Real Estate Headline News 2.26.24
Weekly News Roundup
- Multifamily Real Estate Review and Outlook
- Retail Real Estate Review and Outlook
- Real Estate Debt Exceeds Reserves at Banks
Multifamily Real Estate Review and Outlook
The multifamily sector witnessed a demand surge, with a 114% year-over-year increase in 12-month absorption of units. Vacancy rates have escalated to a new 10-year high at 7.4%, a 0.9% increase from last year. Simultaneously, rent growth has bottomed to a 10-year low, with only a 0.6% uptick compared to 3.9% the preceding year.
In major urban hubs like New York, NY, Washington, DC, Houston, and Dallas-Fort Worth, TX, there continues to be a robust demand for apartments. While rent growth deceleration is evident in many parts of the country, the Northeast is bucking the trend, with cities like Providence, RI, Rochester, NY, and Syracuse, NY, all experiencing rent growth above 5%. Despite these growth areas, certain markets are witnessing a downturn. Austin, TX, alongside Fort Myers and Ocala, FL, continue to see significant rent reductions, with declines of over 5% year-over-year. Source: NAR
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Retail Real Estate Q4 2023 Review
Interest in retail real estate remains strong. Even though absorption has seen a 28% decrease from the previous year, the sector is experiencing the lowest vacancy rates in a decade. Currently, at 4.1%, the retail sector holds the record for the smallest vacancy rate across all commercial real estate categories. Focusing on retail categories, General Retail spaces and Neighborhood Centers have been instrumental, accounting for approximately 83% of the net absorption as of November 2023.
The national increase in retail asking rents stands at 3.3%, a step down from the 4.4% high of the prior year, yet it remains above pre-pandemic levels. Regarding specific retail categories, Neighborhood Centers (4.2%) and Power Centers (3.9%) registered the most significant rent hikes. Locally, Sun Belt cities, including Phoenix, AZ, Orlando, FL, and Salt Lake City, UT, are experiencing a surge in demand, with rent growth surpassing 8%. Furthermore, the retail sector thrives in areas such as Chicago, IL; Phoenix, AZ; Houston; and Dallas-Fort Worth, TX. These locales have seen considerable net absorption, with an occupation of over 3 million square feet in the year leading up to November 2023. Source: NAR
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Real Estate Debt Exceeds Reserves at Banks
Bad commercial real estate loans have overtaken loss reserves at the biggest US banks after a sharp increase in late payments linked to offices, shopping centres and other properties. The average reserves at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley have fallen from $1.60 to 90 cents for every dollar of commercial real estate debt on which a borrower is at least 30 days late, according to filings to the Federal Deposit Insurance Corporation.
US banks now hold $1.40 in reserves for every dollar of delinquent commercial real estate loans, down from $2.20 a year ago, according to the FDIC data, and the lowest cover banks have had to absorb potential commercial real estate loan losses in more than seven years. Bankers say they are prepared. Their reserves against delinquencies were higher than needed a year ago, and are now being drawn down as delinquencies rise, they say.
They argue that regulators appear to be focused on small and mid-sized banks’ exposure. Earlier this month New York Community Bank shed more than 50 per cent of its market value after reporting hundreds of millions in previously undisclosed potential losses in its commercial property loan book. Bank of America’s chief executive Brian Moynihan said in December that the bank had identified just $5bn in commercial property debt tied to buildings in sectors of the property market in which prices had dropped, a figure he said was tiny for a bank that earned nearly $30bn last year and has more than $3.2tn in assets. Source: Financial Times
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