Archives for January 2023

Investors should look beyond headlines to find CRE opportunities over the five-year horizon, according to one industry watcher.

“So much depends on each investors’ strategy, risk tolerance, knowledge, experience, capital, and geographic focus,” says Marcus & Millichap’s John Chang. But six key property types pose opportunities for growth for the savvy investor: you just have to know where to look.

Multifamily, which has been on a record tear since the pandemic, saw fundamentals retreat somewhat over the course of 2022, with vacancy ticking up 190 basis points to 4.5% and rent growth slowing. Chang says that trend will likely continue — but says the long-term housing shortage should still bolster demand over the next five years.

“Because the cost of homeownership surged, apartment rentals have become even more cost effective housing options. on a macro level, that will sustain multifamily investments over the five-year horizon,” he notes.

As for retail, ”when you look at its performance, even during the pandemic, you’ll see the myth that’s been perpetuated,” Chang says. Neighborhood and community retail has held up well in particular, with multi tenant retail vacancy rates in the upper 5% range, roughly where they were pre-COVID. Average rents are also up 10% over 2019 levels. Supply risks are limited as well as new construction has been limited over the last decade.

“Given the cap rates that retail trades at, the property type remain well positioned for the five-year outlook,” he says, adding that single tenant net lease remaining a popular option for investors using a 1031 exchange.

“The key ingredients have been the strength of the tenant, the length and term of the lease, and the property location,” Chang says. “More but not all of the single tenant property leases also include inflation escalators which makes them more appealing than they used to be.”

Medical office is also a favorite, with long leases running in general more than 10 years in duration. The outlook is supported by the strong aging baby boomer population, which is aging into their 60s, 70s, and 80s, Chang says.

And “on somewhat of a different trajectory, traditional office properties are entering 2023 with a COVID hangover,” Chang says.  A majority of the office-using workforce continues to work from home, at least part time, but Chang says investors need to look below the surface.

“Downtown office space in Class A buildings have been most impacted by this trend, while suburban office in Class B and C properties have generally outperformed expectations,” he says. “Investors who think long term and who are willing make a counter-bet have the potential to capitalize on the soft office investment climate.”

Industrial properties also remain a favorite among investors. The outlook in some markets is clouded by the record 400 million sf of space slated to come online this year, but development remains highly concentrated among 10 metros, according to Marcus & Millichap data.

Source: “Sourcing Investment Opportunities That Go Beyond the Headlines“

The unemployment rate continues to drop in New Mexico and last month was no exception.

According to data released Tuesday by the New Mexico Department of Workforce Solutions, the unemployment rate came in at 3.9% in December — a nearly 15-year low and the lowest rate in 2022. The last time New Mexico’s unemployment rate stood at 3.9% came in April 2008, state data shows.

New Mexico’s unemployment rate continues to trend closer to the national average, which was 3.5% last month and had tied for a 53-year low, according to federal data.

In a statement, Gov. Michelle Lujan Grisham called the unemployment rate – which the state says is the largest year-over-year decrease in the unemployment rate across the nation – is a good sign for New Mexico.

“It’s crystal clear — our economic investments are working and jobs are growing,” she said.

Deep dive

The state’s unemployment rate — which measures the percentage of the labor force that is unemployed and is actively applying for work – dropped each month or remained the same with the exception of October, when the rate had climbed to 4.3% from 4.2% the previous month.

Data shows December’s unemployment rate is a drop from 4.1% in November and from a high of 5.9% at the beginning of the year.

December’s number is also largely different from the rates in 2020, when unemployment had hit a new high during the onset of the COVID-19 pandemic and when many businesses were closed and forced people out of jobs. At the time, the unemployment rate had reached a high of 9.8% in May 2020.

Reilly White, an associate professor with the University of New Mexico’s Anderson School of Management, told the Journal the unemployment rate has followed the same trend as that seen at the national level, for the most part coming in lower each month.

But he said the “nature of the workforce is changing,” in New Mexico with fewer government workers compared to a decade ago and an increase in workers in other areas such as education. That drop in government workers, along with the loss of workers in other industries, coincides with New Mexico’s low labor force participation rate – which stood at 55.7% in December – he said.

