November 22, 2017

A Wealth Of Inventory And A Lack Of Demand

A report from the D Magazine in Texas. “If you’re a Realtor, your expanding waistline has already told you there’s something going on in the apartment world. Almost any day of the week, some apartment complex is hosting lunch for Realtors and apartment referral agents. The goal isn’t Christmas cheer; it’s snagging tenants for their empty apartments. Nearly every multi-family new build in Dallas has been expensive. In the high-rise condo world, the last purpose-built mid-priced buildings were in 1998. In Uptown, the boom has largely been in apartments (for a host of national and local reasons) and, like their condo brethren, they are expensive. But I see softening beyond Realtors’ waists.”

“There has been a slowing in the higher-priced home buying market. Over the past 12 to 18 months, days on market have been creeping up and prices have pulled back. What a year ago was a slowness in homes costing more than $1 million has now been creeping into the $700,000 to $800,000 range. This is being mirrored in the apartment world, even though slightly delayed. In the Uptown market, two forces are at work. First is overall affordability. The crop has largely been creamed for twentysomethings who can afford $2.50 to $3.00 per square foot for rent. That is coupled with the realization that those rents would translate into a quite nice condo.”

From Chicago Mag in Illinois. “Is the Downtown Apartment Bubble Bursting? This month, Mayor Rahm Emanuel announced the installation of the 60th operating tower crane in 2017, as well as another post-recession record of building permits issued in a single calendar year. Downtown Chicago renters have more options than ever, and thousands of new apartment units for the city’s dense central neighborhoods are in the pipeline for 2018 and 2019. But is it too much?”

“Brokerage Luxury Living Chicago estimated that roughly 6,600 new apartments were slated to be delivered in 2017 alone. ‘We’re at a point that when we hit March 2018, we will see the highest vacancy of new downtown apartments since this development cycle,’ says Luxury Living’s CEO Aaron Galvin. ‘We’re expecting to see roughly 5,000 vacant apartments in downtown Chicago in the first quarter of 2018.’”

From LA Weekly in California. “Los Angeles’ insane rents might finally be coming down. After a glut of new apartments downtown sparked a cooling of rent increases, there’s new evidence suggesting that the sharp rise in lease rates across the county could be leveling off. A new report from RealPage found that the average rent in Los Angeles County actually decreased by $19 from September to October. ‘Lots of new apartments coming online is keeping up competitive pressure, particularly in L.A. and Orange County,’ said RealPage’s vice president for analytics, Jay Denton.”

“‘Annual rent growth in Los Angeles and most of the rest of Southern California now is cooling,’ added Greg Willett, RealPage’s chief economist. ‘This performance trend follows the pattern exhibited in most of the rest of the country in 2016.’”

From Multi-Housing News. “After several years of consistent rent hikes, San Francisco’s housing market has cooled to some degree. Investor activity has slowed down, with only $600 million in multifamily assets trading in 2017 through August. This follows a strong 2016, when transactions reached a cycle high of $3 billion. Development is robust, with more than 4,000 apartments delivered in the first three quarters and another 12,400 units under construction.”

From Builder Online on Florida. “Even one-of-a-kind properties in Miami are getting swept up in the buyer’s market that has materialized there. The Wall Street Journal reports: ‘A South Beach condominium owned by architect Zaha Hadid, who died unexpectedly last year, is relisting for $6.5 million, or 35% below its initial asking price of $10 million nine months ago. The new list price reflects the fact that ‘we are in a buyers’ market in Miami,’ said Ivan Chorney of ONE Sotheby’s International Realty, who with colleague Angelica Garcia took over the listing from another agent. ‘There is currently a four-year supply of luxury condos over $1 million, so the right price point and design features are more important than ever.’”

From Mansion Global on New York. “A wealth of inventory and a lack of demand has contributed to a 2% price drop in Manhattan’s luxury real estate prices, according to StreetEasy’s latest market report. October data showed the median resale price of luxury homes—defined as repeat sales within the top 20% of the market—in the borough dropped 2% year-over-year to $4.317 million, the lowest level since 2014, according to the report. In Brooklyn, the median resale price of luxury homes dropped 3.6% to $1.627 million, close to its lowest level since May 2016. In Queens, the median resale price for a top-tier home rose 6.9% to $1.036 million, the report said.”

“‘The onslaught of high-end development in Manhattan and Brooklyn shows no signs of slowing down,’ said StreetEasy senior economist Grant Long. ‘Sellers are having a hard time finding buyers without offering severe price cuts, often to levels below their original purchase prices. This isn’t a new phenomenon, but with too much luxury inventory already on the market and even more supply to come, this trend isn’t over.’”

“Luxury homes across the three boroughs are also taking longer to sell than in October of last year. ‘The luxury market in 2018 will continue to favor the buyer, who will likely encounter increasingly anxious sellers willing to slash prices as more new construction hits the market,’ Mr. Long said.”

“Take for example the two-unit spread at Trump International Tower that’s currently listed for $27.5 million, a 31% price cut from the $40 million wanted for the combined apartments last year. Or the Plaza Hotel apartment that listed Monday for $25 million, an almost 50% discount from its original asking price in 2014.”