2021 Outlook Jan12

2021 Outlook

For more than 40 years, PwC and the Urban Land Institute have produced a trends and forecast publication. The 2021 edition of Emerging Trends in Real Estate summarizes views gathered in interviews and surveys of more than 2,950 property owners, investors, fund managers, brokers and others in the U.S. and Canada. COVID-19 dominates virtually every examination of real estate, and Emerging Trends is no exception. Yardi Matrix reported, for example, that multifamily property sales through the third quarter were down more than 41% from the same period the previous year. Meanwhile, 33% of office-space decision-makers participating in a study sponsored by BOMA International, Yardi and Brightline Strategies reported experiencing at least a 25% revenue decline since the pandemic’s onset. Here are some highlights from the 111-page PwC/Urban Land Institute report: “COVID-19 has kicked real estate certainty to the ground,” the publication says, with confidence in future demand for many property types having dropped precipitously in 2020. But technology has eased adaptation to the drastic measures prompted by the pandemic. Millions of office workers successfully transferred to remote environments, for example. The report notes, “The WFH experiment has gone better than most managers and employees had expected, since new teleconference tools and advanced information technology systems have allowed for effective communication and collaboration.” Many who contributed to the report predict that measures adopted during the pandemic will continue when workers return to the office, including flexible hours, reduced shared spaces, ongoing enhancement of building environmental systems, and physical barriers. The report also speculates that some companies might consider abandoning the consolidated model of leasing and using office space in favor of a hub-and-spoke system with satellite offices. And, the report notes, “Significant opportunities to operate and manage buildings more efficiently are ahead as well,” as property management technology providers deliver solutions that “gather, organize, and use data to reduce costs, identify risks, and more proactively operate buildings; identify appropriate investment strategies; and better serve tenants.” Property owners are also likely to continue making investments in technologies that strengthen cybersecurity, ensure business continuity and assess a building’s compliance with heightened health standards. With companies increasingly focused on controlling costs, those investment will most likely target immediate critical necessities. Tech is also driving profound changes in the multifamily sector. The report quotes an unidentified major apartment landlord: “The pandemic changed how people lease apartments. Online tours and processes are now preferable, and while some reversion to in-person tours may occur, we believe that online interaction will be acceptable in most cases. Reluctance to adopt technology is a key challenge, and COVID has been an opportunity to change that.” Demand for smart-home technology such as touchless controls on sinks, motion sensor lights and voice commands also figures to increase, the report says. Yardi continues to dedicate special resources to help clients, employees and communities weather the COVID-19...

Status of Storage Dec21

Status of Storage

Confidence in self storage remains high as the sector demonstrates ongoing strong street rate performance despite COVID-19’s continued impact across the U.S., reports the latest Yardi Matrix National Self Storage Monthly report. National street rates for standard 10×10 non-climate-controlled (NON CC) units increased 1.7% last month compared to November 2019. While year-over-year street rates nationwide for 10×10 climate-controlled (CC) units did not increase, the flat performance reflects an improvement over the first nine months of 2020. From October to November, national street rates for 10×10 NON CC units also saw an increase of 0.9%, while nationwide rates for similar-size CC units remained unchanged. Annual street rate performance was negative in only about 19% of the top markets tracked by Yardi Matrix for 10×10 NON CC units in November. Rates for this unit type were hit the hardest in Minneapolis, which saw a 3.5% decrease year-over-year. Experts caution that despite several months of rosy reports, there still could be challenges ahead. “While self storage has established itself as a strong performer in difficult market conditions, it could face a tough slog ahead as another round of COVID-related lockdowns and restrictions emerges this winter,” states the report. Nationwide, Yardi Matrix tracks a total of 2,136 self storage properties in various stages of development—comprising 590 under construction, 1,134 planned and 412 prospective properties. The national new-supply pipeline as a percent of existing inventory increased by a minor 0.1% month-over-month in November, and the share of existing properties in various stages of development accounts for 8.3% of existing inventory.  Yardi Matrix also maintains operational profiles for 26,351 completed self storage facilities across the United States, bringing the total data set to 28,487. Read all the highlights for self storage in the latest National Self Storage Monthly...

