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Student Housing Investments On The Rise

Plus, 6% Mortgage Rates are Back (for Select Borrowers) and 6 more Real Estate Trends

Welcome to Zero Flux - A daily real estate newsletter of 5-10 market trends handpicked from > 100 sources, including paywalls.

No opinions, just data and facts.

Let’s begin

Macro Trends

U.S. Continues to Add Jobs at a Healthy Pace link

  • U.S. job growth in November 2023 exceeded expectations, adding approximately 199,000 jobs, boosted by the return of auto workers and actors from strikes. This figure surpassed the projected 180,000 jobs, indicating a resilient job market despite Federal Reserve efforts to cool the economy.

  • Significant job gains were observed in various sectors, with Education and Health Services leading (+99,000 jobs). However, the Trade, Transportation, and Utilities industry saw a notable job loss, primarily due to a decline in Retail Trade employment.

  • The unemployment rate in November 2023 dropped to 3.7%, the lowest in four months, continuing a trend of sub-4% rates for 22 consecutive months. Average hourly earnings rose by $0.12, reflecting a 3.7% year-over-year increase, outpacing the Consumer Price Index rise of 3.2%.

Real Estate Trends

The Shifting Landscape of Headquarters Relocations: Trends and Outlook link

  • The last five years have seen a significant number of headquarters (HQ) relocations, with 465 moves since 2018, peaking in 2021. The primary reasons for these relocations include seeking a better business climate and lower taxes, which accounted for 24% of the moves.

  • The technology and manufacturing industries led these relocations, with 135 and 120 moves respectively. Texas emerged as the top destination, particularly Austin, Dallas, and Houston, attracting a large number of these relocations due to favorable business conditions and lower living costs.

  • The trend of HQ relocations is influenced by various factors, including cost savings, labor availability, and growth expansion prospects. Companies are increasingly aligning their relocation decisions with their core values and corporate responsibility stances to attract top talent.

Green Street: CRE Prices May Have Hit Bottom link

  • The Green Street Commercial Property Price Index dropped 3% in November, marking a 22% decline from its peak in March 2022. This significant decrease reflects the impact of rising bond yields, which froze the transaction market in September and October.

  • Notably, all property types tracked by Green Street, except malls, experienced pricing declines over the past year. The most dramatic drops were in the office sector (35%) and apartments (30%), while the lodging sector saw the smallest decline.

  • The recent bond rally suggests that commercial property is now fairly priced compared to corporate bonds. This development indicates that property pricing may have reached its lowest point, offering a potential turnaround in the market.

October's Deal Volume Was the Lowest This Year link

  • Commercial real estate experienced a significant downturn in October, with sales volume and deal numbers falling sharply. The total deal volume was only $18.3 billion, a 68% decrease compared to October 2022.

  • No asset class in the commercial real estate sector showed any gains, with some experiencing substantial year-over-year declines. This trend indicates a widespread slowdown across different types of real estate investments.

  • The decrease in transactions was notable, dropping by 64% from the previous year. This decline reflects a broader trend of weakening in the commercial real estate market, affecting various regions and asset types.

Apartment Owners Prioritizing Occupancy Over Rent link

  • In 2023, apartment demand saw a significant rebound, particularly in the latter half of the year. This recovery follows a challenging period marked by decreased demand.

  • Apartment operators are now focusing more on maintaining high occupancy rates rather than pushing for higher rents. This shift in strategy reflects the changing dynamics in the rental market.

  • Cushman & Wakefield's economist, Sam Tenanbaum, highlights that despite current oversupply challenges, these issues are expected to be short-lived, suggesting a positive outlook for the apartment rental market.

2023 Rent Report: Atlanta Is Crowned Most Sought-After City of the Year, Midwest Claims Most Popular Region Title link

  • Atlanta emerged as the top city for renters in 2023, surpassing other major urban areas. The city's growing appeal reflects a broader trend of renters seeking affordable and quality living spaces.

  • The Midwest region has seen a surge in popularity, with cities like Kansas City, Missouri, and Cincinnati becoming hotspots for renters. This shift indicates a growing interest in regions traditionally considered less popular.

  • The rental market dynamics in 2023 highlight changing preferences and the evolving landscape of urban living. Renters are increasingly exploring diverse locations, balancing affordability with lifestyle and job opportunities.

Opportunities

Student Housing Investments On The Rise link

  • Student housing is proving to be a robust investment, with a 0.6% increase in fall enrollment at top universities and a significant 150-basis-point rise in occupancy near these institutions. This growth outpaces the pre-pandemic period.

  • The sector is experiencing remarkable rent growth, with a 7.9% increase from August 2022 to August 2023, notably outstripping the national average for market-rate apartments. The Rocky Mountain region leads with an 11.9% year-over-year rent increase.

  • Future prospects for student housing are bright, with the potential for new on-campus housing supply through 2025 reaching its highest level since 2017. Texas and Oklahoma are witnessing the most significant annual change in new housing supply for 2024, at a staggering 62.1%.

Risks

Commercial Mortgage Delinquency Rates Rise a Third Month in a Row link

  • Commercial mortgage delinquencies have increased for the third consecutive month in Q3 2023, as reported by the Mortgage Bankers Association. This rise is attributed to higher interest rates, shifts in property market fundamentals, and uncertainties about property values.

  • Every major capital source experienced a rise in delinquency rates. Jamie Woodwell, MBA’s Head of Commercial Real Estate Research, highlights this trend in his remarks, indicating a broader impact across the commercial real estate sector.

  • The trend of rising delinquencies is particularly notable among lenders with more aggressive underwriting standards. This suggests a correlation between riskier lending practices and the likelihood of loan defaults in the current economic climate.

Something I found Interesting

BlackRock Raises €774M For Europe’s ‘Best Real Estate Buying Opportunity Since 2008' link

  • BlackRock Private Markets secures €774 million for the BlackRock Europe Property Fund VI, targeting key European markets. This significant capital, raised from global institutional investors, marks a strategic move to capitalize on Europe's current real estate opportunities.

  • The fund aims to invest in high-quality assets in the UK, France, Germany, the Nordics, and Spain. Focusing on sectors influenced by demographic shifts, digital disruption, and the transition to a low-carbon economy, it seeks to align with the structural 'mega forces' shaping future demand.

  • Emphasizing sustainability and efficiency, the fund is dedicated to investing in student housing, homes, logistics, and data centers in under-supplied markets. With a commitment to ESG credentials, the fund is poised to create net-zero emissions and high-energy efficiency in its investments.

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6% Mortgage Rates are Back (for Select Borrowers) 

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  • Mortgage rates have cooled down to the lowest levels since July, with some borrowers being quoted in the 6% range. This comes after rates hit a 23-year high of 8% in October.

  • A top-tier borrower with a 780 FICO score and a 25-30% down payment for a 30-year fixed-rate mortgage was quoted 6.875%. This rate decrease has led to an uptick in demand and increased activity in the housing market.

  • The decline in mortgage rates is a positive sign for the housing market, but stability and further rate reductions are needed to significantly boost buyer demand. Industry experts note that while there's been an increase in transactions and rate locks, a consistent and stable rate environment is crucial for sustained growth.

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Cheers,

Vidit

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