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MarketSnapshot
At Northmarq, we are committed to offering our clients the latest trends and expert analysis to power their decision making. Our MarketSnapshot suite of reports contains critical market data covering a variety of commercial real estate property sectors. In each report, you will find: Investment sales volume data Average cap rate information Buyer distribution analysis... and more! Single-Tenant Overall Market Single-Tenant Office Single-Tenant Industrial Single- Tenant Retail Multi-Tenant Retail
Latest Publications
Inland Empire Q3 Multifamily Market Insights: Rents Spike as Vacancy Dips to Lowest Level Since 2018
Highlights: Very strong operating conditions were recorded in the Inland Empire apartment market during the third quarter. With the local economy rebounding, vacancy tightened and rents gained momentum. Investors are responding to the strengthening conditions by increasing activity.Vacancy in the Inland Empire dropped 20 basis points during the third quarter, falling to 3.2 percent. Year over year, the rate has declined 50 basis points.Following a period of strong rent growth in the second quarter, area rents spiked 10.8 percent during the third quarter, reaching $1,716 per month. Asking rents have increased 17.6 percent year over year.Investment activity gained momentum during the third quarter with more properties changing hands in the past three months than closed in the entire first half of this year. Cap rates are compressing as demand intensifies. Cap rates year to date have averaged about 4.1 percent, but in the third quarter, they fell to approximately 3.5 percent. Read the report
December 9, 2021
Tucson Q3 Multifamily Market Insights: With Vacancies Low and Demand Elevated, Rents Spike
Highlights: The Tucson multifamily market posted continued improvement during the third quarter. The vacancy rate fell even as developers continued to bring new units to the market. Fueled by tightening vacancy rates and continued renter demand, rents remained on a steep upward trajectory.Vacancy dropped 30 basis points during the third quarter with the rate falling to 4.1 percent. Year over year, area vacancy is down 40 basis points, with a minor decline likely in the fourth quarter.Apartment rents in Tucson continued to surge during the third quarter, advancing 6.1 percent after an 8.5 percent spike in the second quarter. Rents have increased 21.5 percent year over year, ending the third quarter at $1,053 per month.The pace of multifamily property sales accelerated during the third quarter, spiking 20 percent from levels recorded in the second quarter. Prices are on the rise, with the median price reaching $97,300 per unit year to date, while cap rates have averaged approximately 5 percent. Read the report
December 9, 2021
Orange County Q3 Multifamily Market Insights: Rent Growth Gains Momentum as Demand Strengthens
Highlights: A recovering labor market fueled absorption of apartment units in Orange County during the third quarter, driving vacancy lower and causing rents to spike. Further gains are likely in the next few quarters.Vacancy fell 40 basis points during the third quarter, reaching 3.4 percent. Year over year, the rate has declined 20 basis points. The current vacancy rate is the lowest figure in the market since early 2017.Rents spiked for the second consecutive period. During the third quarter, asking rents rose more than 5 percent, reaching $2,186 per month. Year over year, asking rents are up 11.6 percent.Multifamily investment activity surged during the third quarter, and current transaction volumes have already far surpassed 2020 levels. Prices have pushed higher, with the median price reaching $364,900 per unit year to date. Cap rates have compressed, averaging 3.7 percent. Read the report
December 9, 2021
Economic Commentary: Elevated inflation risk, continued virus interruptions lead to shift in Fed focus
The past few weeks have been particularly eventful with developments affecting the economy. Of course, everyone is aware of the emergence of the Omicron variant of the COVID virus. Although it is too soon to know all the ramifications of this variant, it clearly represents a downside risk to the economy. Just as significant has been the pivot by the Federal Reserve in their messaging regarding inflation and the possible acceleration of the tapering plan they announced at the beginning of November. Here are some of the economic reports that led to this change by the Fed. Consumer Price Index and SpendingThe report that had the biggest impact on the Fed backing away from their thesis of “transitory inflation” was the release of the Consumer Price Index (CPI) for October, which saw the CPI rising to a 30-year high of 6.2% year over year. Pricing increases were broad-based, supported by continuing supply chain bottlenecks, higher energy prices, and increasing rents. There are signs that longer-lasting