Employment Impacts Dec03

Employment Impacts

The COVID-19 pandemic has been inconsistent in the way it has affected the U.S. employment market, creating a wide disparity between metro and job segments. This is the main conclusion of the latest special employment report from Yardi Matrix. Leisure and hospitality was by far the biggest employment sector loser, with 3.8 million jobs lost. In contrast, only 1.8% of the jobs in financial services have been lost since the start of the pandemic. However, the overall impact varied greatly depending on the city. Metros with the best job performance include those with relatively small leisure and hospitality industries and those that have lost relatively few jobs in the segment (Indianapolis, for example, lost only 6.5%). One outlier, Austin, has added 8,200 professional and business services jobs and 7,300 financial services jobs since February. While the size of a metro’s leisure and hospitality segment is a key in the extent of job losses, a more significant factor is how thoroughly the metro shut down to stop the spread of COVID. Few of the top 10 metros in the percentage of jobs lost since February are among the leaders in leisure and hospitality jobs, but all are at or above the average proportion of jobs lost in the segment. New York City, for example, has a relatively small leisure and hospitality segment (9.8% of all jobs), but a whopping 42.3% of those jobs disappeared. “The data does show hope for the future for the gateway metros that have been hard hit, because the core industries in those metros, such as finance and professional services, remain viable,” states the report. “Once a vaccine is available and people feel safe going back to entertainment venues, restaurants and the like, gateway cities (like New York, San Francisco, Boston...

Opposite Outlooks Nov12

Opposite Outlooks

It’s a tale of two outlooks for the industrial and office real estate sectors, reported the experts from Yardi Matrix and CommercialEdge in a commercial real estate webinar presented on Nov. 11. As the end of 2020 nears, each market has a different trajectory. For owners and investors in the office sector, the full impact of the pandemic and its impact on the way employees work, especially in the knowledge and technology sectors, has yet to be unveiled. Major office properties tend to operate on long leases, so while rent remittance has been generally solid this year, as leases come to term in 2021 things could change. The big question, said Yardi Matrix vice president Jeff Adler, is what use of office space looks like in the future. One thing 2020 has taught us is that it likely doesn’t look like the old model of spending five days a week in a cubicle. “There is a re-evaluation of ‘what is the purpose of space?’ Was the purpose of that space that people got things done there? Or was it a culture purpose? If it was simply to do a task, it’s become clear that task can likely be done at home. How space is used, why space exists and why you need it in the first place is going to be reimagined,” Adler said.  “What kind of office footprint do you actually need to achieve the business goals that you have?” The answers to those questions will determine the floorplans and lease terms of offices post-pandemic. Also at play: where they’re located (public transit use is still dramatically decreased) and how many workers will come to the office on any given day. Right now, going back to a 5-day office work week seems highly...

Multifamily Movement Nov05

Multifamily Movement

The number of Americans who have moved since February 2020 wasn’t unusual compared to typical U.S. mobility trends, but there has been a distinct shift in where they are relocating, according to the latest Yardi Matrix multifamily webinar. In brief, big urban cities like New York, Chicago, San Francisco and Miami are out, while second tier markets and tech hubs like Austin, Kansas City, Sacramento and Boise are in. “What we really have seen is a movement of people that is different from what we have seen in the past,” said Jeff Adler, vice president of Yardi Matrix, who delivered the analysis. A webinar on the commercial real estate market with valuable insight for that sector will take place on Wednesday, Nov. 11. You can register here. The Nov. 4 multifamily session, which is now available to view on demand, summarized the trendlines for the apartment market nationwide. It has been relatively resilient despite the economic fallout caused by the COVID-19 pandemic. For example, in the month of October, 94.6 percent of apartment households had paid rent as of Oct. 17, according to NMHC’s Rent Payment Tracker. However, small owners and managers of less than 50 units are suffering. These owners typically hold small balance loans, or SBLs. “Because SBLs are typically used to finance apartments with less than 100 units, each resident that has trouble paying rent has a more significant impact on the property’s cash flow,” stated the Matrix summary. The bulk of the 16 million Americans who have moved since February, though, are working from home and seeking a relocation situation that will be advantageous during the remaining months of the pandemic. They’re seeking out apartments or single-family homes where they have more space and eschewing the walkable urban lifestyle that...

