Multifamily Holds Steady Amid Fears of Slowdown
Some prognosticators have chattered about an impending market correction for a while now. But the multifamily sector is holding steady, according to CBRE Research's analysis of U.S. Census Bureau data. Through September 2019, 340,600 units were approved, a 7.6 percent bump from a year before. In all, 121,900 units were approved in 3Q2019, a year-over-year increase of 19.7 percent. Through 3Q2019, 622,000 multifamily units were under construction, according to the U.S. Census Bureau. That total topped 600,000 in 3Q2016 and remained steady since, pointing to high demand without continued acceleration.
Another metric of growth, construction starts, totaled 278,000 through 3Q2019. This figure represents a high level for this economic cycle, but it pales in comparison to the booming growth of the 1970s, which often topped 600,000 starts a year.
Offices Near Transportation Hubs Draw Interest
The trend of employers opting for urban office locations over suburban alternatives isn't new, but recent research measures the effect accessibility to public transportation has on office values. The report, from the American Public Transportation Association and the National Association of REALTORS®, examined five regions between 2012 and 2016. Four saw median sales “increase between 5 and 42 percentage points more in transit-proximate areas when compared with areas farther from public transit.” Boston (38 percent growth in transit sheds to 4 percent loss in non-transit areas) and Los Angeles (85 percent to 48 percent) saw the biggest gains. Seattle was the only market where non-transit areas (59 percent growth) outpaced transit sheds (14 percent contraction).
Of all the households involved in the study, one in four did not own a personal vehicle, which translated to households saving between $2,500 and $4,400 per year.
Experts Think Industrial Is (Barely) Overpriced
“Emerging Trends in Real Estate,” a recent report by PwC and Urban Land Institute, pointed to structural transformations in the industrial sector, with demand, supply, and capital markets driving value in warehousing.
“[T]he value proposition of logistics real estate surged, just as availability reached its lowest point in recorded history,” the report states.
According to ULI/PwC, current opinion of industrial pricing leans toward overpriced than under. While 1.2 percent saw warehouse as being underpriced, another 45.6 percent said it was overpriced. In fulfillment, 5.9 percent said the market was underpriced, while 46.4 said it was overpriced.
Much of the industrial growth has been concentrated in six markets, with Dallas, California's Inland Empire, Pennsylvania, Atlanta, Chicago, and Houston accounting for 45 percent of new completions and half of all space under construction after 2Q2019.
Community Areas Gaining Space in Hotels
Generational change is coming to hospitality, specifically in how hotels approach the designs of their shared space. “Hotels have always had lobbies, pools, bars, and restaurants,” says Lauro Ferroni, JLL's Global Head of Hotels & Hospitality Research, to The Hotel Conversation. “But now the design and features of these communal spaces are being driven by hotels wanting to appeal to younger travelers.” Along those lines, Moxy, Marriott's boutique brand, and Tru, Hilton's line of affordable midscale hotels, aim to recapture customers who have opted for firms like Vrbo and Airbnb.
Facing competition from home rental companies, hotels are ways to appeal to larger groups, including friends and families traveling together, according to David Black, managing director with JLL Hotel Project and Development Services.
Hemp Market to Boom in Next 5 Years
The 2018 Agriculture Improvement Act opened the door for nationwide industrial hemp production. According to the Realtors Land Institute, the hemp market is currently worth $620 million, but that value could balloon to $5 billion in the next two years. Commodity prices for traditional crops have dipped to 30-year lows, increasing interest in hemp from the agriculture industry. Of the 78,000 acres of hemp grown in the U.S. in 2018, most was grown for CBD (70 percent), with grain (10 percent), fiber (10 percent), and other uses or crop loss (10 percent) rounding out the uses.
No longer listed on the federal government's official list of controlled substances, hemp and its producers can now be supported by agricultural grants, crop insurance, and access to the national banking system.
New Jersey Tops List of Self-Storage Markets
The self-storage sector has attracted increased interest from institutional investors. Their share of volume has jumped to 31 percent in the 12 months prior 2Q2019, up 11 percent from the prior year, according to Real Capital Analytics. Northern New Jersey topped the list of markets in construction activity, $294 million in the year through 2Q2019. New York ($262 million), Orlando ($199 million), and Dallas ($190 million) rounded out the top four U.S. locations.
Measuring acquisition activity, Detroit topped the major urban markets with $391 million in the year through 2Q2019, following by Houston ($362 million), New York ($287 million), and Boston ($263 million). The total sales volume reached $1.8 billion in 2Q2019, buoyed by a 44 percent increase in sales activity from the year prior.
Developments Aim to Mix City, Suburban
If “hipsturbia” doesn't mean much now, it could soon be a buzzword, according to “Emerging Trends in Real Estate” from ULI and PwC. The neologism refers to developments that mix appealing elements of suburbia - affordable mortgages and quality schools - with downtown amenities. The ULI/PwC report covers three examples:
- Santa Clara, Calif., announced a 240-acre mixed-use development with office, retail, multifamily, and recreation options near public transportation.
- Northwestern University attracts young adults to Evanston, Ill., with access to Lake Michigan and downtown Chicago, and plentiful bar/restaurant options.
- Tempe, Ariz., similarly combines transit access with coffee shops, sit-down restaurants, brew pubs, retail, and 24/7 entertainment.
Mass Retailers in Store for Big Growth?
Brick-and-mortar retail has potential for growth in the coming years, according to an October 2019 report from the International Council of Shopping Centers. But mass merchandise retailers such as Target will be the biggest winners in the next five years, with sales growth of 12.7 percent compounded annual growth rate - much higher than supermarket, convenience, and discount stores, which all fall below the 6 percent average increase in sales.
Edge by Ascential's 2019 Store of the Future Benchmarking study found that 26 leading retailers excelled in presenting a curated shopping experience, while they struggled in offering frictionless transactions and experiential characteristics. But for many convenience and discount stores, experiential initiatives are not prioritized because they result in minimal improvements.