Urbanexus Update - Issue #126
Urbanexus Update - Issue #126
This selection of economic, real estate, and community development news and information comes from H. Pike Oliver. Some items are behind a paywall.
The US economy
2020 worst year for economic growth since WW II New federal data offers comprehensive snapshot of a year marred by staggering job losses, waves of small-business closures and mounting inequality.
Real estate sentiment and trends
Twice a year, RCLCO polls its network of clients and collaborators to ask what they think about the current and future state of the real estate industry - the results are now in for year-end 2020.
Over the past few years, RCLCO Sentiment Surveys had indicated continued confidence in real estate market conditions. The mid-year 2020 results highlighted the speed and intensity of the economic downturn sparked by COVID-19 with a significantly more pessimistic outlook than usual. The year-end 2020 result is still much lower than previous years but demonstrates an increasingly optimistic outlook as the economy and real estate markets enter a new year and head toward recovery.
The RCLCO Current Real Estate Market Sentiment Index (RMI) has increased 22.4 points over the past six months, from 9.2 at Mid-2020 to 31.2 at YE 2020, significantly below the YE 2019 RMI (64.9).
Respondents predict that real estate market conditions will improve significantly in the near future, with the RMI anticipated to climb approximately 37 points to 68.2 over the next 12 months.
Approximately 6 out of 10 survey respondents (61%) believe real estate conditions will be moderately or significantly better in the next 12 months.
There is no clear consensus on the likely impact a Biden administration will have on real estate conditions, with 27% of respondents indicating it will have a negative impact, 30% positive impact, and 39% neutral.
Nearly 90% of respondents believe teleworking is a trend that will endure past the pandemic affecting the decisions of households and offices.
Respondents indicate that most product types have moved from contractionary phases to expansionary phases in the real estate cycle since the Mid-year 2020 survey. Retail, office, and hospitality have all hit the bottom of the cycle and are expected to remain there over the next 12 months.
U.S. equity markets climbed to fresh record-highs during the week of the presidential inauguration amid relief over a peaceful transfer of political power and on economic data showing continued momentum behind the critical housing sector.A confluence of near-term positive factors and long-term tailwinds converged over the last eight months that have generated a highly favorable environment for the housing industry. Not to be overlooked, policymakers have prioritized support for the economically-critical U.S. housing markets throughout the COVID crisis and early indications are that the Biden Administration's policies will be particularly supportive for first-time homeownership and new home construction, seeking to address the effects of the substantial undersupply of housing units after a decade of depressed construction activity.
U.S. development opportunities per CBRE
The post- COVID era likely will usher in new opportunities for the development, redevelopment and repositioning of all property types across markets. The next real estate cycle will require changes to the design and construction of space. CBRE’s U.S. Development Opportunities report analyzes existing real estate supply, current construction costs and past performance to identify markets and property types that offer the best opportunities. Key findings include:
New commercial properties will require enhanced amenities. Developers are prioritizing new features that promote health and safety, tenant flexibility and ease of access in response to COVID-related concerns.
Opportunities are broad and well dispersed. Nearly all markets reviewed in this report are characterized by favorable construction costs and supply levels.
Higher construction costs are not impeding new development. Average construction costs have more than doubled over the past 20 years, but high-cost markets with plentiful talent like San Francisco, New York and Boston top the charts in terms of new supply growth and absorption.
Demand for tenant fit-outs remains muted. Office tenants generally are renewing their leases rather than signing new ones in the current environment, resulting in much less demand for tenant fit-outs.
Occupier strategies are changing, but some priorities remain the same. Nearly 80% of respondents to CBRE’s 2020 Global Occupier Sentiment Survey said the importance of the physical office will remain the same or decrease slightly.
Sun Belt markets continue to thrive. Eight of the top 10 development opportunity markets are in the South and Southwest, due to favorable demand drivers like quality of life, in-migration and job growth.
Preleasing of speculative office development is outpacing the levels achieved during and immediately after the Great Recession. Overall speculative office development is currently 50% preleased nationally.
Residential
Record increases in home prices
The coronavirus pandemic hasn’t just created massive unemployment and economic hardships for millions, it has also inflated real estate prices across the country. A recent report by Redfin found that the national median home price climbed to $335,519 in November, 14 percent higher than a year earlier — the biggest annual gain since July 2013. A record 35 percent of homes sold for over asking price, and sales were swift, with homes averaging just 27 days on the market, a record low.