Student Housing’s Strength Oct15

Student Housing’s Strength

Despite massive disruption to in-person learning protocols, demand for off-campus, purpose-built student housing remains strong, according to a webinar and a new bulletin from Yardi Matrix. “College students don’t want to live at home. And their parents seem quite amenable, if financial circumstances allow it, for them not to live at home,” said Jeff Adler, vice president of Yardi Matrix, during the webinar. “There’s been a tremendous amount of noise around the sector, but as it relates to the financial performance of off-campus student housing, it is largely unaffected.” The one key factor is that college or university the students are attending must be offering classes in some capacity, even if they are all online. Need for greater social distance between students in on-campus dormitories have been another helpful nudge. “As long as the school is open somehow, for the dedicated off-campus student housing inventory, (the education format) doesn’t matter,” Adler said. “The off-campus student housing industry has shown itself to be really resilient.” Development pipelines also remain strong, with only two planned projects nationwide falling off the radar in the last quarter. Enrollment trends have favored public universities rather than private schools, indicating that students may be looking for more affordable education alternatives given current economic uncertainty. And off-campus housing options provide a more continuous housing option than on-campus dorms, which are more likely to be subject to closures or status changes. Though college enrollment from international students is down due to travel restrictions, those spots in off-campus housing seem to thus far have been backfilled by American students. One caveat is that these are students whose parents’ economic fortunes have likely not been disrupted by the pandemic. And even if no vaccine is available in spring 2021 as expected, purpose-built student housing is expected to continue to do well. “Even if everything goes horribly wrong (with vaccine development), the fact that this year was as good as it was indicates that as long as the school is open in some fashion, it’s a non-event for the off-campus student housing sector,” Adler said. For the 200 colleges and universities the Matrix team analyzed, preleasing of purpose-built student housing was just 3 percent behind that of 2019. “While demand has been volatile on a university-by-university basis, the willingness and desire for people to congregate near their school will likely help the student housing sector steer through these uncertain times,” states the analysis. Preview new technology for student housing providers at the NMHC/InterFace Student Housing Conference, a virtual event taking place Oct. 19-22. Visit the virtual booth to see how RENTCafé Student and Yardi Matrix Student will graduate your leasing and management...

Surviving + Thriving Sep18

Surviving + Thriving

During every Yardi Matrix webinar, vice president and presenter Jeff Adler shares the big picture of current economic conditions and conundrums – also known as the Yardi Matrix House View. Here’s how the view is looking from the Matrix vantage point these days: “We had a deep recession. We’re in the middle of a recovery. That recovery is likely to be choppy,” summarized Adler to close out Thursday’s Matrix update on the self storage sector. A recording of the presentation is now available, and you can view that here. But for those invested or interested in the self storage market, the seas are not looking quite so rough. Of all commercial real estate sectors, storage had a brief negative impact from COVID-19’s rise in the U.S., and then quickly recovered. “Storage is actually doing quite well,” said Chris Nebenzahl, editorial director for Yardi Matrix. “The demand for storage has been consistent and is stronger than some of the other asset classes in commercial real estate.” Key factors for the sector’s resiliency include: Relocations and population migration. Americans are leaving congested big cities like New York and Los Angeles for second-tier markets where they have more space. Residential volatility. For example, college students have faced ever-changing mandates about whether they would resume classes in person and online, prompting quick moves that often involve a need for storage. Economic hardship. Job losses for millions of Americans are contributing to relocations and downsizing. According to a Pew Research Center Survey, roughly one in five U.S. adults say they have either changed their residence due to the pandemic or know someone who did. The proof of sustained demand for storage is in the street rates, particularly for the non-climate-controlled category. Month-over-month rates reported for August showed that national...

End of Urbanization? Sep04

End of Urbanization?

For years, 24-hour and 18-hour cities, and the live-work-play concept, have been mantras in commercial real estate. Suddenly, however, cities are facing a pandemic-driven exodus. Is this a temporary blip or the start of a long-term trend? COVID-19’s impact has been particularly deep in major metropolitan areas such as New York City, Los Angeles, San Francisco and Chicago, which have seen sharp drops in apartment occupancy rates and rents as the city centers are largely shut down and residents shelter elsewhere. In Manhattan, for example, office buildings that were closed for months remain mostly empty upon re-opening, as employers avoid putting workers at risk and people avoid public spaces. Midtown streets that are typically teeming with tourists are nearly empty as Broadway and other entertainment venues remain shut. New York City’s story is being played out in city centers across the country. Not only do urban areas temporarily lack the jobs and cultural institutions that drew people there, but the crowds and closeness are suddenly an element to be feared rather than fascinate. Few if any saw this coming, as growth has coalesced in cities in recent years. The United Nations has forecast that 75 percent of the global population would live in cities by 2050, doubling their size, and the U.S. seemed to be headed in that direction. A recent study of the largest 30 U.S. metros by the George Washington University School of Business and Smart Growth America in conjunction with Yardi Matrix found that walkable neighborhoods encompassing office, housing, retail and entertainment grew faster and produced higher absorption and rent growth over the last decade than counterparts without that combination. During that time, 70 percent of the jobs created were in the top 50 U.S. metros. Corporations have been following the preferences...

