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Special Report

Senior Housing and Skilled Nursing – Special Report

March 24, 2022 by Marcus & Millichap Research Services

Pent-Up Need for Critical Services Drives Record Absorption; Labor Shortage and Inflated Operating Costs Curb Sentiment

  • Two-thirds of relinquished units refilled in the second half of 2021. Across the final six months of last year, more than 30,000 seniors housing units were absorbed, according to NIC Map® Data Service. This was a very impressive rebound after roughly 44,000 units were relinquished on a net basis during the four quarters following the onset of the pandemic.
  • Rates are climbing, but not as fast as inflation and expenses. For most levels of care, average monthly rents grew at a pace on par or faster than the 2015-2019 yearly average. Although, much of the growth came from stabilized properties aggressively pushing up rates, while discounting became increasingly common in facilities with occupancy well below pre-pandemic metrics.
  • Labor shortage inhibits occupancy and lifts operating costs. While the headwinds directly related to COVID-19 have eased, the lingering labor deficit in the industry continues to plague operations. The American Health Care Association/ National Center for Assisted Living reported that over 95 percent of nursing homes and assisted living communities were dealing with staff shortages last year.
  • Competition for stabilized assets steers buyers to upside prospects. After most institutions hit pause in the early stages of the health crisis, many came off the sidelines as more stabilized properties entered the market.

 

Unbalanced Seniors Housing Recovery Transpires

  • Levels of care that require more staff face steeper hurdles. Many assisted living and memory care communities are facing headwinds recruiting and retaining staff, slowing the pace of occupancy recovery. Ending last year, both segments recorded sub-79 percent occupancy on a national level.
  • Dense coastal areas trail in the recovery. Seniors housing was put in a negative spotlight early in the pandemic amid virus outbreaks at facilities, particularly in the Northeast and Pacific regions.
  • Low construction alleviates other sector challenges. Across seniors housing last year, inventory growth totaled just 3.4 percent — the slowest expansion since 2014. The sluggish pace of development will extend into 2022 amid high material costs and supply chain bottlenecks.

Skilled Nursing Slowly Moving in the Right Direction

Occupancy climbs in three straight quarters, but a lot of ground to make up. As skilled nursing facilities are particularly labor intensive, many facilities are struggling to maintain sufficient staffing in the current environment. This is limiting admissions, and therefore, occupancy gains. Nonetheless, the recovery is underway, as the segment recorded positive absorption of at least 4,500 units in each of the past three quarters, bringing occupancy to 77.1 percent entering 2022. Still, this is 900 basis points behind the 2019 measure. Meanwhile, average daily rates continued to steadily elevate, with the fastest climbs in the Mid-Atlantic and Pacific regions.

Sources: NIC Map® Data and Analysis Service (www.nicmap.org)

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Sales data includes transactions sold for $1 million or greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

Sources: Marcus & Millichap Research Services; NIC Map® Data and Analysis Service (www.nicmap.org); U.S. Census Bureau; Moody’s Analytics; Real Capital Analytics

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Filed Under: Special Report

Ukraine Invasion Implications for CRE – Special Report

March 14, 2022 by Marcus & Millichap Research Services

Ukraine Crisis to Reverberate Across Global Economy U.S. Real Estate Positioned to Withstand Impacts

The humanitarian, social and political crisis unfolding in Ukraine has begun to deliver some economic fallout in both global and United States markets. Oil prices have surged, the stock market moved into correction territory and a flight-to-safety pushed interest rates lower. As the war plays out over the coming days, weeks or perhaps months, a wide range of economic consequences could emerge. Setting aside worst-case scenarios, the war in Ukraine likely holds little direct risk to U.S. commercial real estate. Although some ripples will likely be felt by investors, hard assets have historically demonstrated durable results in times of turbulence and uncertainty.

Inflation Risks Intensify as Oil Prices Surge

  • War having clear and immediate impact on energy costs. Russia is one of the world’s top oil producers, delivering about 12 percent of the global supply, and oil is the country’s most valuable export. The financial sanctions already placed on Russia in the wake of their invasion of Ukraine, together with the U.S. oil boycott and rising global public pressure to shun Russian products, will weigh on the country’s ability to export oil. This is placing new strains on global oil supplies, sparking a surge in energy prices. Oil prices were already on the rise, prior to the invasion.
  • Increasing fuel production comes with host of hurdles. If oil shortages amplify, international strategic reserves will be tapped to cover the short-term needs. Over the longer term, U.S. energy companies could ramp up production by an estimated 600,000 barrels per day, on top of the 11-12 million barrels the U.S. currently produces.

