Outlook

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San Jose, CA | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: San Jose, CA

San Jose - Top Multifamily Market to WatchSan Jose is one of the hottest cities in the Bay Area and thus has experienced very strong employment growth since 2011 which has brought the unemployment rate down to 3.9% as of January ‘16 while jobs are still being created at the robust pace of 3.8% annualized according to the Bureau of Labor Statistics. Population growth is also significant at 6.6% from 2010 to 2014 as people find this market relatively more affordable. The San Jose housing stock is traditionally owner oriented with only 43% used for rentals. Given the rate of regional growth, local multifamily assets are very well positioned to pick up demand from surrounding areas a well as localized growth. Rent growth is expected to exceed 5% with relatively low new supply in 2016. Top sectors in job creation include Construction, Information, and Professional and Business Services with annualized growth rates of 10.3%, 8.4%, and 6.8%, respectively.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

2016 Multifamily Market Outlook

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Reno, NV | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Reno, NV

Reno - top multifamily markets to watchReno is experiencing sustained gains in employment with a 4.4% annualized rate after being severely impacted by the past recession; unemployment has improved dramatically and now sits at a still relatively high 6.2% as of January ‘16, according to the Bureau of Labor Statistics. Population has grown robustly with a 4.9% increase from 2010 to 2014, according to the Census Bureau. As is common with tourist market economies, the percentage of city housing used for rental purposes is high at 53% meaning that job growth will quickly mean growth for the multifamily sector. The city’s economy is rapidly diversifying with the biggest gains coming from Construction, Professional and Business Services, Financial Activities, and Education and Health Services with annualized growth rates of 9.6%, 9.5%, 5.2%, and 5.0%, respectively.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

2016 Multifamily Market Outlook

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Portland, OR | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Portland, OR

Portland, OR - top multifamily market to watchPortland has experienced rapid employment growth in 2015, bringing the unemployment rate down to 4.7% as of January ‘16 while sustaining new job creation at a rate of 3.1%, according to the Bureau of Labor Statistics. Population in the city grew by 6.1% between 2010 and 2014 according to the Census Bureau who also reports that approximately 47% of the housing stock is used for rentals. Portland is a relatively high priced market for the nation but still affordable for a major West Coast metro with an excellent quality of life. Leading employment sectors include Information, Leisure and Hospitality, and Education and Health Services growing at 9.4%, 4.6%, and 4.5% respective annualized rates. These dynamics should lead to strong performance of the multifamily sector in 2016 and beyond with rents growing over 10% this year as new supply remains relatively moderate.

Advisor Insights: SVN | Bluestone & Hockley

SVN’s Portland-based Advisors at SVN | Bluestone & Hockley have some multifamily market highlights to share. Here’s what to look out for in Portland’s multifamily market in 2016:

  • More units coming online
  • Price leveling off
  • More outside of the market investors coming in

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

2016 Multifamily Market Outlook

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Phoenix, AZ | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Phoenix, AZ

Phoenix - top multifamily market to watchPhoenix experienced significant gains in overall employment in 2015 that moved the number of jobs significantly above pre-recession peaks as unemployment fell to 4.6% in January ‘16 with continued annualized employment gains of 3.6%. The population grew by 6.2% from 2010 to 2014, according to the Census Bureau, helping to fuel new demand for apartment units. The city utilizes approximately 46% of its housing units as rentals and has relative affordability with high quality of life making the market a prime one to grow in 2016 and beyond, with rents expected to grow over 5% this year. The leading employment sectors are Information, Construction, Financial Activities, Education and Health Services, and Professional and Business Services, growing at annualized rates of 7.6%, 6.3%, 5.3%, 5.2%, and 5.1%, respectively.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

2016 Multifamily Market Outlook

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Philadelphia, PA | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Philadelphia, PA

Philadelphia - top multifamily market to watchJob growth in Philadelphia has brought the city back above pre-recession employment levels as unemployment stays steady at 4.8% as of January ‘16 with modest annualized employment growth of 2.1%, according to the Bureau of Labor Statistics. Population growth has been below the national average as the city only gained 2.2% from 2010 to 2014, according to the Census Bureau. Accordingly, demand for new apartment units is modest compared to other metros of similar size; yet the city does have a relatively high use of housing units as rentals at approximately 47%. Philadelphia does have an advantage in affordability, especially compared with other East Coast metros, and thus has growth potential with rents forecast to grow by over 3% in 2016. The city’s top sectors for job growth include Mining, Logging, and Construction as well as Professional and Business Services where are expanding at annualized rates of 8.2% and 3.7%, respectively.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