NY Law’s Impact Aug17

NY Law’s Impact

Last year, New York state implemented new protections for residents of rent-stabilized and market-rate housing, including the conditions under which rent hikes and evictions are allowed. Affordable housing advocates saw the landmark Housing Stability and Tenant Protection Act of 2019 as vital to helping low-income people avoid homelessness in expensive markets such as New York City. Skeptics predicted it would backfire and reduce incentives to develop, invest in and manage rental housing. The law has been under siege in the courts from landlord interests who claim it violates the Constitution’s taking and due process provisions. One year into the new era, has either side been proven right? Obviously, a lot has changed in the New York rental market since the law was signed in June 2019. But in December of that year, before the COVID-19 pandemic took hold, the New York Times reported that evictions in the state dropped by 20% in the preceding six months. State and federal provisions put in place during COVID have further strengthened eviction protections for more than 1.5 million state residents not able to pay rent due to the pandemic. In April and May, rents in New York City actually went up year over year. The Times reported in June that “those looking to sign or renew leases in the last few months say that while some landlords are grudgingly offering short-term concessions, like a free month of rent, most are unwilling to budge on pre-pandemic pricing and, in some cases, are even increasing rents.” And how about rent payments? Yardi Matrix data collected in July revealed rent declines ranging from 0.8% to 1.6% in Brooklyn, Manhattan and Queens that month, while occupancy levels in the metro have been flat for several months. “With the vacancy rate where...

Matrix Studies Up Jul20

Matrix Studies Up

As colleges and universities announce varied plans to cope with coronavirus this fall, what will be the impact on student housing owners and operators? Some definitive answers were delivered in a July 15 webinar from Yardi Matrix, which also marked the launch of the Yardi Matrix Student data service. Market coverage includes over 2,000 universities and colleges nationwide, including the top 200 investment grade universities across all major collegiate conferences. Reports will also include data into shadow markets, defined as campus-proximate housing that often is rented by college students, though it may not be labeled as dedicated student housing. “The college experience is going to change, and has to change until there is a vaccine in place. This is a fall semester issue and probably into the middle of the spring semester,” Jeff Adler, vice president of Yardi Matrix, told the over 400 attendees at the outset of the online presentation. But that’s not all bad news for student housing, especially for providers with shadow market properties. Of the 200 universities Matrix researchers surveyed for the first study, many have announced plans to reduce dorm capacity levels to accommodate social distancing protocols. This means that more than 60 percent of students attending schools in the Yardi 200 will be living in such shadow market housing – and the total national percentage is higher. “Reduced dorm capacity requirements are a tailwind for off-campus housing,” Adler said. “Is student housing pandemic proof? I would say that it’s pandemic resistant. There is some choppiness expected, but I think overall the sector is going to hang in there.” Long term, the U.S. is expected to see an overall decline in its population of college-age adults, but with more Americans than ever earning four year degrees, attendee figures should...

Relocations + Rent Drops Jul15

Relocations + Rent Drops

Already apparent in the U.S., COVID-19 has resulted in a migration from major cities and falling rents. As the housing industry braces itself against continued impacts from the virus, will both trends continue into the third quarter? Market analysts, real estate agents and renter surveys give us clues about what to expect. Are people really moving away from cities as a result of COVID-19? Yes. People are leaving cities to avoid COVID-19 risks and disturbances. Though it is a misconception that population density equates to higher risk, perception matters. The perceived increase in risk has made city residents feel less safe. That fear, coupled with other disruptions, motivates relocation for those who can afford it. Pew Research Center reports that 3% of U.S. adults moved due to the pandemic and about 6% had a member of their household relocate. Of those surveyed, 28% moved to reduce their risk of contracting the virus and 8% moved due to job loss. About 20% moved to be closer to family. Younger people make up a unique portion of those who relocated. Roughly 9% of adults ages 18-29 relocated due to the virus. This includes 23% of respondents who were university students forced to vacate their campuses. Even New York– the market trendsetter that has captured hearts for generations– is seeing mass movements to the nearby suburbs. Real estate agents Susan Horowitz and Monica Schwerberg explored the details in an interview with NPR. “We are seeing 20 offers on houses. We are seeing things going 30% over the asking price. It’s kind of insane,” Horowitz said. “It is a blood sport.” She adds, “Every last bit of it is COVID-related.” Schwerberg agrees, “In the month of April, where we typically would get maybe 75 inquiries in a month, we had over 400 inquiries.” People who once loved the city atmosphere are seeking locations with less population density, which is falsely assumed to correlate with increased infection risks. Additionally, many breadwinners are now working from home. Remote work opportunities have made commute times less of a factor in housing decisions. Since March 2020, about 10,000 New Yorkers filed for address changes to the state of Connecticut alone, reports Hearst Connecticut Media. Nationwide, U.S. Postal Service data indicates that southern Florida and southern California are popular relocation destinations. Who is moving during COVID-19? While some people are relocating due to job loss and financial difficulty, there is a correlation between job security, higher incomes and relocation. In short, households with higher incomes can afford to sell their current home (potentially at a loss) or terminate a lease early in favor of getting a new home in the suburbs. Higher income households are also more likely to have remote work. The ability to maintain income while working from anywhere permits the flexibility needed to relocate during the pandemic. Additionally, higher income households represent the demographic most likely to own a vacation home. About 13% of those who relocated moved into their second home or vacation home, reports the Pew survey. How does COVID-19 relocation impact the rental market? Yardi Matrix analyzed asset performance data from 107 major metropolitan areas between April and May 2020. During that time, multifamily rents declined by .4% nationwide. Overall, twice as many markets witnessed rents decline than rents rise. “Multifamily’s nearly decade long run of healthy performance increases came to an abrupt and unexpected end this year,” said Jeff Adler, vice president of Yardi Matrix. “Job losses have been particularly high among apartment renters, and simply collecting rents and maintaining occupancy is a new area of focus for owners and managers.” The report suggests that the pandemic’s influence on work conditions, public health metrics and social trends will continue to impact the housing marketing for the next several years. “If renters decide to eschew urban apartments for a more distanced standard of life in the suburbs or smaller cities, multifamily could...

