Global Real Estate Bubble Risk

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Insurance Costs Soar for Commercial Real Estate- NY Times link

• Insurance premiums on commercial properties rose by an average of 11% nationwide last year, with storm-prone regions like the Gulf Coast and California experiencing spikes as high as 50%. Some premiums have even doubled this year in these vulnerable areas.

• Insurance costs for apartment buildings now make up 8% of operating expenses, double the rate from five years ago. This increase adds strain on landlords already burdened by higher interest rates and stagnant rents.

• Delinquencies on commercial real estate loans have risen to 1.5% of outstanding loans since late 2022, with larger banks reporting a 5% rate. These banks, with higher exposure to urban offices suffering from occupancy changes, are being hit hardest.

Luxury Brands Relocate and Expand to Appeal to In-Store Shoppers link

• E-commerce sales remain below the pandemic peak of 16.4%, reaching 16% in Q2 this year, while 80% of retail sales still occur in physical stores. This highlights the importance of in-store experiences for luxury brands to maintain direct contact with consumers.

• Scarcity of prime retail space is pushing luxury brands to reinvest in flagship stores and expand mall locations. Gucci’s recent South Coast Plaza expansion in Costa Mesa doubled to 17,500 square feet, enhancing personalized service.

• New York’s Madison Avenue and Chicago’s Gold Coast are experiencing renewed luxury demand due to affluent shoppers and luxury co-tenancy. Kering’s $1 billion Fifth Avenue purchase and Prada’s $835 million acquisitions reflect a shift toward owning real estate as a long-term investment strategy.

Texas Leads the Nation for Apartment Supply in 3rd Quarter Link

• Texas markets delivered 15% of the 160,000 apartments completed across the U.S. in Q3 2024. Austin topped the list with over 9,800 units, followed by Dallas with 8,500 and Houston with 5,750 units.

• The South region dominated with over 40,900 units, nearly triple the West's 14,300 units and the Northeast's 11,185 units. Atlanta, Charlotte, and Raleigh/Durham also made the top 10 for deliveries.

• Midwest markets lagged, with no cities in the top 10. Minneapolis led the region modestly with just over 2,000 new apartments.

Senior Housing Demand Continues to Increase Faster Than Supply Link

• Senior housing occupancy in 31 primary markets rose to 86.5% in Q3 2024 from 85.8% in Q2, with annual rent growth at 4.2%. Absorption hit 3.9%, surpassing annual inventory growth of 1.1%, signaling strong demand.

• Independent living recorded the highest occupancy at 87.9%, while assisted living posted 85.1% and nursing care 84.5%. Construction versus inventory growth was highest in assisted living at 4.0%.

• Q3 transaction volumes reached $1.5 billion for independent and assisted living with a rolling price of $114,284 per unit, while nursing care hit $743.4 million at $82,196 per unit. With Boomers aging, demand is expected to surpass pre-pandemic levels, making senior housing a high-potential asset.

Apartment Supply and Demand Gap Narrows to Three-Year Low Link

• In Q3, 176,000 apartments were absorbed while 178,000 units were delivered, reducing vacancy rates by 10 basis points to 7.8%. This marks the first decline in vacancy since 2021.

• Average annual rent growth was minimal at 1.1%, with Washington, DC leading at 3.5%, followed by Richmond and Detroit at 3.4%. In contrast, Sun Belt cities like Austin saw rents drop 4.7%, with further declines in Raleigh, Jacksonville, Phoenix, and Atlanta.

• Luxury units struggled with rent growth at 0.3% and a high vacancy rate of 11.1%, while mid-tier three-star properties showed 1.5% rent growth and a lower 7.1% vacancy. The sector is on track to add 636,000 new units this year, the highest delivery rate in 40 years, with the Midwest and Northeast markets expected to outperform.

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Link to the listing

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