cyclical inflation pressures are continuing to build that could result in even higher CPI readings and an un-anchoring of stable inflation expectations. With inflation rising faster than wages, year-over-year real disposable income growth was negative for the third month in a row. Personal spending continues to be strong, however, as consumers are dipping into savings to purchase goods at inflated prices. The level of personal savings is now below its pre-pandemic level. As discussed previously, history suggests that consumer spending slows once people start to dig into savings to satisfy their spending. This slowing trend may become more evident in the new year. EmploymentThe November employment report released on Friday provided some confusing data. The headline non-farm payroll number showed a gain of only 210,000 during the month, well below expectations, and the weakest monthly reading this year. On the other end of the spectrum, the household survey showed a strong, broad-based 1.1 million increase, the best showing this year. Employment reports are some of the most revised reports, so we’ll have to see what the next release says. Regardless, based on the household survey, the unemployment rate fell to 4.2%, and more importantly, the size of the labor force increased by the largest amount this year. Consequently, the participation rate improved to the highest level since March 2020. The improvement in the size of the labor force is a long-awaited positive development that is critical for long-term GDP growth. Fed MessagingThe nomination of Jerome Powell for a second term as Fed Chair by President Biden was announced before Thanksgiving. Of more importance, however, was Chair Powell’s testimony this past week before the Senate Banking Committee. Powell admitted that “price increases have spread much more broadly in the recent few months” and as a result, “the risk of higher inflation has increased.” He said that is it appropriate for the Fed to consider accelerating the tapering process of asset purchases at their upcoming December meeting. This is a definite shift in the tone of the Fed’s messaging. The emergence of the Omicron variant provides another challenge to the Fed as they attempt to address their two mandates: price stability and maximum employment. While it is pretty clear from the Chair’s testimony that he is prepared to accelerate the tapering of the Fed’s monthly asset purchases in order to address the elevated inflation readings, the unknown severity of Omicron may cause the Fed to delay their decision to accelerate. It does appear, however, that absent Omicron, in an environment in which their two mandates may require different policy responses, the Fed places more weight on the price stability mandate. U.S. DollarOne final topic that is often overlooked is the U.S. dollar. Relative to other currencies, the U.S. dollar has been appreciating the past six months. This is important as it is a headwind to further advances in inflation. Historically, the value of the dollar and inflation move inversely. If the dollar continues to appreciate, inflationary pressures should abate. Dollar appreciation will likely continue as long as the Fed is perceived as planning to raise interest rates in such a way that it does not choke off the continuing improvement in the U.S. economy. In short, the likely path for the economy is to continue to advance, albeit at a slower pace than experienced during the past 18 months. The moves by the Fed will determine how smooth the path of the expansion will be. And, of course, COVID remains a wildcard.
December 6, 2021
Dave Kaercher joins Northmarq as Chief Information Officer
Minneapolis (Nov. 30, 2021) -- Northmarq has hired Dave Kaercher, a 25-year strategic technology leader, as Chief Information Officer. Kaercher will lead the company’s digital transformation across all business lines. “This important leadership position is critical to our continued implementation and adoption of technology platforms to enhance our client and employee experience, along with further development of our digital roadmap for the future,” said Travis Krueger, chief operating officer – Northmarq. David brings more than 30 years of progressive leadership and technology experience in financial services, retail and technology. Most recently, he worked for Blue Cross Blue Shield in the Washington DC area, where he was the Chief Information Officer for CareFirst BCBS, a Blue Cross Blue Shield entity with 3.5 million members across the U.S. Prior to BCBS, David held IT leadership roles in the banking industry, including PNC Bank and US Bank, and Insurance, with Allianz Life. David also served for seven years as a Regular Army (RA) Commissioned Officer in the United States Army. He holds a Master's Degree in Computer Engineering from the School of Engineering and Applied Science (SEAS) at The George Washington University and earned his BA from Moravian College in Bethlehem, PA.