Student Housing Jul07

Student Housing

Already well known in the industry for its dependable, up-to-date and prescient market data, Yardi Matrix will take those skills to school as it begins reporting on the student housing sector. The new research area from Yardi Matrix comes at a particularly opportune time, as student housing owners and investors are navigating an uncertain environment caused by the COVID-19 pandemic. With many colleges and universities still making final decisions about what campus life and enrollment will look like in fall 2020, housing providers are anxious to see how this unprecedented situation will impact revenue streams and investment health. Quarterly Matrix reports focused on the student housing market will be available beginning this summer. Market coverage will include over 2,000 universities and colleges nationwide, including the top 200 investment grade universities across all major collegiate conferences. Reports will also include shadow markets, meaning campus-proximate housing that often is rented by college students, though it may not be categorized as traditional student housing. “We’re looking forward to offering the same comprehensive and future-thinking reporting that we do for the rest of the real estate industry to the student housing sector,” said Jeff Adler, vice president of Yardi Matrix. “We’ve done a deep dive into student housing fundamentals and look forward to sharing our insight with all who are interested.” To that end, the Yardi Matrix team will host a July 15 webinar focused entirely on the student housing market. Attendees can expect to gain insight on the short and long-term impact of COVID-19, best and worst-case scenarios, key indicators for operators and potential areas of opportunity. You can secure your spot in the online session by signing up here. Yardi Matrix offers the industry’s most comprehensive market intelligence tool for investment professionals, equity investors, lenders and property...

Long Term Impacts Jul06

Long Term Impacts

With the U.S. economy in a recession, unemployment numbers sky high and COVID-19 cases surging in the south and west, multifamily owners and operators face challenging times ahead. And things may get worse before they get better, according to a new special report from Yardi Matrix. The report is based on a study of 107 major metros, with data reflecting April and May 2020 asset performance. Over that period, multifamily asking rents dropped .4% nationally, and twice as many markets saw rents decline as opposed to increase. Renters are looking for less expensive units, with the biggest impacts in the sector felt by Class A+ properties. Rents for “luxury lifestyle” properties dropped by -1.2% over the last two months, compared to a decline of .5% for “renter by necessity” properties. “Multifamily’s nearly decade long run of healthy performance increases came to an abrupt and unexpected end this year,” said Jeff Adler, vice president of Yardi Matrix. “Job losses have been particularly high among apartment renters, and simply collecting rents and maintaining occupancy is a new area of focus for owners and managers.” Multifamily had a long run of strong performance – asking rents grew by 26% nationally between January 2015 and 1Q20. But going forward, the future looks cloudy at best. “The shape of the recovery remains unclear. More importantly, the pandemic is spurring changes in working conditions and social trends that will impact housing demand for years to come,” states the report. What’s ahead will be determined by a complicated combination of economic factors, public health metrics and renters’ feelings about the future. If renters decide to eschew urban apartments for a more distanced standard of life in the suburbs or smaller cities, multifamily could be in for a prolonged pain period. Gain...