Interest Rates Face Complex Outlook Amid Monetary and Financial Cross-Currents

  • Fed’s balancing act just became more complicated. The Federal Reserve faces a new set of challenges in its battle with inflation, as the war in Ukraine introduces a range of new variables. The stock market correction, with an ensuing flight-to-safety, placed downward pressure on long-term interest rates, while expectations of Fed rate hikes have applied upward pressure on short-term rates.
  • Consumer sentiment key to stagflation risk. Prior to Russia’s invasion of Ukraine, the prospects of stagflation — where inflation is high but real economic growth stalls — were nominal. Despite this, the added pressure created by rising fuel prices and a potential yield curve inversion, in conjunction with the ongoing labor shortage and supply chain problems, could dampen economic growth.
  • Multiple policy tools still on the table for the central bank. The Federal Reserve has reiterated its commitment to raising the overnight rate by 25 basis points on March 15, but plans beyond that are likely fluid, as Fed leaders closely monitor market conditions. Raising interest rates is the most prominent tool available in the Federal Reserve’s efforts to rein in inflation, but it tends to be a slow process.
  • Current conditions partially tighten capital liquidity. In light of added uncertainty, lenders have begun to assume a more cautious stance. Some financiers have begun to reopen their spreads and tighten their leverage requirements. Thus far, the movement has not been significant or broad-based, but if the war in Ukraine escalates, either militarily or through cyberattacks, lenders may adopt a more conservative posture.

*As of March 9
Source: Federal Reserve

Inflation Resistance and Stability Underpin Real Estate Advantage

  • Macroeconomic factors highlight real estate attributes. The increasingly complex geopolitical, economic, financial market and inflation landscapes have aligned to reinforce the investment advantages of commercial real estate. Many of the factors weighing on the economic outlook and driving inflation, such as material, equipment and labor shortages, will restrain commercial real estate construction. This will help keep vacancy rates low and boost the commercial real estate revenue outlook.
  • Real estate stability increasingly valued by investors. Even the most seasoned political and military experts cannot predict how long the Ukraine crisis will last or what the ultimate outcome will be, but the economic and financial market ripples have already become readily apparent. Within this context, the combination of yield, stability and inflation resistance of real estate will become increasingly valued by investors, supporting transactional activity in the sector. Even after hostilities in Ukraine end, the impact of the war will resonate. Any potential rebuilding of Ukraine could spur global economic growth.

Key Demand Drivers Supporting the Commercial Real Estate Outlook

  • While the U.S. economy certainly faces headwinds, and the war in Ukraine has increased the risk of a recession, core underlying drivers continue to support commercial real estate space demand. Positive demographics remain a key factor supporting the housing market, as millennials age into the prime rental cohort.
  • The wind-down of mask mandates across the U.S. will be another factor supporting commercial real estate demand, particularly in office and retail space. Many companies have reinitiated plans to return to the office, while consumers are once again venturing into retail stores, restaurants and entertainment venues. Hotels will also be a beneficiary of the changing mask rules, particularly if businesses capitalize on this change to reinitiate business travel.
  • Self-storage demand outpaced expectations through the pandemic, and the construction pipeline for these properties has declined over the last two years, allowing the sector to achieve record-low vacancy rates. The proven recession resistance of self-storage will remain a top feature, attracting capital seeking diversification.
  • Supply chain disruptions reiterated the need for businesses to maintain sufficient local inventory to cover logistics lapses, bolstering industrial space demand. The sector has also benefited from increased use of e-commerce platforms that leverage industrial space as an integral component of the sales fulfillment process.

Mitigating Downside Risks

Commercial real estate offers long-term durability. The war in Ukraine will remain fluid, and even after the invasion ends, there will likely be considerable geopolitical instability across the region. Allegations of war crimes, potential radiation hazards, the displacement of millions of people and the destruction of entire cities will impact the global economy and political landscape long after the shooting stops. While there are some upside scenarios, downside risks are far more numerous and broad reaching.