2016 Multifamily Market Outlook

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Charlotte, NC | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Charlotte, NC

Charlotte - top multifamily market to watchThe multifamily market in Charlotte has experienced strong growth in demand as the city has gained 10.1% in population from 2010 to 2014, according to the Census Bureau. This has been fueled by significant job growth that has set new records substantially above pre-recession peaks, leading the present unemployment rate to sit at 5.3% as of January ‘16 with new job creation occurring at an annualized rate of 2.8%, according to the Bureau of Labor Statistics. Approximately 45% of the city’s housing stock is renter occupied. Thus, a good deal of the new population is likely to demand an apartment. Further, gross rents are below national averages, making Charlotte affordable and capable of seeing meaningful rent growth. New supply has grown approximately 4% in 2015 which will lower rent growth slightly in 2016, but still likely to be robust and above 4%. Many sectors are adding jobs at annualized rates above 4%, including Financial Activities, Professional and Business Services, and Leisure and Hospitality. However, this city does face a unique risk to continued growth from the new “bathroom” law, perceived very negatively by many; this could jeopardize new job growth and thus the market if firms choose to relocate or otherwise curtail operations in the state.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

2016 Multifamily Market Outlook

[bctt tweet=”Charlotte, NC is one of 2016’s top multifamily #CRE markets to watch.” username=”svnic”]

Denver, CO | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Denver, CO

Denver - top multifamily market to watchThe Denver multifamily market has experienced significant additions of new supply as its population has grown 10.6% from 2010 to 2014, according to the Census Bureau. Further, the employment market is outstanding with 3.0% unemployment as of January ‘16 and annualized job growth of 2.5%, according to the Bureau of Labor Statistics. Denver features a larger renter population with approximately 50% of its metro’s housing units used for rental purposes; still rental rates are relatively affordable for a metro of its size, giving it room to grow. Top sectors for employment growth include Leisure and Hospitality, Financial Activities, Manufacturing, and Professional and Business Services growing at annualized rates of 6.0%, 3.9%, 3.5%, and 3.2%, respectively. As such, rent growth could hit 7% in 2016.

Advisor Insights: SVN | Denver Commercial

SVN’s Advisors at SVN | Denver Commercial have some multifamily market highlights to share. Here’s what to look out for in Denver’s multifamily market in 2016:

  • As population grows, (over 100,000 additional people since 2014), demand grows likewise for multifamily.
  • Household formation is growing with a younger demographic makeup in Denver. The CBD area alone now is housing a population of 90,000 residents, mostly in multifamily buildings.
  • Rents have risen significantly over the past few years but are now reaching affordability limits.
  • Renters are demanding fully amenitized properties when higher rents are asked by landlords.
  • Expect to see more micro-apartments to address affordability issues, especially in the CBD area.
  • Vacancy rates are now approaching more “normalized” conditions of 5-7%, versus virtually nil in the last couple years. This is due to increased delivery of new apartment units to the region, somewhat outpacing demand.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

2016 Multifamily Market Outlook

[bctt tweet=”Denver, CO is one of 2016’s top multifamily #CRE markets to watch.” username=”svnic”]

Boston, MA | 2016 Top #CRE Markets to Watch: Multifamily

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Boston, MA

Boston top multifamily marketBoston’s economy has experienced significant job growth such that its unemployment rate is now 4.0% as of January ‘16 and new jobs are being created at a 1.4% annualized rate, according to the Bureau of Labor Statistics. Further, population has grown 6.2% from 2010 to 2014, according to the Census Bureau, and has thus significantly increased the demand for rental housing in the metropolitan region. Bostonians are highly predisposed to renting as over 65% of the housing units in the city are rentals according to Census data; thus prolonged population and job growth will place great pressure on rents which could grow over 6% in 2016 and keep occupancies above 97% while new supply is likely to remain less than 2% . The top sectors for job growth include Financial Activities and Education and Health Services which are growing at 3.1% and 2.9% annualized rates, respectively.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.

