An Unprecedented Glut
It’s Friday desk clearing time for this blogger. “Douglas Elliman has released its rental report for the final month of 2016, showing that the rental market did not end the year with a bang. December marked a record amount of leases signed with concessions, 26.4 percent. That’s double the amount from the same time last year. Brooklyn landlord concessions more than doubled from one year ago, as brokers saw a surge of new leases, due to new development and tenants pushing back on rents. But the borough actually saw its median rent slide year-over-year for the fifth time in six months. The median rent declined in all bedroom categories, with larger declines for larger units. ‘There’s stress in both Manhattan and Brooklyn rentals,’ says Jonathan Miller, the man behind the numbers.”
“For years, we’ve been hearing about how Austin is one of the fastest-growing cities in the country. But city demographer Ryan Robinson said we’re starting to see signs that the market may be cooling. ‘So we’re finally beginning to see something we haven’t seen in years in the multifamily market, and that’s concessions, things like free month’s rent, move-in specials, different things,’ he said. ‘You haven’t seen any of that because it’s been such a landlord’s market.’”
“The large number of new apartments being developed in the Milwaukee area has increased the overall supply to the point where rents are beginning to drop and vacancy rates are rising. That’s the view of Ian Martin, vice president of development at Mandel Group Inc., one of Milwaukee’s most active apartment development firms. Meanwhile, an estimated 4,300 new apartments are scheduled to be completed throughout the Milwaukee area this year, and again in 2018, he said. That compares to around 7,000 units completed from 2010 through 2016.”
“‘Everybody’s building,’ Martin said. ‘That supply is already starting to impact the local fundamentals.’”
“Architect and developer David Hovey isn’t the type to splash his name across the side of his latest downtown Chicago apartment tower, but his signature will be all over it. The building arrives at a time when the downtown apartment market is in the midst of a big increase in the supply of luxury-priced rentals. In the three years 2016 through 2018, roughly 11,500 new apartments will be added to the market, according to Ron DeVries, a VP of Appraisal Research Counselors, which tracks the downtown housing market.
“He said developers have begun offering concessions–typically a month or two of free rent–to fill their buildings. ‘Absorption has been about 2,500 a year,’ DeVries said, ’so we’re getting more and more overhang.’”
“Fargo-based Appraisal Services Inc. tracks the local apartment vacancy rate each quarter, and the Dec. 1 count suggests another potential issue. In June 2013, apartment vacancy in Cass and Clay counties was 2.5 percent; that climbed to 9 percent last month. The issue, according to commercial real estate appraiser Petter Eriksmoen, is developers responded to high demand and short supply by building new complexes—a lot of new complexes, with about 1,300 new units coming online per year in the past five years.”
“He said these warning signs suggest the local economy may have ‘reached the top’ and plateaued after several big years. ‘I think we’re coming back down to earth a little bit,’ he said.”
“Calgary home sales are expected to remain significantly below normal in 2017, according to the Calgary Real Estate Board. CREB president David P. Brown acknowledged that while some realtors made it through the past two years with no problems, others ‘got hurt dramatically.’ ‘We’ve come off two very, very tough years,’ he said. Some realtors have left the business altogether as a result of the downturn, Brown said. ‘But we’ve also seen people getting into the industry, because they’re getting laid off from other positions in other industries. They’re taking on real estate as a second career.’”
“Inner city units in Sydney, Melbourne, Brisbane and the Gold Coast sold off-the-plan have been declared a ‘clear and present danger’ to property buyers due to over supply forcing down prices. A report by trends forecaster Hotspotting said the number of apartments being released exceeded current demand. And units in Sydney’s ’second CBD’ Parramatta, compared to inner Sydney, posed an even greater risk to buyers on account of already falling sales volumes, the report said.”
“Analysts widely consider oversupply a red flag for off-the-plan buyers because it puts downward pressure on prices — increasing the risk of homes being worth less, when built, than their owners paid for them. Hotspotting director Terry Ryder said inner Melbourne presented the biggest danger for buyers. ‘New supply in Melbourne has gone way over the top but many buyers are unaware of this,’ he said. ‘Parramatta, in particular, is a concern. There is already a pattern of decline in sales but supply is still increasing. It’s a very dangerous combination.’”
“Across capitals, developers’ have sought to remedy supply imbalances by targeting foreign buyers, especially from China, in the hope they will absorb excess housing stock. The strategy wasn’t working because Asia-based and local banks were clamping down on foreign lending, Mr Ryder said. ‘Someone needs to rent those homes too but vacancies are on the way up in most inner city areas,’ he said. BIS Shrapnel analyst Angie Zigomanis agreed foreign buying was decreasing, resulting in softer demand overall. ‘Foreign buying was at a peak 18 months ago but it’s been in decline since then,’ Mr Zigomanis said.”
“Kayode Oyedele, an estate manager, was shocked after going through the content of a correspondence he received from tenants in some estates he manages in Lagos and Abuja. After a meeting with representatives of the tenants last November, it was clear that a hard decision had to be taken. The tenants unanimously laid down their cards in clear terms before Oyedele: ‘Reduce your rent or we vacate your estate,’ they said emphatically.”
“Faced with this stark reality, Oyedele had no choice but to convince the property owners to take a 30 per cent cut in rent if they desired to still have the buildings occupied.”
“The Head, Property Management, SFS Capital Limited, Victoria Island, Lagos, Mr. Bolarinwa Odeyingbo, regretted that the property market recently suffered an unprecedented glut as thousands of properties across the country remain unsold, abandoned and uncompleted. Mass homelessness is now a common feature in all metropolitan areas, and infrastructure problems continue to escalate.”
“‘This year may even pose a worse outlook in that regard. I foresee a situation where a lot of the dollar denominated commercial rents for the new ‘A’ Class developments will be further reduced by as much as 30 to 40 per cent as tenants with ability to pay for such will further shrink,’ he said.”
