March 8, 2017

They Don’t Know Until It’s Too Late

A report from the Saskatoon Star Phoenix in Canada. “Last November, the Canada Mortgage and Housing Corp. reported that Saskatoon’s vacancy rate had reached a historic high of 10.3 per cent — up from the 6.5 per cent recorded 12 months earlier. And at least one rental market expert believes the vacancy rate has climbed even higher since October, to somewhere between 16 and 18 per cent. Four years ago, Grant Spurdle’s apartment building in Varsity View was filled to capacity, with 63 tenants paying good money. Now a combination of widespread economic weakness, private residential rentals and a glut of new apartments and condominiums has driven the family-owned building’s vacancy rate up to 12.5 per cent. And that’s not the only problem, Spurdle said.”

“‘This (rate) isn’t too uncommon this time of year,’ said the landlord, whose family has run the Temperance Street building since 1965. ‘But what’s really uncommon is we’re not getting a single phone call for rentals. Nothing. The phone’s just not ringing.’”

“Spurdle said while he knows the high vacancy rate is temporary and has plans in place to manage it, the reality is that the next few years won’t be easy. ‘It’s totally temporary,’ he said. ‘But when you’re talking temporary, these business cycles are, like, seven to 14 years. Hungry for seven years is a long time, right?’”

From Bloomberg on the UK. “Rents for luxury homes in central London’s best districts fell 5.1 percent in February from a year earlier, according to Knight Frank LLP. The number of prime properties coming onto the market rose 24 percent, exceeding the number of additional prospective tenants, the property broker said in a report. Successive tax increases in 2014 and 2016 created a flood of new rental properties. Brexit-induced uncertainty has also added to the glut of properties as companies curb transfers of employees to the capital.”

“‘Prime central London remains a tenants’ market and landlords are having to remain competitive on asking rents to minimize void periods,’ said Tom Bill, head of London residential at Knight Frank.”

The Saudi Arabia Gazette. “For the first time in many decades, residential rents in most neighborhoods of Jeddah are starting to drop as landlords struggle to fill housing units vacated by laid-off expatriates. The displays of ‘For Rent’ signs have been increasing in almost every corner of the city, indicating an imminent free fall in the real estate sector. Hafiz Abdul Kareem, the watchman of a building in Al-Rawdah, said he has been working there for the last 27 years and it is for the first time he has been witnessing such a grim situation for renting.”

“‘In our building there is always advance reservation for any empty apartment but for the first time we are having three apartments vacant for several months,’ said Gulam Ali, caretaker of a large residential building in Safa district.”

The Strait Times on Singapore. “Real estate investment - once considered a no-brainer as prices kept going north - has become more complicated in recent years, with changing market dynamics brought about partly by new government policies and measures to cool the market. The slower growth in the Singapore economy, weakness in the oil and gas sector, and continued tightening of the foreign worker policy have crimped business expansion and the hiring of foreigners.”

“CBRE Research noted that islandwide rents fell 13 per cent as at the end of last year from a peak in the third quarter of 2013, while the vacancy rate crept up from 6.1 per cent to 8.4 per cent over the same period. PropNex Realty senior associate director Anthea Yeo said: ‘Some landlords still have high expectations. They think cutting rents by $100 or $200 is enough. Some even want to mark up rents because tenants would bargain, they say.’”

“She has slashed the rent for her one-bedroom apartment in Novena from $3,700 to $2,000 over the years, adding: ‘In the past, I leased to a Japanese expat, now it’s a Singaporean student. I have to review the rent again when the lease is up for renewal.’”

From Fairfax New Zealand. “Last month, Mike Blackburn bought a house. He and his wife looked at about 40 properties before settling on one. As they traipsed through the preceding 39, a pattern emerged. ‘Every second house we looked at was empty,’ he said. ‘That’s just a telling figure. Where have all these people gone?’”

“The significance of what he saw wasn’t lost: Christchurch, the city once desperately short of houses after thousands of them were wrecked by earthquakes, had a lot more accommodation than it used to. Blackburn is a management consultant, specialising in construction clients. He saw a clear vision. ‘There was a major rush, mostly by the group home builders, to build a lot of houses really quickly,’ he said. ‘What’s happened is now everyone who’s needed a house has pretty much got one and they’re still building them. They’re building them flat out . . . all these development companies are month after month submitting 20-30 consents each for essentially spec housing.’”

“Property manager Tony Brazier saw the problem coming. In October 2014 he penned a column in The Press warning of the dangers of over-building. ‘We’ve got an oversupply now,’ Brazier said, ‘It’s bad enough. We don’t want it getting any worse. They should have stopped supplying the rental market a while back. It would be lovely to say, ‘Stop’, and everybody stops, but you can’t do that. We only see the market having gone too far when we see builders going bust. They don’t know until it’s too late.’”