2016 Multifamily Market Outlook

[bctt tweet=”Boston, MA is one of 2016’s top multifamily #CRE markets to watch.” username=”svnic”]

Finding the Perfect Apartment Building

Investing in Apartments Includes Some Benefits

Apartments are the hottest class of commercial real estate and are likely to continue being hot for a while. Independent of the unique demographic and economic drivers for their success in the current post-Great Recession economy, there are a few basic truths that make them attractive:

  • Housing costs usually move up and apartment rents can be adjusted on a regular basis.
  • Vacant units are easy to re-rent with little or no cost. In fact, tenant security deposits usually pay for cleaning and repairs.
  • Excellent financing with 80 percent leverage is readily available.
  • Relatively easy appreciation through making cosmetic upgrades to increase rents.

…But Apartments Also Include Some Downsides

For many investors, though, apartments have three key problems compared with other classes of commercial real estate. They have tenants that break things, complain and fail to pay rent. Apartments have kitchens that tend to start destructive fires. Finally, they have bathrooms that leak and cause damage to surrounding units. At the same time, many cities heavily regulate apartments and, in many cases, favor tenants over landlords. These problems make apartments challenging and time-consuming to own.

Imagine, for a moment, an apartment building without tenants, kitchens or bathrooms and with little or no government oversight. All that you would have are rooms with furniture, clothing and other items in them. If you have ever owned an apartment building, you know that a building like this one would be a dream to own!

The Solution: Self Storage Facilities

In fact, the perfect apartment building is a self-storage facility. Mini-storage facilities offer a similar ownership experience to apartments but without any of the drawbacks. Because they frequently serve apartment tenants, their performance tracks the apartment industry, as well. Furthermore, modern management systems make them much easier to own than many people realize.

Read more of Solomon Poretsky’s blog posts here.

[bctt tweet=”In fact, the perfect apartment building is a self-storage facility.”]

San Francisco, CA | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: San Francisco, CA

San Francisco: 2015 Multifamily Markets to WatchSan Francisco’s tech industry is booming, bringing with it jobs, rental households, and multifamily investment dollars. In spite of new development, the city still ranks as one of the most expensive (if not the most expensive) places to live in the United States. Chandan Economics reports that rents for mortgage-backed properties increased at a double-digit pace in 2014. Across the multifamily inventory, the average apartment rent was nearly $3,000. Prospects for income growth are well-capitalized into the market’s aggressive pricing; domestic and cross-border investors ready to pay a premium for liquidity are best prepared to navigate around buying opportunities.

The influx of young well-paid tech workers and the reach of development into new neighborhoods are not without their problems, as many long-time residents of San Francisco have found themselves on the losing side of gentrification. Affordability remains a concern for San Francisco residents and the stringent rent-control regulations remain bothersome for developers looking for short-term value-add investments. San Francisco should see 10,000 new units delivered before the end of 2015. The strong demand side fundamentals of the local economy should absorb the new supply easily. Among the notable projects, approvals are now in place for Parkmerced in the Outer Sunset. The first phase includes more than 1,500 units and will eventually rise to nearly 9,000 apartments. Lennar’s Hunters Point Shipyard-Candlestick Point redevelopment, which will produce 478 affordable and 755 market-rate units, is also underway, with the first affordable units expected in 2016.

To read more on San Francisco and other top multifamily markets, download the full version of the 2015 Multifamily Market Update report here.

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It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

San Diego, CA | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: San Diego, CA

San Diego: 2015 Multifamily Markets to WatchSan Diego’s diverse economic base has been essential to its recovery from the Great Recession and the prevailing strength of the apartment sector. Recent investments in infrastructure, including the expansion of both the San Diego International Airport and San Ysidro Land Port of Call border crossing, have helped bolster the economy with construction jobs, while also laying the groundwork for permanent employment gains in San Diego’s manufacturing, shipping and logistics, and tourism sectors. San Diego has a very large military and defense contractor presence, but it has also seen an uptick in biotechnology investment, including the completion of J. Craig Venter Institute’s net-zero-energy, LEED Platinum genomics laboratory in La Jolla in February 2014. The ambitious I.D.E.A. (Innovation, Design, Education, and Arts) District is aimed at transforming the East Village area of downtown San Diego into a hip “24-hour” neighborhood, with ample space for technology startups, restaurants, and housing options that will appeal to younger renter households.