December 2, 2021
Capital Corner: Getting ready for 2022: What to expect from the GSEs
Record demand continues in the white-hot multifamily market, and lenders are aggressively seeking to originate multifamily loans. With pandemic-related restrictions being lifted, the GSEs are lending in full force for multifamily, particularly for affordable housing and energy or water efficiency retrofits to properties. Following a strong 2021, we expect increased loan production in 2022, more loans with affordable and green elements, and additional access to loan programs for smaller lenders. FHFA increases caps, remains focused on mission-drivenFannie Mae and Freddie Mac will each have a cap of $78 billion in 2022, an increase from $70 billion in 2021. Half of the GSE’s production must still be “mission-driven” loans on properties serving low- and middle-income tenants or for green improvements. One change, however, is now 25 percent of the GSA’s multifamily business must be rented to tenants earning 60 percent or less of the area median income (AMI), a 5 percent increase from 2021. “The FHFA continues to push the affordability side of Freddie and Fannie for renters who need assistance,” says Sharon Plattner, senior vice president at NorthMarq and Freddie Mac expert. “They also added back their cost-burdened market determinations, which will help coastal communities receive affordability credits in their spreads.” How this translates into 2022, Plattner says, is “Freddie stays very loyal to its repeat borrowers. So, when their cap gets compressed, they tend to leave a little more in the tank for those repeat borrowers. However, with the expansion of that cap, first-time Freddie Mac borrowers or smaller mom-and-pop shops will have better access to the Freddie programs going forward.” A return to normalcyFor Fannie, a “return to normalcy was the single biggest change this year,” says Jeff Dannes, vice president/production manager at NorthMarq and Fannie Mae expert. “Peeling back things like COVID escrows was huge. Also important was Fannie responding to the market, identifying where demand is and making tweaks to the product to address that.” Fannie also made modifications for additional flexibility regarding interest only to its floating rate products. “Those were pain points for Fannie even prior to the pandemic, so to see them come out of the COVID downturn really aggressively pursuing what the market was demanding was really encouraging. I think we can expect more of that in 2022,” says Dannes. FHA/HUD still facing long processing queues“The biggest change for FHA in 2021 was the implementation of the loan processing queue,” says David Schmidt, FHA production manager for NorthMarq. “It was based on the unprecedented volume that HUD is facing and the lack of additional staffing. Those two things created a backlog of deals, so they had to implement the queue. The highest priority at HUD right now is increasing staffing.” Capital Corner Podcast: Listen on Spotify The queue means managing expectations of borrowers, Schmidt explains. “The biggest priority is making sure borrowers really understand the nature of the queue and where they fit. There are deal-specific characteristics that can put you in the front of the queue.” Like Freddie/Fannie, affordability and green are significant aspects of FHA loan programs. Additionally, Schmidt notes that HUD eliminated its three-year rule allowing for refinances of new multifamily construction and substantial rehabs. “That’s probably been the biggest driver of FHA volume for the last 12 months,” Schmidt says. Other changes underway for FHA in 2022 include eliminating the requirements for COVID reserves and loosening how it handles cash distributions within a mortgage. Plans call for allowing cash distribution to partners monthly vs. a maximum of twice per year. “That's very welcome news to borrowers,” Schmidt says.
December 1, 2021
Phoenix’s Explosive Multifamily Market Spurring Vigorous Rent Growth, Investment Sales Activity
As more people continue moving from the West Coast to the red-hot Phoenix market, investment capital is aggressively following, primarily in the bustling multifamily and single-family build-to-rent sectors. Phoenix is one of the busiest multifamily markets in the country fueled by robust population growth, strong employment and income growth, and a healthy, diverse economy. Arizona has recovered nearly all of the jobs lost during the height of the pandemic. Additionally, Phoenix has an extremely tight and competitive single-family housing market, which is pushing increasing rental demand. Phoenix is also a hot spot for corporate relocations and company expansions including big tech. More technology companies are moving to Arizona, newly named the “Silicon Desert.” Corporate investments include Taiwan Semiconductor Manufacturing Co.’s $12 billion fabrication plant. Due to this expansive job growth, demand for apartments in Phoenix is outpacing supply and driving unprecedented rents. Listen to the podcast “As hundreds of thousands of people move to Phoenix, we’re undersupplied on new units in the market, which is leading to 27 percent rent growth year over year,” says Jesse Hudson, Senior Vice President of NorthMarq Investment Sales. Arizona Governor Doug Ducey estimates the state will add more than 500,000 jobs over the next eight years, notes Brandon Harrington, NorthMarq’s Managing Director – Multifamily Debt and Equity. “Phoenix has become a job magnet pushing population growth, which in turn, is fueling the drivers behind multifamily rents and occupancies,” Harrington says. These healthy market fundamentals are attracting hungry investors to Phoenix, catapulting the market to a top spot for investment activity among major metro markets. “Nobody imagined we would see the level of velocity and growth that we're seeing in the market in 2021, and capital continues to funnel into Phoenix,” says Hudson. “On any given opportunity, there's an endless amount of capital and/or buyers looking to transact in Phoenix. Phoenix is one of the top three markets nationwide where people want to put capital today.” As investor demand intensifies and multifamily pricing increases, cap rates continue to tighten. “It's hard for some new capital coming to Phoenix, especially because of how fast cap rates have compressed,” Harrington points out. “But if you've been in the market for several years and own assets here, you've already seen this and can underwrite with more aggressive assumptions. For new buyers, it takes a little bit of time to get comfortable.” Although the current pace of rent growth is likely unsustainable, Phoenix will remain highly attractive. “The entire buyer pool has wrapped their heads around the fact that rent growth can't continue at this pace, but even at 5, 7, 10 percent rent growth year over year, you can still make a lot of money because renting apartments is still a necessity, and Phoenix is very favorable,” Hudson says. Most of the capital in Phoenix today is value add. These buyers can underwrite very aggressive assumptions -- whether it's exit cap rates, rent growth, or the premium they can get on renovated units, so “selling that to their equity base is easier than selling a coupon clipper with lower returns,” Hudson notes. “Seventy-five to 80 percent of our business this year will be in the value-add space.”
