Commercial real estate investors follow migration trends | Think real estate

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What the housing shortage in the United States means for business investors

The housing shortage is back in the spotlight.

Job growth, the reopening of economies and the resumption of population mobility in the first half of 2021 have led more people to seek residences after being stranded for much of last year. This amplified the ongoing housing shortage in the United States, a scenario that was largely camouflaged by more relevant narratives that emerged during the pandemic. Despite record levels of single-family and multi-family home development, demand is on the verge of exceeding supply and could further worsen the deficit over the next decade. More than a million new households are expected to form each year until 2031, a pace that builders will struggle to keep up. The current landscape of historically high material costs and insufficient labor in the construction industry will also create additional hurdles.

Demographics and the widening affordability gap predict increased demand from tenants.

The accelerated rate of household growth over the next few years is mainly due to the aging of the Generation Y cohort. The largest segment of the group reaches their early thirties, an age group that generally corresponds to education. family and the transition to home ownership. The housing shortage, however, has pushed the selling prices of single-family homes to new highs, raising the bar to become a first-time buyer. The difference between an average monthly apartment rent and a typical mortgage payment on a single-family home in the United States has more than doubled in the past year. As a result, many households who want to buy a house but are priced out of the price switch to renting, shifting demand towards multi-family dwellings, especially luxury units for those on the fringes. At the same time, some young households prefer the flexibility of a short-term apartment lease and reduced maintenance costs as well as the lifestyle and amenities that higher quality apartment complexes offer. Improving demand for luxury rentals was reflected in the nation’s Class A vacancy rate, which fell 100 basis points in the second quarter to 4.5%.

Catalyst economic dynamism of the multifamily sector.

A clear illustration of the state of the recovery so far, the multi-family sector recorded one of its best periods of performance in the second quarter. More than 218,000 apartments were absorbed from April to June, a record dating back to at least 1993. The increase brought the national vacancy rate down to 3.8%, almost in line with the 2019 low of 3. 7%, while effective rents have climbed above before. pandemic levels. The surge in demand from tenants has been fueled by multiple factors, including job growth and household formation. More than 1.7 million jobs were created in the United States during the months of April to June, spearheading the largest household formation quarter in nearly 20 years. Many of those who were previously unemployed have found a sustainable source of income, which has enabled them to move into their own residence after living with family or friends during the pandemic.

Downtown apartments are getting stronger as young adults find jobs.

Many recent college graduates were unable to find jobs last year when the pandemic disrupted hiring activities. Some were able to fill roles from a distance, which may have prompted them to live with family or friends during the health crisis to save on expenses. Now, as companies begin to bring workers back to the office and hire, more and more younger generations are taking jobs and moving out. It’s a positive wind for apartment demand, especially in urban areas, as people in their 20s often prefer the downtown lifestyle and nearby amenities. The appeal of downtown living has been reopened with the reopening of shops, entertainment venues and attractions. These trends were illustrated in the second quarter when the urban cores of major markets combined to register 40,000 absorption units, the largest quarterly total dating back to the turn of the century.

Investors are focusing on outperforming Sunbelt markets, putting pressure on cap rates.

Many people prioritize quality of life and cost of living considerations when deciding where to live, which reinforces relocation to the Sunbelt. Phoenix, Dallas-Fort Worth, Atlanta, Houston and Las Vegas each recorded a migration of at least 35,000 people last year. The additional residents improve the performance of apartments in these subways, attracting the attention of more investors. In Phoenix, the vacancy rate hit an all-time low of 3.2% in the second quarter, leading to an eye-catching 16.6% year-over-year jump in average effective rent. Likewise, the vacancy rate in Las Vegas has fallen to a decade-low 3.3%, pushing rents up 13.9% year-over-year. Other subways with annual rental growth exceeding 12% include Riverside-San Bernardino, Tampa, Sacramento and Jacksonville.

Many commercial real estate investors are following migration trends and focusing on the secondary and tertiary markets of the Sunbelt, which widens the pool of buyers and intensifies competition for assets. The average price per unit of negotiated apartments has increased by more than 10 percent over the past year in Phoenix, Columbus, Jacksonville, Atlanta, Las Vegas and Pittsburgh. Nationally, the average price has increased from half that amount to five percent per year to reach $ 171,000 per unit for transactions of $ 1 million and above. The average cap rate, meanwhile, fell to 5.1%, which is the lowest measure in more than two decades and down 100 basis points from 2013. On the other hand, the Price growth is lagging behind in some subways like San Francisco and New York. . However, the recovery in these markets has passed and opportunistic investors remain active.


John Chang is the National Director of Research Services for Marcus & Millichap. He is responsible for the production of the firm’s wide range of commercial real estate research publications, tools and services. Under his leadership, Marcus & Millichap has grown into a leading source of market analysis, analysis and forecasting, and the company’s research is regularly cited throughout the industry and in business media. General public.

John oversees a team of dedicated real estate research professionals who produce more than 1,000 annual company market research publications and conference presentations. These detailed reports, analyzes and presentations integrate economic and financial market trends with information on all major types of commercial properties including: hotels, industrial, prefabricated housing, multi-family, offices, doctor’s office, multi-tenant retail, single-tenant retail, self-storage and senior housing.
John is a seasoned industry analyst who has been cited in numerous publications and is an active member of the Advisory Board of the NMHC Research Foundation, the ICSC North American Research Task Force, and the NAIOP Research Foundation. It regularly presents a wide range of conferences and events hosted by leading organizations such as NMHC, NAIOP, ULI, CCIM, ICSC, SSA and many more.

John joined Marcus & Millichap in April 1997 as Research Director in the Seattle office. After holding leadership roles in marketing and e-commerce with leading residential real estate companies in the Pacific Northwest, he joined Marcus & Millichap in November 2007 as head of its Research Services division. John was elected Vice President in 2010, became Senior Vice President in 2013, and promoted to Senior Vice President in 2018.



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