Office Expansions in Big U.S. Cities Outpaced Contractions in 2021
According to new data from CBRE, companies stopped standing still in 2021 when it comes to long-term real estate decisions.
Office-using companies in major U.S. markets shifted to more relocations and expansions in the first three quarters of 2021, reflecting increased confidence in making long-term real estate decisions compared to a year earlier. In turn, companies focused less in 2021 on status-quo lease renewals and space contractions.
CBRE’s analysis of office-leasing activity found that expansions in primary markets – Manhattan, Boston, Chicago, Washington, D.C., Los Angeles and San Francisco – climbed to 24 percent by square footage last year from 17 percent in the final three quarters of 2020, after the pandemic struck. Likewise, relocations within the market – as opposed to lease renewals in the same space – increased to 33 percent from 23 percent. Conversely, space contractions declined to 5 percent from 10 percent.
“Many companies are now leasing more and better space to entice employees and new hires into the office. And many are expanding into new markets,” said Julie Whelan, CBRE’s Global Head of Occupier Research. “While the ongoing impact of COVID-19 variants on activity remains hard to predict, office market resilience amid the Delta variant in 2021 provides reason for optimism.”
The data for secondary markets tells a similar story. CBRE identifies as secondary markets 13 cities including Atlanta, Dallas-Fort Worth, Philadelphia and Seattle. Similar to the primary markets, these markets saw fewer in-place renewals and more space expansions in 2021 than in 2020. A notable difference: Secondary markets saw a larger increase in new-to-market activity than did primary markets, up to 17 percent in 2021 from 10 percent in the final three quarters of 2020. Markets in the South-Central (Texas and surrounding states) and Southeast regions accounted for most of this activity.
“The uptick in new tenant activity in secondary markets indicates more companies are seeking to expand into less expensive markets with high quality labor pools,” said Whelan.
CBRE’s analysis examined 140 million sq. ft. of U.S. office-lease transactions from the second quarter of 2020 to the third quarter of 2021. Comparisons regard the final three quarters of 2020 against the first three of 2021.
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Commercial Property Investors Worldwide Rethink the Value of Going Green
Best-in-class buildings now prioritize climate risk, carbon emissions and occupant health
Expectations for new buildings – from amenities to environmental footprint – have increased significantly in recent years, reports global property consultant JLL. Sustainability continues to move up the corporate priority list and investors are rethinking value, making the threat of a “brown discount” more real than ever.
Based on a new report by JLL, “Return on Sustainability: How the ‘value of green’ conversation is growing up,” highlights the urgency for investors to move beyond the conversation around the “value of green” to instead focus on the long-term return on sustainability. The paper explores a step-change at play around what qualifies a best-in-class building.
“The bar is being raised on what it means to be green,” explained JLL’s Global Head of Sustainability Services and ESG, Guy Grainger. “Now that the business case for sustainability is undeniable, the time has come to evolve the valuation conversation.”
There is a strong financial incentive to go green
While investors initially doubted the value of certifications like LEED and BREEAM, evidence now shows that green certifications result in a rent premium of 6% and a sales premium of 7.6%. These so-called “green premiums” are proving materially significant, however, there is another facet to consider. JLL’s research shows that buildings that don’t evolve to meet sustainability standards will suffer financially – resulting in a “brown discount.”
The definition of green is evolving
New dimensions are quickly emerging to influence the value conversation. Climate risk and resilience, carbon emissions and occupant health are increasingly contributing to conversations around what it means to be “best-in-class” in the built environment.
JLL’s April 2021 survey of nearly 1,000 executives, investors and corporate occupiers found that:
- 83% of occupiers and 78% of investors believe climate risk is financial risk.
- 79% of occupiers anticipate that carbon emissions reduction will be part of their corporate sustainability strategy by 2025.
- 42% of occupiers believe that their employees will increasingly demand green and healthy spaces.
Sustainability and wellness-focused certification systems will need to adapt to meet this new moment.