“This is due to a number of factors, especially increased retirements,” White said. “Despite the oil boom bringing in record revenues to state coffers, employment in the cyclical mining and logging sector is 27% lower than at the end of 2014.”

Year-over-year data shows, though, that some sectors are recovering. Mining and logging, for instance, grew by 1,800 jobs. Manufacturing added 700 jobs year over year and construction added 2,500 jobs. Large increases have also come in education and health services, as White pointed out. In the last year, that sector grew by about 6,200 jobs, or 4.4%, the data shows. Leisure and hospitality also grew by about 5,000 jobs – a trend that held for much of last year.

County by county

Non-seasonally adjusted rates for unemployment show that more dense counties — including Santa Fe, Doña Ana and Bernalillo — tend to trend lower than in less populated counties.

Bernalillo County, for instance, had an unemployment rate of 3% last month, the data shows, while Santa Fe County dropped to 2.8%. Doña Ana County saw its unemployment rate drop from 4% in November to 3.7% in December.

In Eddy and Lea counties, where oil and gas drilling operations reign supreme, the unemployment rate stood at 2.5% and 3.7%, respectively.

Luna County had the highest unemployment rate in the state last month at 11.6%, an increase from 11.1% in November. The lowest rate was in Los Alamos County at 1.5%, according to the data.

Looking ahead

White, who also serves as an associate dean of teaching and learning for the Anderson School of Management, said New Mexico doesn’t follow the same trends as other states, mainly because of the large population working in government and the lack of large companies with work forces stationed in the state.

“We have few large companies and a larger amount of government employees than other states, so large layoffs are uncommon,” White said. “Although we feel recessions less than other states, it takes us longer to recover.”

But White said if — or when — New Mexico enters a recession, unemployment will likely rise and taxes received by state and local governments will shrink with people spending less money.

“It’s still too early to determine when or if the layoffs in the tech sector will spread to other industries,” he said. “Construction, retail and manufacturing employment are often hit hard by recessions. … How severe the recession will be ultimately depends on the response from the federal government and the Federal Reserve.”

Source: “New Mexico’s unemployment rate has dropped to the lowest level in nearly 15 years“

The US is now rent-burdened nationally for the first time, according to new research from Moody’s, as wage growth increasingly trails rent growth.

The national average rent-to-income (RTI) reached 30% for the first time in the more than 20 years Moody’s has tracked, up 1.5% from year-ago and 0.2% from Q3. The metros with the highest rent to income ratios include New York (nearly 70%), Miami (just north of 40%), Fort Lauderdale, Los Angeles, Palm Beach, Northern New Jersey, Boston, Tampa – St. Petersburg, San Francisco, and Orlando.

Affordability in the South Atlantic and Southwest declined most, as rents ticked up fueled by in-migration and median household incomes failed to keep pace. But ”by the end of 2022, as pandemic migration ebbed and the rent growth fever broke, the South Atlantic and Southwest showed much expected signs of moderating,” Moody’s economists Lu Chen and Mary Le write. “The Southwest even posted 0.1% decline in its RTI in the fourth quarter.”

The top three most rent-burdened states also remained relatively unchanged from Q3: Massachusetts (32.9%), Florida (32.6%), and New York (31.2%).

“Over the past three years, Nevada (+4.9%), Florida (+4.8%), Alabama (+4.2%), South Carolina (+4.2%), Arizona (+4.1%), and New Mexico (4.0%) all experienced the highest increase in the state’s average rent burdening, attributed to significantly higher (>~20%) rent growth than respective median household income growth during the three-year period,” the report states. And seven rent-burdened metros remained unchanged in the fourth quarter: New York (68.5%), Miami (41.6%), Fort Lauderdale (36.7%), Los Angeles (35.6%), Palm Beach (33.6%), Northern New Jersey (33.3%), and Boston (32.9%).

Sixty metros still have worse rental market affordability than a year ago, according to Moody’s. And over the past three years 75 have higher rent-burdening than prior to COVID “because rent disproportionately rose faster than incomes,” according to Moody’s — with 70% are in South Atlantic.

