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Freddie Mac: Increase in Multifamily Demand More than a Temporary Correction Stemming from Great
Despite concerns over the large number of new apartment units being built across the country and high market valuations, the multifamily rental market continues to hum and may be on track for several more years of growth, according to the latest Freddie Mac Multifamily Outlook.
The multifamily sector was the first to recover following the Great Recession and new supply has been coming online at elevated levels ever since the 5-year streak of robust growth began.
Freddie Mac doesn’t see that abating any time soon. In fact, the government-sponsored entity reports supply will continue to enter the market at elevated levels and reach higher levels of apartment completions not seen since the 1980s.
Multifamily deliveries saw a spike in the first half 2015, mostly in the second quarter, when 285,000 units, annualized, entered the market, the highest level post-recession, according to Freddie Mac.
Renter demand for the new units has kept pace with new supply, calming concerns that growth might start to decelerate, Freddie Mac said.
Because of the improving economy, pent-up demand has started to release into the market, benefiting the rental sector. Freddie Mac said it expects the strong demand for multifamily units to continue in the years to come.
“It is now clear that the increase in multifamily demand is more than a temporary correction stemming from the Great Recession,” said Steve Guggenmos, senior director of Freddie Mac Multifamily investments and research. “Favorable demographic trends will support strong multifamily growth for several years. Individual market performance will vary based on the pace of new supply delivered to the market and local economic strength.”
Demand Holding Up
As of this summer, CoStar data showed national vacancies dropping below 4%, with year-over-year same-store rental growth at a solid 3.9%. Demand was holding up stronger than expected, extending the supply-demand balance.
If supply growth doesn’t accelerate further, or slows down while developers consider new projects, the current trend could keep vacancies low while bringing rental growth close to or above levels observed during the 2012 peak, according to analysts with CoStar Portfolio Strategy.
The current economic environment continues to favor renting over owning and that trend is supported by the most recent U.S. Census Bureau data and CoStar analysis.
The homeownership rate compressed to 63.4% in the second quarter after reaching 70% at the peak of the housing market. And the decline in homeownership has come with a soaring number of renters, now close to 43 million.
In addition, the share of older, formerly home-owning households that is now renting is increasing because of lifestyle and financial reasons. At the same time, factors like immigration, often underestimated, appear to be giving an ongoing boost to the renter pool.
Look for Variations at the Local Level
When the homeownership decline will end is still unclear. When it does happen, though, CoStar Portfolio Strategy analysts see it occurring first in metros where the economic recovery is above average and home prices are reasonably affordable. In places where homes are expensive relative to income, renting will be-at least for a while longer-the preferred choice.
Freddie Mac also expects multifamily market fundamentals to vary locally as new supply is dispersed across geographic areas, with conditions affected by new supply and economic drivers in particular metros.
For the majority of markets, current vacancy rates are favorable relative to historical averages, Freddie Mac said. Vacancies have trended upward but at a slower pace than predicted in 2015.
Rent growth is also mixed across markets and will further disperse as new supply enters the markets.
The Freddie Mac Multifamily Investment Index has steadily declined over the past few quarters as the growth in multifamily property prices outpaces net operating income (NOI) growth. The index indicates the current investment environment is comparable to that seen in 2004.
“Favorable multifamily investment opportunities along with a high volume of loans reaching maturity in the near term will continue to push origination volume up into 2016,” said Guggenmos.
Houston-based MetroNational announced Friday it has partnered with Z Resorts to bring the boutique hotel to the intersection of Interstate-10 and Bunker Hill Road in Memorial City. Hotel Zaza has a location in Houston’s Museum District and another in Dallas.
Kirksey Architecture will oversee the design and Anslow Bryant Construction is the general contractor.
“With the addition of Hotel ZaZa, MetroNational has brought another great amenity to Memorial City that will benefit both business users and residents in West Houston,” MetroNational president Jason Johnson said in a statement. “MetroNational is now one step closer to completing our development at Interstate 10 and Bunker Hill and providing amenities necessary for a best of class development.”
The 17-story Hotel Zaza’s Memorial City location will have 159 guest rooms, and10,000-square-feet of event and meeting spaces for up to 300 people. The hotel will also have 130 apartment units. Amenities will include two outdoor pools, a spa and restaurant lounge. The hotel will overlook a green space, which will be used for live music and festivals.
“We are excited to take the ZaZa brand west to Memorial City,” said Z Resorts President of operations Matthew Nuss, in a statement. “We feel the ZaZa experience will resonate with business and leisure travelers looking for a stylish experience in West Houston. And we intend on creating something truly unique and fresh to fill the void of luxury hotels, which currently exists in the Memorial neighborhoods and along the Energy Corridor.”
The hotel is slated to open in summer 2017.
Reprint from Houston Chronicle.com
By Erin Mulvaney
Cypress-Fairbanks Independent School District – bought nearly 128 acres to develop an almost 1 million-square-foot educational village in Bridgeland northwest of Houston.
This will be the first multicampus educational location in Bridgeland, according to Dallas-basedÂ Howard Hughes Corp.(NYSE: HHC), which is developing the 11,400-acre master-planned community in Cypress.
The village will include a four-story high school the tallest academic building in the district along with a three-story middle school and a two-story elementary school. The schools will have shared common areas and multiuse facilities. Combined, the village will accommodate more than 5,900 students and teachers.
IBI Group Architects, which has offices in Houston and worldwide, is designing the master plan for the village, which is near the Grand Parkway. The high school and elementary school are expected to be complete in time for the 2017-2018 school year, and the middle school is planned for a future date.