The market’s overall fundamentals remain strong even as new supply comes online. Freddie Mac projects 2015 vacancy rates of just 2.8% and year-over-year rent growth of 4.1%. The average cap rate has fallen below 5% for recent transactions and refinancing, but investors looking for small- and mid-cap value-add opportunities at marginally higher cap rates than to the north in Los Angeles and Orange County may find that forays into San Diego bear fruit.

To read more on San Diego and other top multifamily markets, download the full version of the 2015 Multifamily Market Update report.

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It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

Portland, OR | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Portland, OR

Portland: 2015 Multifamily Markets to WatchPortland has established itself as a magnet for Millennial households, which in turn has contributed to its very tight rental market. About 7,000 units were delivered in 2014. Still, the multifamily vacancy rate in Portland ended the year at less than 3%. While Freddie Mac expects additional deliveries in 2015 to push vacancy rates up, the agency additionally projects a 3.8% increase in rental rates. Oregon’s land-use restrictions ensure that construction is overwhelmingly in-fill, which fits the Millennial preference for urban living.

The economic and labor market drivers of apartment demand in the Portland area are robust. Among last year’s milestones, November 2014 saw the single largest monthly job growth for Portland since 1990. Intel, which just negotiated a 30-year tax break in exchange for an extraordinary $100 billion investment in semiconductor equipment and facilities at its Hillsboro campus, anchors the high-tech industry in Portland, while Nike received final approvals to expand its Beaverton campus in order to accommodate the addition of 2,100 jobs. German solar panel producer, SolarWorldAG, is set to expand its Hillsboro facility, adding 200 jobs. Small- and medium-sized businesses are flourishing as well, with 57% of the Inc. 5000 list of fastest growing companies calling Portland home.

To read more on Portland and other top multifamily markets, download the full version of the 2015 Multifamily Market Update report.

multifamily_thumbnail

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

Oakland, CA | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Oakland, CA

Oakland: 2015 Multifamily Markets to WatchThe rapid gentrification of some of San Francisco’s most iconic and hitherto relatively affordable neighborhoods has forced many recently priced-out residents to look eastward across the Bay to Oakland. They are not alone, but instead have been joined by some investors who are skeptical of San Francisco’s record low cap rates.

By late 2014, surging demand for apartments pushed rent growth in Oakland to nearly 7.0%, according to Chandan Economics’ tracking of mortgage-financed properties. Supporting continued increases, Freddie Mac projects Oakland’s multifamily vacancy rate will hover just above 3.0% in 2015, barely higher than San Francisco. Developers are working to meet demand. The Temescal/Telegraph neighborhood is seeing a flurry of development activity as investors bet that this area can compete with Berkeley’s Gourmet Ghetto and attract young renters. Deliveries will peak in 2016, relieving some of the upward pressure on rents.

Relocations from San Francisco are not the only drivers of multifamily performance in Oakland. The local economy is strong, supporting local demand that is independent of the Bay Area’s market interplay. The employment picture in the Oakland area has brightened considerably: the unemployment rate peaked at 16.5% in 2009, above the state-wide number, but has since declined to 5.9%, below California’s current 6.5% rate.

To read more on Oakland and other top multifamily markets, download the full version of the 2015 Multifamily Market Update.

multifamily_thumbnail

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

Nashville, TN | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Nashville, TN

Nashville: 2015 Multifamily Markets to WatchThe Nashville metro area added more than 25,000 jobs in 2014, with the largest gains in construction (up 10.1% year-over-year) and professional services (up 7.1%). The recent announcement that Google Fiber will expand to Nashville promises to breathe additional momentum into the already hot tech industry. Unemployment sits at just 5.0% in one of the nation’s post-crisis secondary market success stories. With a healthy outlook for demand, Nashville’s challenges are overwhelmingly on the supply side. With nearly 4,500 new apartment units expected by the end of 2015, largely at the top-end of the market, rent growth is projected to slow in the near-term. For buyers with a long investment horizon, the robust outlook for Nashville’s demand drivers and its relatively higher cap rates may present opportunities to capitalize on a short-term slowdown in fundamentals that will give others pause.