November 11, 2021
November Economic Commentary: Labor Market Shows Slight Improvement Even as Economic Recovery Is Challenged on Multiple Fronts
During the past few weeks, we’ve had the usual updates on a number of economic measures. The most important report, however, came after last week’s Federal Reserve Open Market Committee (FOMC) meeting. I’ll discuss the monthly reports below, but it is always good to focus on messages coming from the Fed. The Fed controls the money in our economy, and it has been their extraordinary response to COVID-19 via monetary policy (along with fiscal policy from Congress) that has enabled the economy to recover quickly, and in the process, develop the many imbalances between supply and demand we see today. GDP and Personal ConsumptionWe received our first reading of real GDP in 3Q-21 and, as expected, it showed significant slowing in economic activity as a result of the emergence of the Delta variant of the virus, the shortage of consumer goods, and the waning impact of the fiscal stimulus issued in the spring. 3Q-21 real annualized GDP slowed to 2.0% from 6.7% in 2Q-21. As recently as early July, the expectation was that 3Q-21 real GDP would register 7%. Personal consumption expenditures in 3Q-21 grew at a 1.6% annualized pace compared with a 12% rate in 2Q-21. Consumer expenditures make up about 70% of GDP, so as the consumer goes, so goes GDP. Economic growth will likely enjoy a bounce in 4Q-21 as the Delta variant subsides and consumer spending rebounds going into the holidays, but growth is expected to continue to slow (not contract) over the coming year. InflationInflation pressures are the key risk for monetary policy. Headline inflation is at 5.4% year over year and the Fed’s preferred measure of inflation—the Core Personal Consumption Expenditure Index—is at a 30-year high of 3.6%. Higher core inflation is no longer just being driven by a handful of transitory factors; longer-lasting cyclical acceleration in inflation is also developing. The Employment Cost Index just recorded its biggest quarterly jump in two decades with a 1.3% increase for 3Q-21, resulting in a year-over-year increase of 3.7%. Because wage growth is much stickier than the transitory inflation pressures associated with the economy, the current elevated inflation may be longer lasting than initially expected. EmploymentThe October employment report indicated that the labor market is recovering from concerns about the Delta variant with non-farm payrolls registering a 531,000 increase coupled with strong upward revisions to the prior two reports. The household survey saw a 359,000 increase, but with only a 104,000 increase in the labor force, the unemployment rate fell to 4.6% from 4.8%. The bigger concern is on the supply side of the labor market. Payrolls are still 4.2 million below the pre-pandemic level, and there have been no signs of improvement in labor force participation since May. When the labor shortages became evident earlier in the year, there were reasons to believe that they were temporary. But six months later, unemployment benefits have expired and schools have re-opened, and there is still no improvement in labor force participation. With the quality of labor as the number one issue for small businesses, the broad-based labor shortages are resulting in average hourly wages now growing at 4.9% year over year and likely to continue to move higher as a record number of small firms plan to increase compensation to attract and retain employees according to the latest small business survey. What to WatchImportantly, the Fed announced last week that they are going to start tapering their $120-billion-per-month asset purchases by $15 billion per month. The tapering will begin this month, and if continued at this pace, will be completed in mid-2022. The first increase in interest rates is now expected in mid- to late-2022. The two biggest challenges for the U.S. economy at this time are elevated inflation pressures and a diminished work force. This puts the Fed in a difficult position with their two mandates (price stability and maximum employment) requiring potentially conflicting policy responses. Inflation is far above the Fed’s 2% objective, suggesting the need for some tightening of monetary policy, but employment is still considerably below pre-pandemic levels, which might cause the Fed to remain accommodative. As discussed previously, the economy is moving back to trend-like growth rates of 2.5% - 3.0%. However, the ongoing imbalance between supply and demand (both in materials and in labor) are creating an environment where the potential for a policy error is very real.
November 8, 2021