Peter Houghton, vice president of master-planned communities for Bridgeland, represented the community in negotiations.Â Roy Sprague Jr., associate superintendent of facilities, construction and support services, and Marney Sims, general counsel, represented the district. The value of the deal was not disclosed.
Eventually, CFISD, Katy ISD and Waller ISD are all expected to service Bridgeland. Currently, the community is home to Pope Elementary School, and the master education plan for Bridgeland includes preschool, special-needs, private and public school sites. The addition of a university center or satellite location is another goal for Bridgeland.
Blame stunted oil prices or the tsunami of deliveries: Houston office rent growth fell out of the top 10 in North America, according to new data by Colliers.
But there’s good news: our leasing activity is still among the best on the continent.
COLLEGE STATION (Real Estate Center) – Recent home price indices (HPI) all indicate another increase in Texas home prices, a trend that will likely continue for a while, says an economist with the Real Estate Center at Texas A&M University
CoreLogic’s HPI, one of several Center researchers track, showed an 8.5 percent year-over-year increase in Texas home prices in February. Prices in Houston-Sugar Land-Baytown and Dallas-Plano-Irving increased 10.4 percent and 9.3 percent, respectively.
“As long as inventory stays tight, and as long as demand stays high relative to supply, we’re going to keep seeing these kinds of price increases,” said Center Research Economist Dr. Jim Gaines.Center data show statewide housing inventory in February was at 3.1 months. Houston’s inventory was at 2.7 months in February, while Dallas was at 1.8 months.
An inventory of 6.5 months is generally considered a balanced market.While the shortage of pre-owned single-family homes on the market is contributing to the market’s tightness, Gaines said there’s also a lack of new product.”Home builders have not been building houses as fast as they have in the past,” he said. “They’re doing the best they can, but that growth is not adding to the total inventory.”Gaines said the demand for new homes is still there, thanks to economic growth, job growth and people moving to Texas.
The biggest problem is the lack of lot inventory and land development.”Historically, Texas housing markets have maintained a good balance of supply and demand because our building industry could build houses fairly easily, fairly quickly and fairly cheaply compared with other states,” he said. “Land costs and labor costs were lower.
The Texas land development model simply worked.
But financing for land development and lot development dried up between 2009 and 2013, so all of a sudden there’s this shortage, and it’s going to take several years for that to get unraveled.”Another problem is the effect local regulatory controls and impact fees are having on builders.
“The demand for goods and services provided by local governments has increased along with the population,” Gaines said.
“The cost of those goods and services has also increased, and governments are faced with the problem of how to pay for them. So they’re passing some of those costs on to developers in the form of regulatory costs, permitting fees, platting fees, direct impact fees for roads and utilities and that sort of thing.
So all of our costs are going up.”
For more from Gaines on the Texas housing market, listen to the April 8 episode of the Real Estate Red Zone podcast (“All Housing, All the Time”).
Housing and multifamily appreciation has returned with upward spikes. All markets are not equal, of course, yet some have seen double-digit price increases and apparent strong support for believing this rate of increasing value is the norm. Yet for those of us that have lived through the recent cycle we realize that what comes up can go down.
One cause of the recent run up in home prices is years of housing construction levels below those necessary to maintain pace with population increases. As the pendulum swings some markets may experience over-building, or an over-supply, but this will be the exception as many markets are enjoying a rebound in new construction that is warranted.
What gauge can we use to measures future appreciation?
Setting aside construction levels what gauge can we use to measures future appreciation? Job growth and personal income growth.
Like appreciation, job growth is uneven; some markets experience increases in jobs while other markets lose jobs. Probability dictates that appreciation levels are going to be higher in markets that are experiencing job growth.
Long-term, however, there is no better predictor of real property appreciation than income growth. Note the emphasis on long-term. Select a market, then begin to segregate it by income. Then over-lay income growth. The resulting analysis will present a high degree of correlation between property appreciation and increases in personal income.
Two categories that will damper appreciation is increases in interest rates and mortgage under-writing standards. Therein lies the tug-of-war on price. Prices shrink as interest rates rise, prices rise with personal income. The saga continues…
A Ziegler Cooper Architects-designed retail concept with slots for four or five tenants is expected to break ground once it leases up.
The new plan for the 7,533-square-foot center on the corner of West Alabama and Mandell streets is notably scaled down from a previous multilevel version, as Swamplot reported. Dallas-based Edge Realty Partners, which is marketing the property, said the new concept fits in better in the area.
“The original concept was a large space to fit in a lot of restaurants,” said Josh Jacobs, the manager of Edge’s Houston office. “It was a high-cost plan, but also intrusive into the neighborhood.”
He said the current plan won’t congest an already-dense neighborhood, near the Menil Collection and the Montrose H-E-B.
“There’s amazing density already in that part of West Alabama,” Jacobs said.
Jacobs said there are letters of intent out on the property, and the project will move forward with construction once leases are signed. Edge is looking for nonchain tenants, specifically a coffee shop and/or a chef-driven restaurant. Space is going for $45 per square foot.
The project is expected to be complete by end of first quarter 2016.
Jacobs said this is a small-scale project for Houston-based Ziegler Cooper, and the design has the building close to the street, with self-parking around back and on the side. There’s no general contractor yet signed onto the project.
“The sense of scope of this plan fits in better,” Jacobs said. “We want the neighborhood to love it.”
Roxanna covers commercial real estate for the Houston Business Journal.