From ABC News in Australia. “Unemployed Darwin tradies are being evicted from rental homes while properties bought five years ago are increasingly selling at a loss, real estate agents say. It is part of a housing market trend as the tropical city comes down off a construction industry high. ‘We evicted a property last week where the renter was a building industry contractor,’ Real estate agent Ken Jones told ABC Radio Darwin. ‘The amount of work he’d been able to pick up over the last 12 months had declined to the point where he couldn’t pay his rent anymore or come up with rental payments.’”

“Data released late last year showed median home prices in Darwin were $480,000, a return to what they were seven years ago. Darwin real estate agent Glenn Grantham said those selling at a loss were mostly those needing to sell quickly due to a divorce or needing to move away. The job losses in the construction industry were likely adding to the sales loss figures. ‘The new factor on today’s market is the addition of people losing their jobs,’ he said. ‘We’re finding a lot of people are moving back to Queensland. I don’t think this has hit home yet for some.’”

High-Flying Developers Bring Their Work In For A Landing

A report from National Real Estate Investor. “Developers still hope that Millennials will help fill the slowly growing number of vacant apartments across the United States. They might be right. More than a million Millennials still live at home—less than a few years ago, but still a substantial number, including some who are likely to eventually rent apartments. ‘There’s potential upside in demand there,’ says Ron Witten, founder of Witten Advisors, an advisory firm that focuses on the apartment sector.”

“Witten Advisors continues to forecast a relatively healthy apartment market two years from now. ‘Our outlook has remained about the same—slower rent growth, but still above average in most markets, as more supply opens,’ says Witten. ‘The markets generally don’t have an oversupply problem, but many do have a supply concentration problem, with many new projects in the same neighborhoods leasing up simultaneously and softening rents in the short term.’”

From The Herald in Washington. “More than 2,000 apartments are being built across Snohomish County — with more on the way. That leads to the question: How many are too many? ‘It depends on who you’re rooting for — whether you’re rooting for the owners, the developers and the office managers or the tenants,’ said Tom Cain of Apartment Insights Washington, a Seattle real estate market research firm.”

“Most of the development occurring in the county is happening near the Snohomish-King county line, said Tom Hoban, CEO of the Coast Group in Everett. ‘All of it leased up quickly, as we might expect,’ said Hoban. ‘We could see a minor oversupply in the short term, causing vacancy rates to tick up to 6 percent, but long-term fundamentals are strong.’”

From The Oklahoman. “Aircraft carriers and apartment construction have at least one thing in common: Neither can stop on a dime. The multifamily building boom is over, courtesy of the 2014-16 crude oil price slide, but it will be a while before high-flying developers bring their work in for a landing. That’s the gist of the construction section of Price Edwards & Co.’s 2016 year-end multifamily market survey, prepared by broker David Dirkschneider.”

“Historically low loan rates, strong oil prices and a growing workforce caused an expansion in apartment building here for just more than a decade ending with the steep dive starting in early 2014. Nearly three years later, apartments are still going up despite a decline in occupancy to just less than 90 percent, the lowest in recent history, Dirkschneider said. Dirkschneider reported 3,400 new apartments completed last year in Oklahoma City, about one-quarter of them downtown or in the urban core at The Lift, The Metropolitan, the second phase of The Maywood. Only 1,454 were rented.”

“‘Often we receive questions regarding why developers continue to build when the market has already signaled a softening, and the basic answer is they are simply fulfilling projects already in their pipeline,’ Dirkschneider wrote.”

The Miami Herald in Florida. “Downtown Miami’s real estate market is slowing fast, just as developers are preparing to deliver the most new condos in a single year since the last bubble. Nearly 3,500 downtown condos will be delivered this year — a surge since the Great Recession. On the rental side, about 4,900 rental apartments are under construction downtown — which, combined with the 1,000 rental apartments that were delivered last year, should slow rent increases, according to the Downtown Development Authority report. The asking prices for rentals have declined, the report found.”

“While the sliding demand will limit financing for some new projects, it’s also a sign of a market stabilizing after five years of continuous growth that some analysts had worried might lead to another condo glut. ‘I said last year the developers were making decisions based on the timing of the market,’ said Anthony Graziano of Integra Realty Resources and one of the lead authors of the report. ‘This year, their bankers are.’”

The New York Times. “As rents in Brooklyn slip but inventory continues to mount, landlords are locked in a fight to fill their apartments. After lavishing their buildings with outdoor cinemas, high-end markets and spa-caliber pools, landlords have decided to offer hefty freebies, like several months of rent and other concessions. Particularly pitched, brokers say, is the battle playing out along the Flatbush Avenue corridor in Downtown Brooklyn, where rental complexes have quickly sprung up.”

“‘The market seems oversaturated, but I like to use the word oversupplied with my clients so as to not create a panic,’ said Marie Bromberg, a Corcoran Group agent.”

“A renter who is considering renewing an existing lease and who hears about discounted empty apartments in the same building might demand a similar bargain, said David J. Maundrell, the executive vice president of new developments for Brooklyn and Queens at Citi Habitats. Mr. Maundrell added that the rental market may be shallower than many think. ‘It gets to the point where you start to wonder, how many people are out there that can afford rents like this?’ he said.”