Industrial Trends in the REIT Real Estate Industry Are Shifting in the City of Bellflower, CA
BELLFLOWER, CA – With developers and investors raking in large profits on deals since the market bottomed out about a decade ago amid the Great Recession says, Local Records Office, the biggest question now is how long can the hot market continue and how can investors keep making money, said Kenneth McCarthy, a principal economist with the Cushman & Wakefield, when he spoke on a panel during the Eisner Amper West Coast real estate summit in San Francisco.
Bellflower, CA investors are looking into markets in different cities and apartment buildings in areas they have never invested in before
The economy of low employment and growing companies could also bring growth to a stall. Top housing markets like the Bay Area’s with prices and demand high, investors are noticing the supply is taking too long and costs too much for the market to respond.
U.S. investors are having a difficult time finding attractive investments, while global investors from Canada, Japan and South Korea are still eager to park their capital in the United States.
And for many funds, financial institutions, as well as wealthy individuals, the perception is that the world’s financial centers are the places to be. World-class cities like New York, London and Hong Kong will never go out of style, and their extremely robust and high-density city centers will also limit the supply of quality assets to buy.
Although select secondary markets reports ratios of projected population and employment growth in rising cities such as Houston, Dallas, Austin, Texas, Salt Lake City and Portland, Oregon, have been seeing brisk construction and forecast an increase in job growth from two to three percent amid the continued rental escalation. With two markets worth investigating in including Phoenix, where projected 2.6 percent employment growth forecasts the demand for 10,000 apartment units against a projected 2018 delivery of 8,000 units and Las Vegas, where projected 2018 absorption is near double the number of units under construction.
Development nationwide should peak in 2018, as the planned units in comparison to those under construction taper off, even in the cities with the most active pipelines. This suggests that investors with a longer hold horizon may also see their patience rewarded when new supply is absorbed and vacancy rates level off. And the several long-term demographic trends also bode well for the multi-family absorption and rental rates:
- Householders will continue to delay marriage and childbirth, tending to remain in apartments
- Population growth (particularly in the Southwest) is being fueled by immigrants –who tend to be renters
- Real household income growth is occurring only in the upper 20% of earners, rendering home ownership less affordable for many
- Student loan debt, which doubled in percentage of GDP between 2006 and 2012, puts homeownership on hold for the younger generations
- The 65+ baby boomer generation, America’s most rapidly growing domestic cohort, is demanding more rental housing as they age out of their owned homes, and start reevaluating their investment and retirement options
What happens where too many people pile into a “safe” asset in Bellflower, California?
Though, according to UBS, some cities have seen the prices rise at rates that are potentially unstable and eight of these financial centers are at risk of real estate bubbles that could deflate.
And while the 2018 Outlook for Top 4 Real Estate Sectors by Champaign Williams on the website BISNOW discusses the wide division of prices and buyer bids and how investors are in search of riskier assets for better returns.
“We’re not ready to pronounce an end to this economic expansion, which has been so good to the property sector. Although getting on in years –the expansion has been going on for over 100 months, and by mid-2018 will be the second longed in U.S. history,” Nelson transcribed. “Courtesy of the strengthening global economy, likely tax cut stimulus from Washington and other positive influence, the economy is getting new life.”
Office markets are experiencing a balancing act of new supply levels converging with occupancy rates and asking rents. The vacancy rates have been stagnant for nearly two years, relatively staying the same, Colliers reports. Though, the same can be said for rents the past several quarters. Additionally, the suburban office markets are expected to continue to outperform the downtown centers due to several years of absorption and vacancy rates that hovered near the pre-recession lows of 2017.
Multi-family –even though labor markets are strong and growing, the wage growth has been relatively slow. Nelson predicts this could stifle consumer confidence and spending, eliminate the possible savings and ultimately hurt retail and multifamily sectors.
As this years’ construction continues at higher levels and apartment pipeline going downward towards pressuring occupancy rates and rents, Collier reports. Some economists speculate with the new tax law in effect will spur even more demand in the multifamily market, because the system has slashed some benefits of homeownership, making it less attractive and renting more likely.
While apartments are the second the most popular product type with investors in 2018, aside of Industrial, the Fannie Mae projects the net rental demand to rise from 380,000 to 460,000 units in 2018. However, the multifamily construction is heavily concentrated in America’s largest cities, where there are pockets of oversupply projected.
Industrial real estate is expected to remain a strong sector as investors flock towards record-breaking occupancy and rents. With construction booming, operators are tackling the online delivery and pushing towards getting products to consumers more quickly by opening modern, multilevel distribution hubs in densely populated markets.
Retail –the retail sector will continue to raise fear at bankruptcies and store closings drove 2017 and even though Moody’s Analytics predicted this sector will have a softer look this year –the major retails and massive department store closings are continuing to rise. With Sears Holding Corp. announced it will close 64 Kmart stores and 38 Sears’ sites. Additionally, Macy’s announced it will close 11 more stores this year, NPR reports.
With shifting trends, and given the economic growth, office tenants are expected to pour money back into the more expensive spaces and create work environments that attracts and retains employees.
“Renovations will become more frequent and cyclical,” Lockwood explained. “Millenials do not want to be stuck in the same office environment for five years. New amenities will instead be added periodically throughout the duration of the lease.”
And beyond tenant improvement trends, the solid office investment will depend on securing assets when the economy enters a downturn. While it has been more common for office tenants to sign seven-, 10- or 12-year leases rather than five-years Lockwood said. So in case another recession occurs, the owners can ride it out without worrying their lease will expire.
Another trend that is getting ahead and shifting realtors’ investments is the marijuana industry. While in North America, the legal cannabis sales shot higher by 33% in 2017 and to $9.7 billion, they are expected to continue to grow an average annual pace of 28% through 2021, according to the research firm ArcView Group. And in a decade, the North American legal marijuana sales could eclipse $47 billion says, Local Records Office.
With a shift in the way the pot industry is viewed; as of October 2017, two of three respondents in an annual survey supported its legalization compared to in 1995, with only 25% who stood by legalization, with California the first to legalize medicinal marijuana. Investors are looking into ways to invest in a marijuana grow space.
While, traditionally, the REITs are high-yielding, low-volatility investments, with apartment-based REITs that own rental communities and lease out units, healthcare REITs that own medical properties and lease out of science companies and hospitals, and mortgage REITs that purchase mortgage-backed securities and use their leverage to generate income, the idea of marijuana REIT makes sense.