On the opposite end of the spectrum, five metros are now less rent-burdened: San Francisco (-2.5%), Washington, D.C. (-1.5%), San Jose (-1.1%), Suburban Maryland (-0.9%), and Minneapolis (-0.3%).

Source: “The US Is Nationally Rent Burdened for the First Time“

The unemployment rate continues to drop in New Mexico and last month was no exception.

According to data released Tuesday by the New Mexico Department of Workforce Solutions, the unemployment rate came in at 3.9% in December — a nearly 15-year low and the lowest rate in 2022. The last time New Mexico’s unemployment rate stood at 3.9% came in April 2008, state data shows.

New Mexico’s unemployment rate continues to trend closer to the national average, which was 3.5% last month and had tied for a 53-year low, according to federal data.

In a statement, Gov. Michelle Lujan Grisham called the unemployment rate – which the state says is the largest year-over-year decrease in the unemployment rate across the nation – is a good sign for New Mexico.

“It’s crystal clear — our economic investments are working and jobs are growing,” she said.

Deep dive

The state’s unemployment rate — which measures the percentage of the labor force that is unemployed and is actively applying for work – dropped each month or remained the same with the exception of October, when the rate had climbed to 4.3% from 4.2% the previous month.

Data shows December’s unemployment rate is a drop from 4.1% in November and from a high of 5.9% at the beginning of the year.

December’s number is also largely different from the rates in 2020, when unemployment had hit a new high during the onset of the COVID-19 pandemic and when many businesses were closed and forced people out of jobs. At the time, the unemployment rate had reached a high of 9.8% in May 2020.

Reilly White, an associate professor with the University of New Mexico’s Anderson School of Management, told the Journal the unemployment rate has followed the same trend as that seen at the national level, for the most part coming in lower each month.

But he said the “nature of the workforce is changing,” in New Mexico with fewer government workers compared to a decade ago and an increase in workers in other areas such as education. That drop in government workers, along with the loss of workers in other industries, coincides with New Mexico’s low labor force participation rate – which stood at 55.7% in December – he said.

“This is due to a number of factors, especially increased retirements,” White said. “Despite the oil boom bringing in record revenues to state coffers, employment in the cyclical mining and logging sector is 27% lower than at the end of 2014.”

Year-over-year data shows, though, that some sectors are recovering. Mining and logging, for instance, grew by 1,800 jobs. Manufacturing added 700 jobs year over year and construction added 2,500 jobs. Large increases have also come in education and health services, as White pointed out. In the last year, that sector grew by about 6,200 jobs, or 4.4%, the data shows. Leisure and hospitality also grew by about 5,000 jobs – a trend that held for much of last year.

County by county

Non-seasonally adjusted rates for unemployment show that more dense counties — including Santa Fe, Doña Ana and Bernalillo — tend to trend lower than in less populated counties.

Bernalillo County, for instance, had an unemployment rate of 3% last month, the data shows, while Santa Fe County dropped to 2.8%. Doña Ana County saw its unemployment rate drop from 4% in November to 3.7% in December.

In Eddy and Lea counties, where oil and gas drilling operations reign supreme, the unemployment rate stood at 2.5% and 3.7%, respectively.

Luna County had the highest unemployment rate in the state last month at 11.6%, an increase from 11.1% in November. The lowest rate was in Los Alamos County at 1.5%, according to the data.

Looking ahead

White, who also serves as an associate dean of teaching and learning for the Anderson School of Management, said New Mexico doesn’t follow the same trends as other states, mainly because of the large population working in government and the lack of large companies with work forces stationed in the state.

“We have few large companies and a larger amount of government employees than other states, so large layoffs are uncommon,” White said. “Although we feel recessions less than other states, it takes us longer to recover.”

But White said if — or when — New Mexico enters a recession, unemployment will likely rise and taxes received by state and local governments will shrink with people spending less money.

“It’s still too early to determine when or if the layoffs in the tech sector will spread to other industries,” he said. “Construction, retail and manufacturing employment are often hit hard by recessions. … How severe the recession will be ultimately depends on the response from the federal government and the Federal Reserve.”

Source: “New Mexico’s unemployment rate has dropped to the lowest level in nearly 15 years“