*Forecast
Sources: BLS; New York Times

Price: $1,000

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guaranty, express or implied, may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

Sources: Marcus & Millichap Research Services; Federal Reserve; CoStar Group, Inc.; Moody’s Analytics; MNet; NICMap; Real Capital Analytics; RealPage, Inc.; Yardi Matrix; Radius+; U.S. Census Bureau; U.S. Bureau of Labor Statistics; U.S. Energy Information Administration

Download the Full Report Here

Filed Under: Special Report

2022 Multifamily Investment Forecast Report | New York City Metro

February 4, 2022 by Marcus & Millichap Research Services

Reopening Market Facilitates Rental Demand Growth;
Capital In-Migration Buoys Recovering Investment

  • Multifamily market dynamics return to pre-pandemic levels. While the metro’s job recovery continues at an above national pace, total employment will have yet to surpass the pre-pandemic peak by the end of this year. In contrast to the city’s slower labor recovery, multifamily fundamentals had already returned to pre-2020 values by the end of last year. A general reopening of urban amenities underscored the appeal of living in New York City and brought back some in-person jobs, helping lower vacancy across all building classes to figures comparable to before the health crisis.
  • Investment market springs back to life, but room for growth remains. Following surging trade activity throughout 2021, investor demand may dip this year while staying well above health crisis lows. As pent-up buyer fervor dissipates, potential regulatory changes could spark sudden shifts to market behavior. Following measures passed in other cities across the state, New York City is considering a “good cause eviction” policy, introducing among other regulations an effective rent-growth cap of 5 percent.

2022 Market Forecast

  • Employment (up 3.5%) – Employers will expand payroll counts by 150,000 positions this year, faster than the national average of 2.5 percent.
  • Construction (17,000 units) – Developers will finalize 1,000 fewer units this year than the 18,000 completed throughout 2021. Stock is scheduled to expand by 0.8 percent, the smallest margin in six years.
  • Vacancy (up 10 bps) – High renter demand keeps net absorption above the trailing-five-year average as vacancy declines to 2.0 percent due to a combination of returning and new renters entering the market.
  • Rent (up 2.2%) – Slower inventory growth and high housing demand keep effective rent growth above the historical market average as rent hits a mean of $2,815 per month in 2022.
  • Investment – Class B cap rates could face downward pressure due to renewed investor interest, while regulatory uncertainty may prompt some private investors to seek deals outside New York City.

*Estimate; ** Forecast
Sources: CoStar Group, Inc.; Real Capital Analytics; RealPage, Inc.

Metro-level employment, vacancy and effective rents are year-end figures and are based on the most up-to-date information available as of December 2021. Effective rent is equal to asking rent less concessions. Average prices and cap rates are a function of the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Forecasts for employment and apartment data are made during the fourth quarter and represent estimates of future performance. No representation, warranty or guarantee, express or implied may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

Download the Full Report Here

Filed Under: Multifamily, Special Report

2022 Multifamily Investment Forecast Report | Northern New Jersey Market

February 4, 2022 by Marcus & Millichap Research Services

Supply Growth Overshoots Normalizing Rental Demand;
Regulatory Changes Drive Investment Trends

  • Last year’s employment surge along the Hudson drives current stock expansion. After a year of surging rents and declining vacancy, Northern New Jersey is projected to experience a year of effective rent growth and multifamily occupancy closer to the trailing decadelong average. Renter demand growth is expected to slow yet remain strong due to the area’s mix of endemic and exogenous demand factors.
  • Pandemic aftershocks and nearby regulatory changes drive local market activity. Due to yearlong eviction moratoriums and pandemic-related regulatory issues on both the federal and state levels in New Jersey, many longtime owners who were formerly hesitant to sell chose to put their properties on the market in 2021. If adopted across the river in New York City, “good cause eviction” legislation already signed into law in several upstate New York localities may push capital migration west of the Hudson.

2022 Market Forecast

  • Employment (up 2.0%) – Job growth will be modest in 2022 with 40,000 new positions, leaving the area still short of pre-pandemic employment.
  • Construction (12,000 units) – While nationwide construction delays and material shortages continue, developers are expected to finalize 3,000 more units than in 2021 by the end of this year.
  • Vacancy (up 30 bps) – The market observes a slight bump in vacancy to 4.5 percent due to the high amount of construction projects slated for 2022, exceeding more modest local demand.
  • Rent (up 2.4%) – Rent growth tapers from 2021’s record pace, but maintains a rate comparable to the trailing five-year average as effective rent reaches an average of $2,125 per month.
  • Investment – Last year’s compression of cap rates continues marketwide. Investors seeking higher yields on Class C complexes may seek Passaic County deals where offers can hit the 6 percent tranche.

