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BlackRock: Now Is the Time to Invest in CRE

Plus, markets with the most baby boomer homeowners and 6 more Real Estate Insights

Macro Trends

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.

Real Estate Trends

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.

Opportunities

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.

Something I found Interesting

CVS Serves Higher-Income Customers Than Walgreens link

  • CVS and Walgreens, while similar in market presence and product offerings, attract distinctly different customer demographics. A study by Placer.ai reveals CVS appeals more to larger households, whereas Walgreens is frequented by singles.

  • This differentiation in customer base is reflected in the income levels of their shoppers. CVS tends to serve higher-income customers compared to Walgreens, indicating a strategic divergence in their market positioning.

  • The implications of these findings are significant for retail strategies and marketing approaches. Understanding these demographic differences can guide tailored services and promotions to better meet the specific needs of their respective customer groups.

One Infographic

Why its more affordable to buy a home this year

That's all, folks. If you enjoyed today's issue, please reply (it helps with deliverability)

Cheers,

Vidit

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