The Blum Brief
Experts Agree: CRE sectors are flourishing as Covid vaccination rates rise
July 5, 2021
Don’t just take it from us - experts around the country (and globe) are talking all about the unanticipated benefits commercial real estate (CRE) is experiencing as we work toward defeating Covid for good.
Multifamily is performing strong and investors are optimistic about the outlook of the industry moving forward. As Chad Hagwood, Senior Managing Director at Lument, multifamily lending financial partner, stated, "As the pandemic begins to recede and the economy starts to recover, multifamily investors are positioned to take advantage of opportunities as they unfold, thanks in large part to government relief, forbearance programs, and the steps the agencies took last year to stabilize the market."
In addition, Michael Van Der Poel, founding partner at ACRE, real estate private equity firm, explains, "We’ve really come out of [Covid] unscathed as an industry, for the most part. We’re very happy and grateful to be owners and operators of multifamily in the Southeast, where we’ve been focused for the last decade. There was a real flight out of the cities from high-density environments, and we were the benefactor of that."
The self storage sector has been increasing at record rates in demand and market value. A recent report from Yardi Matrix, a top CRE data source, found that, "National average rates for both 10x10 non-climate-controlled and climate-controlled units have bounced back to prices not seen since 2017, before the most recent supply boom began."
This view is being seen not only nationally but globally, as well. A June article from UK news site The Scotsman, a ~145-year-old news authority based in Edinburgh, states, "People decluttering to make space for home offices, a booming property market and the growth of online retailers have all led to the use of self-storage space in the UK reaching a record level of 82 percent of lettable space occupied. This new high coincides with the largest annual increase in occupancy levels since records began in 2004."
Home portfolio housing is seeing similar, "record" increases as self storage with experts saying post-Covid effects will only amplify an already-developing single-family rental (SFR) boom. " . . . single-family housing rents are suddenly soaring at the fastest rate on record," Hoya Capital, real estate investment advisory firm, writes, "Fueled by the maturing millennial generation - the largest age cohort in American history - the 2020s were already poised to be a decade of 'suburban revival' and behavioral changes in the post-coronavirus world have provided an added spark and pulled some of this single-family housing demand forward.”
It's not only SFR rentals that are thriving, but the build-for-rent (BFR) sector is also giving home portfolio an added boost as one of CRE's hot topics. As quoted in Business Wire, a Berkshire Hathaway company, "BFR continues to expand as CRE’s strongest investment growth sector, due to higher occupancy rates, less turnover and greater return on investment . . . Build-for-Rent homes account for over 6% of new homes built in the U.S. annually, and this number is anticipated to double by 2024.”
To add to this anticipation, big corporations have been (literally) paying extra attention to BFR. As quoted from contributors on REBusiness Online, a CRE news leader, "Institutional investment in the [BFR] sector is also occurring at historic levels, with nearly $5 billion invested in the sector in 2020 alone by groups like JP Morgan Asset Management, Nuveen, Brookfield Asset Management, Blackstone, Rockpoint Group and Koch Industries.“
Supply chain & logistics are also "hot" within CRE, although recent news has been a mix of both positive and negative for the industry. The Counselors of Real Estate released a 2021-22 Top Ten Issues Affecting Real Estate report, and logistics is #4 on that list. They state, "Logistics post-COVID-19 will disrupt commercial real estate models for years to come. Disruption in commercial real estate capital allocation—with more funding to industrial property and less to retail—can be expected.”
However, if we take into account global happenings within the supply chain & logistics sector, we'll find it could be poised to be a huge win for CRE in the near future, especially in the Gulf South region. As quoted in Supply Chain Quarterly, "[Cushman & Wakefield’s] North American Ports Outlook points to an expected 6.5% increase in GDP growth and an anticipated 21% rise in U.S. imports, factors that will help fuel strong performance, especially as congestion begins to ease at U.S. ports. Among the trends identified, the report points to a continued increase in larger vessels calling on major ports and a resuming shift in volume toward Atlantic and Gulf Coast ports.”
To add, Harvard Business Review contributors write, " . . . expansion is taking place at the port of New Orleans, to handle ships up to 14,000 TEUs, along with an increase in intermodal capacity. Hapag-Lloyd, Ocean Network Express, Yang Ming, and HMM are instituting direct Asia-Gulf Coast services."
Couple this with the ever-growing demand from consumers for quick and seamless product deliveries worldwide, and, as Mark Duclos, co-founder & president of Sentry Commercial, a CRE agency, explains, "The whole logistics, e-commerce market was there before the pandemic, but the pandemic accelerated this — it put it on steroids.”
In conclusion, will logistics be an issue for CRE for years to come? We prefer to shift that vernacular to "challenge" that's meant to be overcome, and, as we have since the beginning of commercial real estate as an industry, continue to meet and exceed our customers' demands and the world's expectations.
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