An Overbuilt Market Casts A Shadow
A report from WHO TV in Iowa. “There is no question that downtown Des Moines is growing, you can see apartment complexes popping up all over the city. Many people see how much building is going on downtown, they see the cranes, and they hear about vacancies. It leads many to ask if downtown is overbuilt, a question developers hear constantly. ‘The reason people are asking the question is for the last couple of years it just seems like there’s been building and building and building and I guess at some point I guess it needs to and should slow down a little bit and I think we are seeing that,’ Premier Companies Partner Troy Strawhecker said.”
“The market survey says nearly 3,000 units were built downtown last year and almost 3,000 units are under construction in 2018. The number of apartment units downtown has doubled since last year and still the vacancy rate in 2018 is only around 9.7 percent. Many apartments downtown are offering incentives to fill their vacancies quickly. ‘You want to fill it quickly without reducing your rents because once you reduce your rents, especially with the supply we have to drive those rents back up, so the concessions are an easy way to fill the physical occupancy and then after the concessions wear off maintain where the rents need to be,’ Senior VP CBRE, Hubbell Commercial Ryan Jensen said.”
From Mansion Global on California. “The Los Angeles real estate market is relatively strong and stable. ‘We have not seen enough new construction or an increase in housing stock of any kind,’ said UCLA Ziman Center for Real Estate Professor Paul Habibi. Mr. Habibi, who is also a builder, landlord and developer, remains optimistic about the overall market. ‘There have been fewer sales, but the deals are happening at a higher price point,’ he said.”
“‘Downtown has really been a hotbed of development, with domestic developers as well as developers from China and Canada,’ he said. ‘Just look at all of the cranes downtown. Downtown, no doubt, is being saturated by high-end rental and for-sale units. Most of the concentration of high-end housing is happening there—the Arts District is still on fire. The big question is whether downtown can absorb all of this inventory.’”
From the Press Herald in Maine. “The ambitious Midtown project – once seen as a transformational development for Portland’s struggling Bayside neighborhood – appears to be dead after missing a key deadline Saturday and losing city approvals. It failed to secure the permit before Saturday, triggering the expiration of city approvals for the entire project, including 445 apartments in three buildings with retail storefronts on the ground floor.”
“Portland has taken ‘numerous steps to impede the progress of the project,’ said Patrick Venne, who represents the Florida-based developer in Portland. ‘We are very disappointed with how this process has concluded, and are left with no option but to commence litigation against the City to enforce our rights and protect the significant expenditures associated with our commitment to this project.’ On Monday, Venne said that Federated will not appeal the denial.”
“City Manager Jon Jennings and other city staff pushed back Monday against the accusation that they are to blame for the expiration of the approvals. As Midtown has languished over the last seven years, millions of square feet of new development have been built in the city, Jennings said.”
The Herald Tribune in Florida. “An overbuilt market casts a shadow on the industry, at least in the short term. Steve and Maureen Wilson took a leap of faith in 1977 when they opened a self-storage business along a now-bustling stretch of Cortez Road. Back then, mom-and-pop operations dominated the industry. The tide changed in the wake of the Great Recession when many storage companies went bankrupt. Today, real estate investment trusts, or REITs, are scooping up independent owners with big money from Wall Street investors.”
“Now, unease about oversupply and rising vacancy rates looms over the self-storage market as expansion continues here and elsewhere across the country. REITs began invading the industry about five years ago, Wilson said. ‘Supply is catching up and overtaking demand, and vacancy is going up and rents are going down,’ Steve Wilson said. ‘The Sarasota self-storage market is saturated,’ said Barbara Denham, one of the senior economists at Reis Inc.”
“Nationally, the industry appears tense over its future. ‘The self-storage industry has been worrying about potential oversupply for at least the past 12 to 18 months — and fundamentals are starting to reflect that concern,’ Reis Inc. reported recently. ‘There is still demand but the market is oversaturated,’ Denham said. ‘There’s been too much construction.’”
“‘You can’t just go put a storage facility up, and say ‘if you build it, they will come,’ Wilson said. Denham agreed the haphazard approach is a loser. ‘Some self-storage markets have done very well and have exceeded the apartment market returns, but many of these now have significant construction underway. You have to do your due diligence, look at the data — especially on expected construction and vacancy, rent growth — and research the market.’”
From Curbed New York. “A planned luxury residential tower that would bring six ’sky gardens’ to Midtown is getting the kibosh, at least until the luxury market rebounds. ODA New York’s 41-story project planned for 303-305 East 44th Street has been indefinitely put on hold by developer Triangle Assets. ‘The condo market has been softening. We’ve decided to ride it out,’ Ben Stavrach, director of leasing and property management at Triangle Assets, told The Real Deal. ‘[The pricing] is going to be pretty high up there, and that market is not as strong.’”