Median home prices rose in all 85 of the large markets (population 750,000 or more) that Redfin tracks. This week’s chart shows the 20 markets where the prices changed the most. (Some markets are named for the major cities they encompass and incorporate surrounding commuter areas. Others are defined more broadly, like the Nassau County, N.Y., market.)
Increased share of all-cash new home sales in Q4 2020 in the USA — eyeonhousing.org
NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the U.S. Census Bureau reveals that conventional loans financed the most new home sales in a fourth quarter since 2006 (see red bars in the chart to the right). However, the share of sales backed by conventional loans in the fourth quarter was down 2.2 percentage points (quarter-over-quarter) to 68.6%.
Housing starts surprised the bears — loganmohtashami.com
Housing starts in the USA during 2020 totaled nearly 1.7 million. For a few weeks in 2020, the mega housing bears in America predicted the 2nd great collapse of housing and America. Despite the pandemic, housing starts ended up positive in 2020, with single-family starts showing 28% year over year growth.
Brookfield property partners may go private Brookfield Asset Management announced a proposal to buy Brookfield Property Partners’ remaining shares for nearly $6B.
Office
Office market in San Francisco and New York
San Francisco is expected to have the worst-performing office market in the USA during 2021 and New York City also is forecasted to perform poorly.
Seattle sees big drop in demand for office space
New Seattle office space boomed this past decade. Then the pandemic hit. Will the shiny, tall towers built for the city's growing workforce ever be filled? In February, Seattle had an index score of 86. By December, it had fallen to 17 according to a report from New York-based VTS, which provides leasing and asset management software for commercial real estate landlords. That’s an 80% drop, which is the largest among the seven markets included in the study.
Nordstrom to move out of one Seattle office tower
Nordstrom will leave the office tower at Seventh and Olive where it has occupied space on 15 floors. In a statement, the company framed the move as a chance to rethink office work post-pandemic.
As we think about returning to our corporate offices later this year, we find ourselves with the rare opportunity to reimagine how these teams will work and collaborate in the future. While we will not be a fully remote headquarters, it’s clear remote work can and should continue to play a part in how we operate. We need to evolve our physical workspaces to allow for this new dynamic, and that includes ensuring we have the right mix of office space to meet our needs.
The 1700 Seventh Ave. office tower has nearly 500,000 square feet of space. Nordstrom said it occupied 360,000 square feet on 15 floors of the building. Nordstrom said it will still have 700,000 square feet of other office space in two downtown Seattle buildings.
Retail
American Eagle Outfitters to close up to 225 Stores — rebusinessonline.com
American Eagle Outfitters, Inc. (NYSE: AEO) has announced plans to close hundreds of its flagship American Eagle stores over the course of the next few years, while seeking to grow the company’s more successful lingerie and active-wear brand, Aerie, into a $2 billion business.
Hospitality
How hotels are faring in transformative times
One year into identification of the first COVID-19 case in the USA, this once-in-a-century worldwide pandemic has caused a swift, wide, and deep economic recession that decimated key travel and leisure related industries including airlines, car rentals, cruise lines, ridesharing, tour operators, and transient lodging facilities. The U.S. hotel industry continues to experience negative stress as all segments of travel demand experience a sharp and sustained decline which continues to significantly lag pre-pandemic levels.
For the year 2020, the LWHA Major U.S. Hotel Sales Survey includes 79 single asset sale transactions over $10 million, none of which are part of a portfolio. These transactions totaled $5.3 billion and included approximately 19,400 hotel rooms with an average sale price per room of $273,000. By comparison, the LWHA 2019 Major U.S. Hotel Sales Survey identified 164 transactions totaling roughly $17.7 billion including 48,800 hotel rooms with an average sale price per room of $364,000. Comparing 2020 with 2019, the number of trades decreased by approximately 52 percent while total dollar volume declined roughly 70 percent and sales price per room decreased by roughly 25 percent.
Community development
As the nation enters 2021 with hopes of healing divisions, Vox published a story with the drop headline, “Young families and wealthy people are decamping for the suburbs — which might make cities more pleasant for everyone else.” This is exactly the continued nonsense from the left that continues to polarize our discourse, and it needs to stop.
