BlackRock: Now Is the Time to Invest in CRE

Inflation Ticks Up as Housing Costs Rise link

• Shelter costs are the primary driver of recent inflation increases, with rents and owners' equivalent rents rising significantly. In December, rents increased by 6.5% and owners' equivalent rents by 6.3% year-over-year.

• The Consumer Price Index reflects the significant impact of housing expenses on overall inflation. Housing costs have been climbing for 44 consecutive months, indicating a persistent upward trend.

• This trend highlights the growing financial burden on households, as housing costs constitute a major part of monthly expenses for many. The continuous rise in housing costs is a key factor in the overall economic pressure experienced by consumers.

The Top 10 MSAs Purchased with Cash in 2023 link

• In 2023, cash purchases of homes in the U.S. surged, with the national average reaching 38.0%, up from 33.5% in 2021. Macon, GA, led with 61.5% of homes bought with cash, a significant increase from 53.2% in 2021. This trend indicates a strong investor presence and a competitive market.

• Florida and Arizona emerged as hotspots for cash transactions. Naples, FL, saw 58.9% of homes purchased with cash, and Lake Havasu City-Kingman, AZ, recorded 52.9%. These areas attract buyers due to favorable tax policies, climate, and investment opportunities.

• Cash purchases offer advantages like faster transaction timelines and bargaining power for buyers. The high rate of cash sales in certain MSAs, such as Myrtle Beach, SC (56.3%), and Youngstown, OH (55.1%), reflects changing market dynamics and buyer preferences in a post-pandemic landscape.

AirDNA projects a strong 2024 for STRs after bumpy 2023 link

• The short-term rental market faced challenges in 2023, with a 12.6% increase in available nights but only a 6.5% rise in demand. New York City's strict regulations led to a significant drop in local STR inventory, pushing demand to New Jersey cities like Jersey City and Newark.

• Despite a dip in occupancy rates to 49.9% and a decrease in average daily rates to $311.09, 2023 ended on a high note with a record $64 billion industry value. The most in-demand month was July, with nearly 24 million nights stayed.

• Early 2024 data indicates a rebound in the vacation rental market. Demand in January is 8% higher than in 2022, with projections of 13-21% higher demand through June. Two major events, spring break and the April 8 total solar eclipse, are expected to significantly boost bookings.

Here are the markets with the most baby boomer homeowners link

• Tucson, Arizona, leads the U.S. metro areas with the highest percentage of baby boomer homeowners at 41.8%. Pittsburgh, Rochester, N.Y., Tampa-St. Petersburg-Clearwater, and Buffalo-Cheektowaga, N.Y., follow closely, each with around 40%.

• Baby boomers, aged between 58 and 76 in 2022, make up over 20% of the U.S. population but hold nearly 38% of homeownership nationwide. New England states like New Hampshire, Vermont, and Maine have the highest concentration of baby boomer homeowners.

• The Great Recession saw a significant shift in homeownership demographics. From 2008 to 2021, Americans over 55 increased their share of home ownership from 44.3% to 54.2%, while the share of homeowners aged 35 to 54 dropped from 42.3% to 33.8%.

High-Value Properties Hit With Sharpest Value Declines link

• The real estate market is experiencing a significant shift, with high-value properties facing the most substantial declines in value. This trend marks a notable change in the property market dynamics.

• The industrial sector stands out as an exception in the fourth quarter, being the only property type to see rising prices. This indicates a unique resilience or demand in the industrial real estate sector compared to others.

BlackRock: Now Is the Time to Invest in CRE link

• BlackRock's Real Estate Research suggests strong returns from investments made after downturns. The period post-2022, characterized by Federal Reserve's interest rate hikes, has led to decreased transaction volumes and property values, creating a favorable investment climate.

• The report notes solid vacancy rates, particularly in living and logistics sectors, indicating a robust market. High construction costs and rising interest rates, coupled with stringent lending conditions, are expected to limit new developments, thereby mitigating the risk of oversupply in prime property segments.

• The current market conditions, marked by undersupply of prime property and stable vacancy rates, present a reduced downside risk for future real estate performance. This scenario offers a strategic opportunity for investors looking to capitalize on the current market dynamics in commercial real estate.