What I’m Reading
Out of Balance: Garden style apartments make up 49% of existing inventory in the US and typically consist of more affordable B and C properties that appeal to working class tenants. However, thanks to the high cost of materials and land, only 3.6% of all apartments in the current pipeline are garden-style units. The result is a massive supply/demand imbalance where developers build lots of Class A units aiming for higher rents but the demand is in the Class B and C space which can’t be accessed with new construction due to cost.
This is leading to substantial concessions at the high end of the market but tightness and rising rents at the bottom. It would stand to reason that eventually, Class A rents would fall relative to Class B and C but that hasn’t happened yet and spreads are actually somewhat elevated on a historic basis. The value add apartment space gets dumped on as being oversaturated quite a bit but the market conditions that make it work are still as strong as ever IF properties can be bought at the right basis. WealthManagement.com
Giving Away The Farm: The average amount of free rent that office landlords are offering to secure long-term leases jumped 12.5 months in the first quarter. That was a 29% increase from a year earlier, according to CBRE. However, tenant improvement balances have remained the same for leases of at least 10 years. Globe Street
Ultimatum: A new survey from staffing firm Robert Half found that a full third of employees currently working from home would rather look for a new job than work full time in an office again. I have to assume that some of this is driven by an increasingly tight employment market as well. Bisnow
Hot Spot: Big foreign investment firms that buy office buildings, hotels and shopping centers around the world have a new favorite real-estate play: single-family homes in American suburbs. This is yet another example of capital flooding into the space and foreign buyers now account for roughly one third of single family rental investors. Wall Street Journal
Under Pressure: Real estate insurance renewal premiums have jumped 20% YoY, thanks to meager investment returns driven by low interest rates, an increased number of natural disasters, and less competition. This is pressuring NOI and valuations, especially in rent control markets. Forbes
Charts of the Day
Mortgage payments are going to go up substantially in the coming years.
However, the move looks very supportable given how low mortgage payments as a % of personal income are. My guess is that this results in marginally less people moving, keeping supply low.
Sources: @RickPalaciosJr and @EllliotttB
WTF
Can’t Hide: A man who fraudulently received more than $7.2MM in COVID relief funds was arrested after being discovered hiding out in Croatia because Florida. TampaBay.com
Joy Ride: A registered sex offender was arrested for driving a golf cart while drunk because Florida. Villages News
Basis Points – A candid look at the economy, real estate, and other things sometimes related.
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