Not to be ignored, there are emerging concerns about affordable housing opportunities in an area where nearly 1 in 5 residents lives below the poverty line. A grassroots affordable housing alliance is pushing for Nashville to adopt inclusionary housing measures, working to ensure that a share of new housing units are reserved for low- and middle-income tenants. The implications for market-rate multifamily development remain unclear, but the public debate bears monitoring over the next year.

To read more on Nashville and other top multifamily markets, download the full version of the 2015 Multifamily Market Update report here.

multifamily_thumbnail

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest com

Miami, FL | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Miami, FL

Miami: 2015 Multifamily Markets to WatchIn spite of its relatively mixed economic and job market trends, the Miami region boasts some of the nation’s strongest multifamily fundamentals. The vacancy rate in the fourth quarter of 2014 was less than 4%, according to Chandan Economics’ tracking of mortgage-financed properties, and increased only slightly in the first quarter of 2015. The tight market has supported annual rent growth of more than 6%. Investors should factor slower gains in underwriting potential investments. A moderating pace of rent growth, in part reflecting new inventory of 5,000 units in 2015, characterizes the near-term outlook.

One of the key sources of capital for the renewal of Miami’s economy and real estate market has been foreign capital, from Latin America, and also from France and Russia. Unfortunately, it is unclear whether foreign investment will keep to its strong pace over the next year. If nothing else, the stronger greenback has rendered US assets significantly more expensive than just 12 or 24 months ago. Local and national players could uncover opportunities to buy value- add opportunities during a lull in cross-border capital inflows.

To read more on Miami and other top multifamily markets, download the full version of the 2015 Multifamily Market Update report here.

multifamily_thumbnail

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

Houston, TX | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Houston, TX

Houston: 2015 Multifamily Markets to WatchThe nation’s energy capital has been rattled over the last year by lower energy prices, though experts disagree on how significant the impact will be on Houston’s increasingly well- diversified economy. Some companies in the oil exploration, production, and drilling businesses will undoubtedly make cuts in 2015. There is no avoiding that five of Houston’s top ten employers are in the oil industry.

While demand may soften, Houston’s most daunting challenge is its pipeline of new apartments. Nearly 30,000 multifamily units were under construction as of the first quarter of 2015, with completions projected to exceed 15,000 units by year’s end. Chandan Economics projects that Houston’s ratio of new jobs to units delivered will slide to below 4.5% in 2015, less than half the national average.

While higher-end construction projects clustered in Houston’s downtown neighborhoods could falter, the suburban multifamily market has a relatively thinner development pipeline and may be better positioned for further rent gains in 2015. Vacancy has evaporated in the mid-tier of the market as many Class B properties have found their way out of the inventory, sometimes through strategic repositioning. Cap rates on these assets are relatively high, affording opportunities for income-oriented investors betting on Houston’s long-run growth record.

To read more on Houston and other top multifamily markets, download the full version of the 2015 Multifamily Market Update report here.

multifamily_thumbnail

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

#CRE Trends and Market Update 2015 | Multifamily

Multifamily Market Outlook

Apartments’ Exceptional Resilience

2015 Multifamily Market Update: Markets to WatchFlouting expectations that new supply would slow the pace of rent gains, the apartment sector over the last year has shown exceptional staying power. Strong rental demand, particularly amongst Millennials, has allowed most markets to absorb new supply without significant disruption to growth in property income. As of the first quarter of 2015, national rent growth and occupancy rates were near their cyclical highs. The former has actually accelerated, with year-over-year increases in asking rents hitting 3.8% in 2014 and 4% on a seasonally adjusted annualized basis in the first quarter.

The view that the apartment sector is benefiting from a fundamental change in how young Americans think about homeownership has factored into investors’ readiness to bid aggressively on core and non-core properties. Prices have surpassed their historic highs, lifted by apartments’ favorable risk profile and an abundance of low-cost debt and equity. Across all markets, the national average cap rate declined to 5.5% in 2014. Debt yields have also fallen to approximately 8% as borrowers assume more debt. Life companies, banks, conduit lenders, and specialty lenders are all competing on price and structure with the venerable agencies—Fannie Mae and Freddie Mac—that account for the largest share of all multifamily financing.

