More Gen Z, millennials are ‘house hacking’

The looming office space real estate shortage. Yes, shortage link

• The U.S. office real estate market is facing a paradoxical situation: a looming shortage of premium office spaces. Despite widespread predictions of a post-pandemic surplus, top-tier companies are now competing for limited Class A commercial spaces.

• Newly constructed office buildings (0-3 years old) are emerging as winners, attracting significant occupancy since 2020. This trend contrasts with the overall increase in market vacancy and the slowdown in construction, signaling a shift towards modern, premium office spaces.

• The dynamics of the office real estate market are changing rapidly. While some iconic buildings are being sold at discounted values, the demand for high-quality office spaces is increasing, driven by companies focusing on maximizing workforce effectiveness and returning to pre-pandemic in-person collaboration.

But more Office Building Landlords Are Giving Properties Back to Lenders link

• A growing number of office building owners are voluntarily surrendering their properties to lenders due to poor performance and high refinancing costs. In the second quarter, office buildings constituted 43% of all deeds in lieu of foreclosure, a significant increase from the 20% average in 2022.

• The trend is driven by rising interest rates and stricter lending standards, making it difficult for property owners to refinance maturing loans. Some owners are choosing to cut losses and invest elsewhere, as seen in the case of Blackstone Group and Boston Properties surrendering the Metropolitan Square in Washington, D.C.

• The office market is expected to worsen before improving, with office availability exceeding 25% in some areas and asking rents falling. This situation is prompting a shift in investment focus, with companies like Blackstone selling office properties to invest in sectors with stronger growth prospects.

More Gen Z, millennials are ‘house hacking’ link

• "House hacking" is gaining traction among Gen Z and millennials, with 39% of recent homebuyers considering it crucial for homeownership. This strategy involves renting out part of a home or property to generate extra income, helping to offset high housing costs and interest rates.

• The median sale price for a U.S. house was $413,874 in October 2023, requiring a salary of $114,627 to afford a median-priced home. House hacking offers a practical solution in a market where small starter homes are scarce, allowing younger buyers to afford larger, more expensive properties.

• The rise in rental market inflation has been tempered by new apartment constructions, increasing the rental vacancy rate to 6.6% in Q3 2023. However, house hacking remains a viable option due to the ongoing shortage of affordable housing, providing a steady income stream for homeowners.

Rents are continuing to fall link

• The national average multifamily rent has decreased for the second consecutive month, now at $1,718 in October. This decline is accompanied by a slowdown in year-over-year rent growth, which has fallen to just 0.4%.

• Regional disparities are evident, with moderate year-over-year growth in the Northeast and Midwest, contrasted by declines in the West and the Sun Belt. This is largely due to new supply impacting rents in these areas.

• The U.S. rental market has absorbed 250,000 new units in the first three quarters of 2023, a significant drop from over 600,000 in 2021. Despite this, the demand for new units remains consistent, although increased supply has led to rent declines in 10 of Yardi’s top 30 markets.

Austin's housing market is sinking link