Archives for January 2022

A recent RentCafe survey of 3,300 renters reveals that 78% are interested in living in SFR communities.

This year is shaping up to be the hottest on record for the popular build-to-rent sector, as consumers priced out of the homebuying market seek more privacy and space in secondary and suburban locations.

Single-family rental construction posted its strongest year ever last year with 6,740 new build-to-rent homes constructed, according to YardiMatrix data. But this year’s supply of new BFR homes is expected to more than double that record, with 14,000 planned to open their doors in 2022.

While BFR homes proliferated in the aftermath of the Great Financial Crisis, “this time it’s different,” RentCafe’s Alexandra Ciuntu says. “The pandemic created an unprecedented demand among renters for space and privacy, which houses can address much better than apartments.”

A recent RentCafe survey of 3,300 renters reveals that 78% are interested in living in SFR communities. Searches for homes for rent tripled in 2021 compared to the previous year, Ciuntu says.

“It’s easy to see the appeal of built-to-rent homes: the trend combines the financial and leasing flexibility of a rental with the amenities and convenience of a professionally managed property, all while living a single-family home lifestyle,” she says. “As a result, everyone is interested.”

SFR homes tend to be clustered in lower-density areas since they require significant amounts of land to develop; about 61% of all SFRs are in suburban locations. RentCafe’s survey results hewed closely to that trend, with 29% of respondents saying they would choose a SFR because they want more space, and 25% saying they want more privacy.

Phoenix leads the way as the #1 metro for BFR homes, with a total of 6,420 homes in SFR communities, followed by Columbus, Dallas, Houston, and Riverside. The Phoenix metro area also leads the way in new apartment construction.

The two largest build-to-rent communities of SFRs are in Las Vegas.

Investors are taking note, with multiple players launching capital funds with the build-to-rent strategy in mind. In October, PEG Companies (PEG), a vertically integrated commercial real estate investment firm, launched PEG Capital Partners Fund IV, L.P., which is targeting $200 million in equity to focus on development and management of luxury BFR communities in the primary markets of Utah, Idaho, Arizona, and Colorado.

Source: “2022 Will Be Hottest On Record For Build-To-Rent“

Secondary markets drove the absorption of office space in the second half of 2021.

Despite a relatively strong end to the fourth quarter, office investors are still likely to remain on the sidelines in primary markets as rent remains flat and outpaced by inflation and high borrowing costs.

A new analysis from research economist Scholastica Cororaton of the National Association of Realtors predicts that secondary office markets will continue to drive demand in 2022 as they did last year. The fourth quarter saw 14.5 million square feet in absorption, an improvement over Q3’s 5.6 MSF. But “given the massive amount of space given up during 2020 Q2 through 2021 Q2, office occupancy is still down by 117.8 million square feet as of 2021 Q4,” she says.

Citing CoStar data, Cororaton notes that “secondary markets drove the absorption of office space in the second half of 2021,” led by Atlanta (3.3 MSF), Austin (2 MSF), San Jose (2 MSF), Dallas-Fort Worth (1.9 MSF), Houston (1.3 MSF), Seattle (1.3 MSF), Palm Beach (1.1 MSF), and Nashville (1 MSF).

By contrast, Chicago, New York, and Washington D.C. all showed losses in office space occupancy. Notwithstanding a relatively improved second half of the year, 117. 8 MSF of office space remains unoccupied, with at least 10 MSF of office space released to the market since 2020 Q2 across New York (-29 MSF), Los Angeles (-10.5 MSF), Washington, D.C. (-10.2 MSF), San Francisco (-9 MSF), Chicago (-8.2 MSF), and Boston (-5 MSF).

“The office market will continue to see significant headwinds in 2022 arising from the impact of inflation on investor office acquisitions and the effect of the omicron variant on office re-entry,” Cororaton writes. “The high inflation rate is likely to have an impact on office acquisitions in metro areas that are suffering large office vacancy rates, which are mainly the major office markets. With inflation currently hovering at 7%, with construction costs up 15%, and with a tight labor market with wage growth hovering at 4.5%, investors are facing negative real returns. Rents are not likely to rise on pace with inflation in the primary major markets of New York, Chicago, Washington, D.C., Los Angeles, and San Francisco given the large vacancy rate in these markets. So, expect investors to remain on the sidelines in these markets.”

That aligns with reports from late last year, which pointed to suburban assets continuing to be the focus of investor favor. Buyers socked more than $25 billion into these properties in the third quarter alone, while just $9.6 billion was allocated to CBD locations. Boston was the most active city for office investment in the first three quarters of the year, according to Colliers,  with $8.5 billion of sales closed. San Jose and Seattle followed behind at $4.9 billion and $4.8 billion, respectively.

Source: “Office Investors Will Bypass Primary Markets in 2022“

Last week, the Commerce Department reported that US retail sales fell 1.9% in December. It marked the end of the fourth consecutive month of growth, following November’s rise of 0.3% and a 1.8% jump in October. December’s disappointing performance, it is widely agreed, reflects a combination of consumers’ fears over inflation and the supply chain dysfunction that has emptied many store shelves.

What is the retail sector to make of these numbers? Are they a momentary blip in an otherwise healthy string of advances? Or, do they signal the start of a greater decline. For answers we turn to Anjee Solanki, national director, Retail Services, US, Colliers.

View the presentation here.

Source: “5 Facts About December’s Decline in Retail Sales“