Investors are rightfully enthusiastic about the long-term return profile of the apartment sector but they should also be cautious in evaluating the current investment climate. Over the next year, some of the underlying conditions that have defined post-recession apartment investing are set to change. At least on the margins, older Millennials will revisit opportunities for homeownership as housing markets stabilize further. In particular for those that start families, the appeal of the suburbs will grow: in the hierarchy of amenities, new parents may find that a good elementary school will suddenly matter as much as anything on offer in the urban core.

2015 Multifamily Market Update: Multifamily Unit ConstructionApart from the demographic of cyclical factors that may influence household preferences for renting or owning, there are other risks to the apartment sector that must be considered carefully. Most obvious is the challenge of new supply. While the national numbers (and recent history) point to a level of new inventory that may be absorbed in stride, some markets will inevitably overbuild. In some markets, rent slow-downs have been concentrated in downtowns, reflecting the concentration of new development in a tight geographic area. Where the outlook for income growth is more measured, properties may also exhibit greater sensitivity to eventual changes in the interest rate environment.

Multifamily Market Statistics in 2015

Construction activity in the apartment sector continued to climb throughout 2014. Measured in terms of dollar spending, multifamily development activity reached $43.5 billion last year, up from $32.2 billion in 2013, and a low of just $14.7 billion in 2010. Though the year-over-year pace of increases in spending have slowed, there is still exceptional momentum in new development. Recent completions offer an incomplete gauge of the market’s capacity to absorb new space. As of the first quarter of 2015, units currently under construction are approaching their highest levels in thirty years, since the mid-1980s. The largest development pipelines are in the Texas market, including Austin, Dallas, and Houston, and in New York and Washington, DC. Relative to market size, however, Denver and Seattle will have to absorb their fare share as well.

2015 Multifamily Market Update: Natl Apt Construction Spending2015 Multifamily Market Update: Apt Construction Spending Change

After slowing to a still-impressive pace of 3.5% in 2013, asking rent growth jumped to 3.8% in 2014 and has kept to a  strong seasonally adjusted pace in the first quarter of 2015. Market observers had expected that new supply would push both occupancy rates and rent growth slightly lower, but those projections have not proved out. With most markets running at occupancy rates above their long-term averages, concessions have virtually disappeared, with the result that effective and asking rents are not significantly different. The leading markets for rent growth in the first quarter included in Denver, New York, San Francisco, San Jose, and Seattle. Notably absent from the top of the league tables, rent growth is now lagging in Boston and Washington, DC, one of the few gateway or primary markets to see fundamentals falter on the wave of new supply.

2015 Multifamily Market Update: Apt Asking Rents2015 Multifamily Market Update: Apt Asking Rents Change

Measured across the breadth of small suburban garden apartments at one extreme and the largest urban high-rise properties at the other, multifamily cap rates declined to a national average of 5.5% in 2014. Cap rates fell another 10 basis points to 5.4% in the first quarter of 2015, within range of their all-time lows. Cap rates in the most contested markets, including New York and San Francisco, are now typically in the range of 4% to 5%.

Investors have expressed concerns about a possible bubble in the apartment market, but that has not dissuaded buyers from pushing transaction volume to new highs. In spite of wider-than-average spreads, investors are girding for an increase in interest rates that will exert drags on value. The stronger the prospects for income growth, the more resilient properties should be in the face of higher costs of capital.

2015 Multifamily Market Update: Apt Cap Rates2015 Multifamily Market Update: Apt Cap Rate Spread

Market Cap Rates

Value-weighted national average apartment cap rates fell to 5.5% in 2014, marginally lower than a year before. Market average cap rates ranged from below 5% in selected gateways and primary markets to above 6% in secondary markets and markets where transaction activity was dominated by suburban garden apartment properties. The lowest cap rates were recorded in New York City, principally in Manhattan and the Brooklyn and Queens waterfronts, where investment demand from domestic and cross-border buyers has pushed asset prices to record-highs. Detroit was the only major market to register an average cap rate above 7% in 2014.

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason — we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors, with more than 190 locations in 500+ markets.

To download the full 2015 Multifamily Market Outlook report, click here.

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Phoenix, AZ | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Phoenix, AZ

Phoenix: 2015 Multifamily Markets to WatchThe glut of foreclosed single-family homes now available for rent in the suburban submarkets of Phoenix has not weighed significantly on the downtown apartment scene. Reflecting the depth of the local market’s economic downturn and the challenging path to recovery, however, asking rent growth in Phoenix had been relatively slower than in gateway and other primary markets. The dynamic changed over the last year and a half as vacancy rates fell below 5% and rent growth kicked into high gear, rising nearly 7% in 2014 and at an annualized rate of 7.2% in the first quarter of 2015. The outlook for Phoenix over the next year remains bright, given a limited pipeline of new apartments and healthy job growth.

