Student Housing Rent at All-Time High

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Builders Thrive in 1H23: A Mid-Year Review link

• Resilience Amidst Rising Rates: Despite an unexpected rise in mortgage rates to ~7%, the housing industry has performed much better than anticipated. Home builders and buyers have successfully navigated this environment.

• Builder Stock Prices Soar: Stock prices for publicly traded builders have seen significant growth during the first half of 2023, up 85% year-to-date on average. This is a testament to builders' success in a supply-constrained, rising mortgage rate environment.

• New Home Sales Surge: New home sales jumped to 763,000 units in May, a 20% increase compared to last May. Home builders now offer 28% of all the homes available to buy in the country, versus a historical norm of 13%.

Cap Rates for Prime Multifamily Assets Stabilize in Q2 link

• Stabilization of Cap Rates: Both going-in and exit cap rates for prime multifamily assets saw little change in Q2, leading to a record-low spread between the two. This pause in cap rate expansion mirrors the Fed's pause in interest rate increases in June.

• Near Peak Cap Rates: With the Fed expected to raise the federal funds rate by a quarter-point later this month, multifamily cap rates are likely to see some additional modest expansion. However, cap rates are expected to expand more slowly than interest rates will rise, indicating that cap rates are very near their peak.

• Market Stabilization: After increasing between 20 and 40 basis points in each of the past three quarters, the average prime multifamily going-in cap rate increased by only 1 bp in Q2 to 4.73%. Exit cap rates fell by 5 bps, suggesting markets are stabilizing.

Extended-Stay Hotels Continue to Gain in Popularity link

• Rising Demand: The pandemic and hybrid work arrangements have led to a surge in demand for extended-stay hotels, making them one of the fastest-growing segments in the hospitality industry.

• Brand Expansion: Over the past decade, globally recognized hotel brands have expanded their extended-stay portfolios by more than 50%, with five new brands announced since the fall of 2022.

• Cost Efficiency: Extended-stay hotels have higher occupancy and lower average daily rates (ADR), but comparable revenue per available room (RevPAR). They also have lower housekeeping costs due to longer stays, leading to significant savings. For instance, labor costs for the rooms department are roughly $18.20 per occupied room (POR) for extended-stay hotels and $20.84 POR for traditional hotels.

Commercial Property Prices Fall 10.2% from a Year Ago link

• Significant Drop: Commercial property prices in the U.S. have seen a significant decrease, with a 10.2% fall from a year ago and a 0.2% drop from May 2023.

• Apartment Sector Hit Hardest: The apartment sector experienced the largest annual decline among property types with an 11.7% drop. However, the monthly rate of decline has eased in the first half of 2023, with prices remaining unchanged in June compared to May.

• Deal Volume Plummets: Challenges with financing deals have affected deal activity and property pricing across all sectors. Deal volume in the second quarter of 2023 fell 63% from the same period in the previous year.

Rent Growth Resumes in Q2 Despite Lower Demand for Space | Full PDF Report

• Net absorption of U.S. retail space totaled 5.9 million sq. ft. in Q2—the lowest level of demand since the sector recorded 10.1 million sq. ft. of negative net absorption in Q3 2020.

• The overall availability rate fell by 10 basis points (bps) in Q2 to a record-low 4.8%.

• The average asking rent increased by 2.1% year-over-year to $23.21 per sq. ft., driven by big gains in Raleigh and several Florida markets.

• Construction completions remained at historically low levels due to elevated construction costs and economic concerns.

• Suburban submarkets continued to outperform downtown submarkets as retailers adjusted their expansion strategies.

Continued Growth in the Retail Industry: Another Strong Quarter of Expansion link

• Despite a slowdown in growth and pressure on profits and margins, the U.S. retail industry expanded by 1.7% at the end of Q2 2023, defying recession expectations.

• The national retail vacancy rate remained stable at 4.2% in Q2 2023, with retail asking rents rising to $24.22 per square foot, marking the fastest growth in a decade.

• Retail space under construction stands at 62.1 million square feet, with 10.5 million square feet of absorption in Q2 2023, indicating a continued expansion in the retail sector.