*Estimate; ** Forecast
Sources: CoStar Group, Inc.; Real Capital Analytics; RealPage, Inc.

Metro-level employment, vacancy and effective rents are year-end figures and are based on the most up-to-date information available as of December 2021. Effective rent is equal to asking rent less concessions. Average prices and cap rates are a function of the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Forecasts for employment and apartment data are made during the fourth quarter and represent estimates of future performance. No representation, warranty or guarantee, express or implied may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

Download the Full Report Here

Filed Under: Multifamily, Special Report

2022 Multifamily Investment Forecast Report | Greater New Haven, CT Metro

February 4, 2022 by Marcus & Millichap Research Services

Rapid Development Along Commuter Infrastructure;
Investors and Renters Move In From Nearby Markets

  • Last year’s demand surge spurs supply growth in coastal urban cores. Many property developers expect more renters in southwestern Connecticut, evidenced by high supply growth in the local multifamily sector. The area’s construction pipeline delivered nearly 2,000 units last year, with another 2,300 apartments expected in 2022.
  • Investors faced with lower yields and new demand drivers. The release of pent-up investor demand compressed yields across all segments of the region’s diverse multifamily market. In Fairfield elevated activity in Stamford’s urban core compressed rates to around 4.5 percent, while suburban multifamily housing dipped to just above 5 percent.

2022 Market Forecast

  • Employment (up 1.6%) – After last year’s surge, the market adds 12,000 new jobs in 2022, the second highest net increase since 1998.
  • Construction (2,300 units) – New unit completions are projected to surpass last year’s steady pace through 2022, with builders delivering roughly 350 more units than completed in 2021.
  • Vacancy (up 50 bps) – Normalizing job growth is outweighed by a large delivery volume, pushing vacancy up to 3.1 percent, the largest increase in the market since 2015.
  • Rent (up 2.2%) – Effective rent increases stabilize after passing $2,000 per month in 2021, slowing to 2.2 percent as year-over-year rent growth returns to market norms.
  • Investment – Capital migration from New York intensifies as investors flow to submarkets with lighter regulations, leading to downward pressure on cap rates across all property types.

*Estimate; ** Forecast
Sources: CoStar Group, Inc.; Real Capital Analytics; RealPage, Inc.

Metro-level employment, vacancy and effective rents are year-end figures and are based on the most up-to-date information available as of December 2021. Effective rent is equal to asking rent less concessions. Average prices and cap rates are a function of the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Forecasts for employment and apartment data are made during the fourth quarter and represent estimates of future performance. No representation, warranty or guarantee, express or implied may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

Download the Full Report Here

Filed Under: Multifamily, Special Report

U.S. Retail Cap Rate Trends Q4 – Average Cap Rate vs. 10-Year Treasury

February 4, 2022 by Marcus & Millichap Research Services

A UNIQUE WINDOW OF OPPORTUNITY

LEVERAGE HISTORICALLY LOW INTEREST RATES TO MAXIMIZE YOUR RETURNS

The spread between interest rates and commercial real estate cap rates is near the widest point on record, offering investors a rare opportunity to capitalize on this yield premium and boost levered returns. A sound, data-backed strategy is essential in a rapidly changing economic landscape. Your Marcus & Millichap advisor can help you form and execute a tailored strategy that maximizes the benefit of the unprecedentedly low cost of capital to strengthen your portfolio’s performance and maximize your returns.

*Through December
Includes sales $1 million and greater
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve

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Filed Under: Retail, Special Report

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This information has been secured from sources we believe to be reliable, but we make no representations or warranties, expressed or implied, as to the accuracy of the information. References to square footage or age are approximate. Buyer must verify the information and bears all risk for any inaccuracies. Any projections, opinions, assumptions or estimates used herein are for example purposes only and do not represent the current or future performance of the property. Marcus & Millichap Real Estate Investment Services is a service mark of Marcus & Millichap Real Estate Investment Services, Inc. © 2020 Marcus & Millichap and Limon Net Lease Group

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