As cap rates for the best-performing assets have fallen to cyclical lows, developers in the area have more readily snapped up value-add opportunities in urban in-fill locations. Given their relatively high cap rates, property makeovers may offer a compelling buy for investors, provided they have strong operational capabilities.

To read more on Phoenix and other top multifamily markets, download the full version of the 2015 Multifamily Market Update report here.

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It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

Atlanta, GA | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Atlanta, GA

Atlanta: 2015 Multifamily Markets to WatchAfter several years of lagging economic growth, Atlanta proved itself a late bloomer in 2014. Jobs are key to apartment demand and Atlanta is coming into its own. The metro area is generating jobs again, pushing total employment higher by 2.4% in 2014. Illinois-based insurer State Farm announced it would add 3,000 jobs in its national operations center, currently under construction in the northern suburb of Dunwoody. Medical cloud-based services provider, athenahealth, is building out a new 75,000-square-foot loft office space in Atlanta’s Old Fifth Ward neighborhood, and is reportedly looking to add 600 new positions in 2015. To the north, in Alpharetta and Cumming, where the apartment vacancy rate has slipped below 3.0%, financial services technology provider Fiserv is consolidating its 2,000 Atlanta-area employees into a new $41 million campus, and looking to add 500 additional jobs over the next five years.

Like Atlanta’s broader economy and labor market, the apartment sector is also earlier in its current expansion than other metro areas, offering selective opportunities for investors concerned about buying into a mature cycle. Effective rents increased by more than 7% in 2014 and overall vacancy dropped to 6.2%, from 6.7% in 2013. The affluent neighborhood of Buckhead has the lowest vacancy rate, estimated at 3.0%. These trends are not sustainable over the long-run, particularly as renters’ wage and salary growth rates are lower than rent increases, but it will be a soft landing for the best properties as income growth moderates.

As new construction brings an additional 6,500 units online in 2015, rent growth is expected to slow in Atlanta’s core neighborhoods. Atlanta’s apartment market also faces competition from substitution into its highly affordable housing market. According to the National Association of Realtors, qualifying income for a single-family home with 10% down is less than $33,000, compared to $43,500 nationally.

To read more on Atlanta and other top multifamily markets, download the full version of the 2015 Multifamily Market Update report here.

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It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

Austin, TX | 2015 Top #CRE Markets to Watch: Multifamily

Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2015 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Multifamily Market to Watch: Austin, TX

Austin: 2015 Multifamily Markets to WatchFollowing sustained growth in demand from strong migration to Austin, apartment effective rents as of the first quarter of 2015 were more than 30% higher than in 2010. Developers have responded in force to the persistence of rent growth over the last half-decade. Deliveries exceeded 9,000 units in 2014 and another 8,000 are expected in 2015. Even in the context of Austin’s strong job growth numbers, the pipeline is deep. Axiometrics estimates that Austin had roughly three new jobs for every multifamily unit that came online last year; of the most active investment markets, only Washington, DC had a weaker ratio.

With significant new supply, the occupancy rate in Austin has fallen slightly and landlords in a few submarkets have increased concessions and other incentives in order to attract tenants. Local economists and real estate professionals have mixed views on what the shift in the balance of supply and demand will mean for rents in late 2015, with estimates ranging from 5% year-over-year growth to projections of short-lived flatlining or declining property income. Most prognosticators agree that centrally located neighborhoods will continue to show rental growth in spite of the concentration of new inventory in the urban core. Suburban submarkets could see smaller increases or even some effective rent decreases due to concessions. The underlying demand drivers in Austin are strong, however. The market ranked 6th in a recent Forbes list of Top 10 Labor Markets, with an unemployment rate below 4%, and a growth rate in the local economy of roughly 5%. For investors with longer time-horizons, that leaves room for rent growth to pick up again in the medium-term, offsetting the market’s current aggressive pricing.

To read more on Austin and other top multifamily markets, download the full version of the 2015 Multifamily Market Update report here.

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