Rents Drop, Prompting Concern Jun18

Rents Drop, Prompting Concern

When you think about a 0.3 percent drop in anything it hardly seems like a big deal. It’s just 3 pennies on every 10 dollars. If you are an apartment operator and that reflects the national average on rents for May compared to April, some would figure it’s something not too difficult to make up. But what if it isn’t? The three-tenths of a percent is the drop for one month, and 12x that comes to 3.6 percent annually. Quickly, that could become serious. During what would typically be the middle of prime leasing season, rents declined nationally by 0.3% on a month-over-month basis, reports Jeff Adler, vice president of Yardi Matrix. He describes that drop in rents as startling. “Is it a harbinger of things to come? A warning sign?” Adler says. “When rents being offered to new residents drop like that month-over-month, year-over-year you have to ask yourself.” Adler says current national multifamily occupancy rates are mostly steady (a good thing). And there’s no deterioration in demand as measured by apartment search activity, which is also positive. “But this is peak leasing season,” he adds. “Falling like this would be at a rather significant clip. If we see it again next month, then demand will not have stabilized. And data show this is happening to high-end apartment communities.” The steepest declines in rents on a MoM basis were seen in major gateway markets that were among the first to impose strict lockdowns. Smaller markets are not immune and have seen substantial MoM rent declines as well. For this “general rolldown” in rents, Yardi Matrix has observed year-over-year rent decreases of -0.6 percent to -1 percent in major metropolitan areas across the country, including San Jose, Houston, Orlando, Denver, Los Angeles, San Francisco and Chicago. Unprecedented Swiftness Many long-standing observers and employees of the multifamily industry can point to real estate’s cycles, and to the Great Depression, back around 2008-09, when rent declines were similar. “But the swiftness of what we’re seeing now is unprecedented,” Adler says. “Back then, job formations were slowing and you could almost read between the lines to know something bad was coming up. There were signals. This time, it’s sudden. This time it’s being caused by a health issue. We are counting on a vaccine or treatment to COVID-19 to turn the tide.” Job creation, of course, is helpful. Job losses, however, equate to income losses and ability to pay the rent, and inability for owners to stabilize (if not raise) rents. “For the sake of the industry, let’s hope that six months down the road things are different,” Adler says. “Wouldn’t it be great to go back to how it was in February, or even in 2019?” Some can speculate that the “busy season” for leasing could move to fall this year. Look at These Numbers Yardi Matrix also reports that national average rents decreased $5 to $1,460. Kansas City (0.4 percent), San Antonio and Baltimore (both 0.1 percent) were the only markets to show increases from April to May; 23 markets remain negative on a month-over-month basis. the last two months overall, rents have declined by $13. “If rents continue this rapid downward trend, we could be looking at alarming numbers by the end of the summer,” Adler says. The markets with the most severe MoM declines include Houston and San Jose (both -0.9 percent) and Nashville, Orange County and Seattle (all -0.8 percent). Houston tends to be among the most volatile markets in a normal month, and given the rapid decline in oil prices the road to recovery in Houston could be extended. San Jose, Orange County and Seattle were among the first markets to impose stringent lockdowns. Seattle only entered Phase 1 of reopening on June 5. Social Unrest Could Affect Urban Rents Apartment operators also must consider the social unrest that is going on in many urban centers....

Durable Employment May28

Durable Employment

Each week’s news seems to bring a new wave of devastation for the U.S. employment market, as unemployment claims continue to climb due to the COVID-19 pandemic. The national unemployment toll was 36.5 million jobs lost when this was written – by the time you read it, that figure will likely be higher. Yardi Matrix® dove into the unemployment data to find out which sectors and geographic regions are hardest hit, which will hold up and where the unemployed may want to look for their next opportunity. Unlike past recessions, job losses have not been spread across the economy. Layoffs and furloughs have been concentrated in segments most affected by shelter-in-place orders: retail, leisure, travel and entertainment, and jobs in which social distancing is difficult. Between February and April, leisure and hospitality jobs contracted by a jaw-dropping 48.1%, or 8.1 million workers. Other hard-hit segments include other services (-21.9%), a category that includes personal services and repairs, retail trade (-13.7%) and construction (-12.7%). The number of lost jobs has been higher among hourly, service-based workers than for career workers who more easily can work from home. On a proportional basis, job categories that shed the fewest jobs over the last three months are financial activities (-2.8%), government (-4.3%) and wholesale trade (-6.2%). Another segment that lost relatively few jobs was professional and technical services (-5.3%), which includes computer systems design services (-3.8%). “This report provides in-depth insight to the most durable employment sectors, both professionally and geographically,” said Jeff Adler, vice president of Yardi Matrix.  Find the full Durable Employment Sectors report from Yardi...

