The $1.3 trillion omnibus spending bill that was passed last week contained the first expansion of the Low Income Housing Tax Credit (LIHTC) program in more than 10 years. The measure increased HUD’s budget by more than 10% and increased the number of LIHTCs that are available by 12.5%, making a significant impact in states such as California and New York where tax credits are a limited resource. The expansion was particularly welcome as it will help offset the effects of the Tax Reform bill that passed last year.
More than 4,000 new apartments are forecast to hit the Los Angeles market this quarter, according to CoStar, as the first wave of as many as 30,000 in the next three years. Much of the construction is concentrated downtown, where it’s easier to build than in other parts of L.A., and almost all the new apartments will be at the higher end of the market. Signs of rent weakness are emerging as construction approaches peak, and L.A. landlords could be facing similar pains as as their counterparts in Manhattan, where a flood of supply has started to drive down rents.
Office development and leasing activity remain robust in the Los Angeles area, thanks to a growing presence of tech, engineering and financial firms driving demand for space. The U.S. capital of the entertainment industry is also one of the largest markets in the country, with almost 254 million square feet of office inventory, according to Yardi Matrix’s second quarter report on the Los Angeles office market. The thriving city continues to draw in new tenants as job growth climbs. In the 12 months ending in March resulted in the addition of 70,800 jobs to the metro, while employment growth trailed slightly behind the national growth rate (1.6 percent) at 1.4 percent year-over-year.
While Silicon Valley remains the nation’s most vibrant tech center, the area's innovative spirit is spreading across America. More than two-thirds of tech workers now feel little or no need to live in the Bay Area, and talent is migrating to new metropolises. Below are 2017’s Top 5 tech meccas looking to overthrow Silicon Valley, according to Forbes.
In San Francisco, vacancy rose for the fourth consecutive quarter amid a surge of new supply, according to Cushman & Wakefield. A mixed-use development at 181 Fremont St. hasn’t announced any leases for its 432,000 square feet of office space, even though it is scheduled to open later this year. Asking rents in the Midtown Manhattan neighborhood of New York City, meanwhile, averaged $80.45 a square foot annually in the first quarter, compared with $81.16 at the end of the first quarter in 2016, according to CBRE Group Inc. The vacancy rate crept up to 11.9% from 11.6%. Overall, average asking office rents increased 1.8% between the first quarter of 2016 and 2017, the slowest annual rate of growth since 2011, according to Reis Inc.
Although urban office markets continue to be popular with Millennials, movement to creative corporate office campuses in the suburbs is a growing trend. A recent report from commercial real estate services firm CBRE looked at vacancy rates and rental rate increases in a number of revitalized suburbs. A lack of new supply has driven rents up in the majority of these markets, while others are benefiting from outsized demand due to a concentration of specific industries, such as technology and bioscience. Below are the ten suburban office markets with the highest rent increases, according to the report:
Hotels in Silicon Valley, California are experiencing above-average performance and attracting the attention of owners and developers across the country, thanks to the widely successful international technology companies in the area bringing in an influx of business – as well as leisure – travelers. The Santa Clara/Silicon Valley area is shaping up to be one of the most desirable markets in California due to its lack of overbuilding, scarcity of land and barriers to entry.
Apartment rents are growing most quickly in working-class, suburban submarkets that apartment developers have avoided. “With a handful of exceptions, the neighborhoods posting the strongest rent growth don’t have much ongoing construction,” says Greg Willett, chief economist for Real Page and MPF Research. The suburban areas are often working-class areas with older, less-expensive housing and limited supply.
In contrast, rents are growing much more slowly in the heavily-supplied urban, core markets where the rents are already high. “The high-income tenants in these areas can consider home ownership, and can play off the amply new product one against the other for the best deals,” says John Affleck, international economist for CoStar Group. Those cities – along with towns hurt by low energy prices—are now home to the submarkets with the slowest rent growth.“ The bottom performers are really concentrated in a handful of metros, in this case Houston, San Francisco and New York,” says Willett.
Fueled by the rapid growth of e-commerce, the U.S. industrial market is benefiting from tight supply and rising rents and is expected to enjoy sustained momentum throughout 2017. To track the most in-demand markets, real estate services firm CBRE put together a list of cities and regions with the lowest prime yields on logistics assets. The average prime yield for the U.S. is currently 5.84 percent.
The Urban Land Institute and PwC recently released Emerging Trends in Real Estate 2017, an in-depth outlook report that reflects the views of more than 2,000 professionals in real estate development and investment who completed surveys, conducted interviews, or participated in focus groups as part of the research process. The reports includes a "Markets to Watch" section, that takes an expanded look at all 78 markets included in this year’s survey.
Survey respondents shuffled the markets a little for 2017. Austin, which has been a fixture in the top ten for the past few years, is getting its turn at the top. Austin's market has benefited from a diverse economy that was affected in a minimal way by the global financial crisis, a growing population base made up of an educated labor force, and the undeniable “hip” factor that makes Austin attractive to the millennial dominated workforce.