Why is it acceptable to suggest that families and high-income earners — groups who support many institutions and public infrastructure projects, pay taxes and fees, and contribute to the socio-economic and cultural life of cities — should get out of cities and that their kind, views, preferences, and needs are simply not welcome? Such a view is the antithesis of real diversity and inclusion, and it is willfully ignorant of the real benefits of socio-economic diversity which develops from those families and those with capital as much as any other group.
Regional and metropolitan dynamics
Cities betting big on remote work — www.city-journal.org Cities and regions are betting that working from home is the next big thing in economic development.
Small cities trying to lure remote workers The co-living company Common has announced the cities vying to host the company’s “Remote Work Hub,” aimed at snaring digital nomads fleeing more expensive markets.
Five US for-sale housing markets to watch
The COVID-19 pandemic—and its associated economic effects—has upended much of the conventional wisdom around determining where, and how, families want to live.
The advent of working from home has led to an exodus from “gateway” markets, as many folks who no longer need to commute seek out larger, cheaper options in the suburbs and exurbs. While not everyone is making the leap, the promise of strong job growth, lower costs of living, and lower-density environments have pushed a few markets into the single-family housing spotlight.
Working with Zonda chief economist Ali Wolf, BUILDER magazine has selected five single-family markets—all of which appear on their Local Leaders list of the top 50 new-home markets ranked by closings—with demand fundamentals, economic conditions, and job activity worth watching in 2021.
Environment, sustainability and governance
Quality of life, or quantity of lives?
Pete Saunders has analyzed how metropolitan areas in the USA compare in the areas of prosperity, inclusion, racial inclusion, and geographic inclusion. To do so he established a ratio of growth rankings with the other four factors for each metro. Then he grouped each metro in one of four regional categories -- Northeast, Midwest, South, and West -- to see if there are any regional variations in growth patterns. When you add it all together, Southern and Western metros at the smaller side of the large metro scale generally outperform others. Raleigh, NC leads the way with a score of 4.60, making it the only metro that ranks in the top ten in all five categories. Denver, Austin, Seattle, San Jose, and Salt Lake City are also in the top ten. Beyond the top ten, there's no discernible size or regional pattern. See the table below:
The Urban Land Institute (ULI) is eager to keep members abreast of the topics and issues on the rise in sustainable real estate. In late 2020, ULI’s Greenprint Center for Building Performance interviewed members of itsSustainable Development Council (SDC) to inform an “outlook” for 2021: What sustainability topics and issues are on the rise, why do they matter, and what should the industry do about it?
On the basis of the knowledge shared by these experts, Greenprint identified ten sustainability topics that will likely affect our decision-making in the months ahead and beyond. These topics include:
Real estate's increasing role in advancing sustainability throughout the market
Increased appetite for ESG (environment, sustainability and governance focused) investing
Heightened emphasis on health and social equity
Baseline expectation for energy efficiency in real estate
Tenants driving sustainability innovation
Emissions reductions through embodied carbon of building construction materials
Increasingly grid interactive buildings
Resilience and climate risk as a priority for investments
Water as a resource to be conserved and leveraged
Waste reduction over a building's life cycle
The report may be downloaded by clicking on the link below.
Architecture and urban design
The Moynihan Train Hall in NYC
Back in the 1990s, when former United States Senator Daniel Patrick Moynihan (1927 - 2003) had the idea to reincarnate New York’s old Pennsylvania Station, tragically demolished in 1963, by transforming the Farley Post Office building across the street into a new train hall, he sent Washburn to make it happen. “My explicit instructions were to ‘make it inevitable,’ ” Washburn recalls. “Those were the words he used.”
A quarter century later, the new Moynihan Train Hall, designed by Skidmore, Owings and Merrill, has finally opened. The $1.6 billion hall, a bright, spacious annex to Penn Station, was modeled on the proportions of the beloved main concourse of nearby Grand Central Terminal. The train hall radiates daylight and the high-tech arches–500 panels of glass in each one–supported by beautiful, industrial trusses (courtesy of the old Farley Post Office), make this new space feel, not like it’s always been here, but like it always should have been here, like it was … inevitable.