Self Storage Outlook May23

Self Storage Outlook

Self storage is still considered among the most stable real estate sectors during rocky economic times, but it is not immune from the COVID-19 crisis, attendees of the May 19 SSA Webinar presented by Yardi Matrix experts learned. “Under the best of circumstances, and short of a medical solution, recovery is going to be partial and slow,” said Jeff Adler, vice president of Yardi Matrix, at the start of the presentation. Adler and Chris Nebenzahl, institutional research manager for Matrix, presented the current outlook for self storage as it navigates changing tides. If you missed it, find the presentation materials and a recording of the session. While the industry looked strong in March, things shifted in April. National street rates for 10×10 non climate controlled (CC) units fell 2.6 percent, and rates for 10×10 CC units fell 6 percent. That was the largest decline in more than three years.   The impact was nearly universal, as street rates for non-CC units fell in 97 percent of the major markets tracked by Yardi Matrix, and CC units saw declines in every market tracked. Only Raleigh-Durham and Portland, Ore. saw non-CC street rates drop less than in previous months, and Phoenix stayed completely flat (see slide at left). Nationwide, Yardi Matrix tracks a total of 2,209 self storage properties in various stages of development, comprising 593 under construction, 1,172 planned and 444 prospective properties. Matrix also maintains operational profiles for 25,914 operating self storage businesses, bringing the total data set to 28,123. The COVID-19 crisis has yet to slow self storage development, however, as properties under construction or in the planning stages account for 9 percent of the market in April, a 20-basis-point increase over March. That’s expected to change in the coming months. “We expect...

Varying Impacts May13

Varying Impacts

Yardi Matrix continued its series of comprehensive market impact webinars on May 13 with an in-depth look at the state of the commercial real estate industry, presented by Jeff Adler, vice president of Matrix, and Rob Teel, senior vice president of global solutions at Yardi. Both provided data and insight into the crucial question Adler introduced at the start of the session: How do we move forward, past the lockdown and into the recovery phase? “Despite the herculean efforts by the federal government to keep businesses afloat, there is still more pain to come,” Adler said. And for each sector of commercial real estate, the road ahead will look different. Optimistic outlook for industrial Across all real estate sectors, industrial and multifamily are holding up best during the COVID-19 pandemic. “They were also the two best performing sectors before this hit,” Adler noted. April rent collections for industrial averaged around 86-87 percent, so the sector is not entirely immune to nonpayment, but looks good compared to retail. Dependence on e-commerce for home-delivered supplies and other purchases has helped industrial stay stable. In some smaller markets ideal for last-mile delivery siting, industrial rents are even edging up. There’s also newfound demand for cold storage due to changes in the grocery market. Office holding up, but changes expected All things considered, “office is in pretty good shape,” said Adler. “Though coworking is hurt pretty bad.” April collections of office rents were in the 85 percent range, and are expected to stay high for buildings with large, well-capitalized tenants. Office may see significant changes as states return to work, however. Concern looms for office hubs like New York City, where dependence on public transit and crowded elevator rides in skyscrapers are both hard to reconcile with ongoing social distancing requirements. “There is going to be a rethinking of the footprint. How much physical space and face to face contact do you need to keep (corporate) culture together?” Adler asked. Teel noted that there has been a spike in interest in serviced, suburban office space from firms who want to return workers to the office but in a less congested setting. And coworking is likely not dead, but will have to return either long-term or with major changes to accommodate social distancing needs. A rough road for retail “This is where the carnage is,” Adler summarized bleakly. “And for retail, the snapback is not likely to happen anytime soon.” April rents were paid by around 45 percent of retailers, and May is expected to be far worse. Major retailers like J.Crew and Neiman-Marcus have already declared bankruptcy, although in some cases the pandemic merely sped up a predetermined outcome. Brick and mortar stores were already struggling with online competition well before the pandemic. “We are social animals, we will gather again, it will just take a bit of time for it to happen. And there will be pain in the sectors that depend on the gathering of people,” Adler said. Grocery-anchored retail continues to outperform, but is still taking a hit due to closed secondary tenants. For more in-depth information on the state of the commercial real estate market, view the latest Yardi Matrix report. Yardi observes latest CRE technology trends Teel delivered an overview of the tech requirements that commercial owners and managers are now finding to be essential in today’s changed world. Accounts receivable tracking for deferrals and concessions is crucial, as is accurate documentation and tracking of tenant status. Yardi will soon introduce a new CRE tool, LeaseManager, to help with that. But perhaps the biggest tech shift will be a paperless push. It will help CRE improve contactless business practices like vendor invoicing and electronic payment fulfillment. “This is one area that’s overdue for disruption and change and it’s happening now,” Teel said. He estimated that physical checks still make up 90 percent of the payments that Yardi clients...

Multifamily Outlook May11

Multifamily Outlook

Yardi Matrix continued its series of comprehensive market impact webinars on May 6 with an in-depth look at the state of the multifamily industry, presented by Jeff Adler, vice president of Matrix. “We are just beginning to see some of the ripple effects (on multifamily), and now the discussion has shifted to how we recover and move forward,” stated Adler at the outset of the session. Nearly 1100 real estate professionals tuned in for the 90-minute session. A similar presentation with a focus on the commercial real estate sector is set for Wednesday, May 13. You can register here. Attendees report that the Matrix webinars are invaluable for keeping a finger on the pulse of the rapid changes that continue to impact the industry. Here are some of the key takeaways from the multifamily impact webinar. Listen to the full presentation to see data points and comprehensive slides. So far, the multifamily industry is holding up well. April rent collections were excellent, only off a few single digit points from prior months, said Adler. It’s expected that trend will continue at least until August. Leasing season has resumed and many properties with availability are seeing more interest than expected, according to anecdotal reports from industry contacts. Data from Yardi’s RENTCafé online leasing service shows a marked uptick in views of online apartment listings over the last month. The economic recovery is expected to be partial and slower in some states than others. This will impact all industries, and multifamily will likely continue to see household consolidation as renters move in with friends or family members to try to keep costs down. For new leases, concessions offered by owners and managers will be an important indicator of market performance trends going forward. Population trends will...

Commercial Outlook Apr06

Commercial Outlook

Last week, Yardi Matrix hosted three webinars that provided insight on how the COVID-19 pandemic is impacting the self storage, multifamily and commercial real estate markets. Let’s look at the insight on the commercial market, which is extensive. This post will cover the office market – a follow-up on industrial and retail can be found here. National overview For most sectors of commercial real estate, the next four to eight weeks will be tough. Due to state public health mandates, up to a quarter of the country’s economy has shut down, which will result in double digit GDP drops. The travel, hospitality, and restaurant industries have been the hardest hit, affecting about 30 million people. The United States Department of Labor reported 6.6 million new jobless claims in March. While outlook for Q2 and Q3 is not encouraging for all sectors, a few sectors are functioning if not thriving. Agriculture, industrial, distribution, and construction are among the sectors that are stable or growing during the pandemic. For sectors that are suffering, analysts forecast a dip in economic performance rather than a long-term decline. How much and how broad of a dip is still up for debate. The peak and denouement of the pandemic are uncertain, and business impacts will follow. In response, Congress has passed a $2T CARES Act stimulus package to offset economic decline and aggregate demand. The Federal Reserve rolled out several initiatives for small businesses totaling $350 billion. Large business can take advantage of nearly direct access to federal resources for capital. Efforts to stave off business bankruptcies are accompanied by consumer aid efforts. Though consumer spending is being redirected, it is only moderately reduced. The big question on everyone’s mind: can businesses stay open and recall workers when this is...

Bracing for a Downturn Apr04

Bracing for a Downturn

(April 2, 2020) – At face value, the rental data released today by Yardi Matrix for March 2020 looks solid, with rent growth averaging 2.9 percent year over year and up $6 from the month before. But those healthy numbers don’t reflect the ongoing national crisis due to the COVID-19 pandemic. With the U.S. now leading the world in active cases of the virus, nationwide non-essential business shutdowns and accelerating unemployment numbers, drastic changes are likely in store for the months to come. “As unemployment claims eclipse records and government stimulus reaches unseen heights, the question arises: Who will be able to pay rent in the coming months?” wonders the latest National Multifamily Report from Yardi Matrix. The new report reflects data collected in the second and third weeks of March. Yardi experts hosted a 90-minute webinar this week focused on the anticipated impacts of COVID-19 on the multifamily housing market. Demand for apartments has already dropped by double digits and lease-ups are likely to be intensely impacted by the crisis. “We are seeing the rapid adoption of technology tools to run (multifamily) operations from a distance,” said Jeff Adler, vice president of Yardi Matrix. You can view the full webinar recording and presentation materials online. Adler, along with several other Yardi multifamily market experts, spoke about the forthcoming challenges for the U.S. economy as a whole and multifamily specifically. They also answered dozens of audience questions. The next few months are likely to be rocky, they cautioned. “Demand for apartments has fallen at least 30 percent over the last 2 to 3 weeks, but so have move outs,” Adler said. Multifamily vacancy rates are likely to remain stable in the coming months, especially since so many protective measures have been put in place for renters by federal, state and local governments. The National Multi Housing Council (NMHC) is recommending suspension of evictions for residents affected by COVID-19, as well as a 90-day pause on rent increases. NMHC, in partnership with leading apartment data providers like Yardi, will also analyze weekly metrics assessing the overall effect of the COVID-19 pandemic on the U.S. multifamily industry. More on that here. To get out ahead of the situation, Adler recommended that owners and managers be proactive about reaching out to residents (using safe social distancing practices, of course).  As many as 1 in 9 Americans indicated in a major survey that they may not be able to pay a mortgage or rent in April due to unemployment or other loss of income associated with the pandemic. “Get on top of this now to keep people in their apartments. Work out a payment plan if you have to,” Adler suggested. There are many options to consider for various situations but be sure to act before rent is due at the end of April to prevent unexpected surprises. You can find many more best practices for dealing with this unprecedented situation and all of the webinar slides on the Yardi Matrix webinar resources page. And access additional upcoming webinars and more on Yardi’s COVID-19 support resources...