Up until now, a highly rated, green-certified building hasn’t necessarily been a building with the lowest carbon footprint. Certification standards will soon change as LEED, BREEAM and others launch new carbon-centric benchmarks, defining carbon footprint and incorporating additional elements in the calculation. As investors and companies make environmental and social commitments, they will increasingly need to consider their real estate portfolio to meet climate goals.
Time is of the essence. According to the Paris Agreement, to avoid the worst impacts from climate change on the global economy, emissions must be reduced 50% by 2030, and the world must reach net zero carbon by 2050. JLL’s paper urges those who shape the built environment to take action to avoid asset stranding and to push for sustainable, resilient and healthy places, even in the absence of the perfect case study or data.
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Multifamily Construction Sentiment in U.S. Remains Positive in Late 2021
According to the National Association of Home Builders latest Multifamily Market Survey, confidence in the market for new multifamily housing improved in the fourth quarter of 2021.
The MMS produces two separate indices. The Multifamily Production Index (MPI) increased one point to 54 compared to the previous quarter while Multifamily Occupancy Index (MOI) decreased six points to 69.
The MPI measures builder and developer sentiment about current conditions in the apartment and condo market on a scale of 0 to 100. The index and all of its components are scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse.
The MPI is a weighted average of three key elements of the multifamily housing market: construction of low-rent units-apartments that are supported by low-income tax credits or other government subsidy programs; market-rate rental units-apartments that are built to be rented at the price the market will hold; and for-sale units–condominiums. Two of the three components increased from the third to the fourth quarter: The component measuring low-rent units fell seven points to 48, the component measuring market rate rental units inched up one point to 61 and the component measuring for-sale units posted a six-point gain to 53.
The MOI measures the multifamily housing industry’s perception of occupancies in existing apartments. It is a weighted average of current occupancy indexes for class A, B, and C multifamily units, and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate increased occupancy. Even though the MOI fell six points to 69, it remains as high as it’s been at any time prior to the second quarter of 2021.
“Multifamily developers remain largely optimistic about this segment of the market,” said Sean Kelly, executive vice president of LNWA in Wilmington, Del., and chairman of NAHB’s Multifamily Council. “Demand in many parts of the country has been strong enough to compensate for the rising costs of land, labor and materials.”
“The strength of the MPI is consistent with Census production statistics, which show 750,000 apartments under construction and new apartments being started at a rate in excess of 500,000 per year,” said NAHB Chief Economist Robert Dietz. “The modest decline in the very strong MOI number is not likely to result in any significant change in Census rental occupancy rates, which are still rising and will likely remain high given the strong 69 index number from our survey.”
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6 Reasons Why This Is Actually the Best Time in Years To Sell a House
Talk about a strange summer. Between the continued threat of the novel coronavirus, a wobbly economy, and layoffs happening left and right, it’s no surprise that many who may have hoped to sell their home this season are wondering whether to put those plans on hold—or they’ve already thrown in the towel.
Such hesitancy is understandable. Yet the irony is that, after closely examining the current housing market conditions, many real estate experts believe this summer could be one of the best times to sell a home in years.
“Given the pandemic and uncertainty it’s caused, the general sentiment [among some owners] is that now is not a good time to sell your home,” says Danielle Hale, chief economist at realtor.com®. “Yet so far, the data suggest the opposite—that buyers outnumber sellers in the housing market, which means it’s better to be a seller than a buyer.”
So if you’re a home seller who assumed they should write off this summer’s home-selling season as a lost cause, it’s time for a reality check! Here are a few reasons why the market could actually be moving strongly in your favor.
1. Home buyer demand is back with a vengeance
Granted, in the spring, when COVID-19 was spurring many states to enforce quarantine and ban open houses, home selling understandably went dormant for a while. But now that lockdown restrictions are loosening up in some states, home buyers are out with a vengeance—and many of them are eager to make up for lost time.
Indeed, the real estate market is already seeing strong signs of a rebound, according to the National Association of Realtors®‘ Pending Home Sales Index (a forward-looking indicator of home sales based on contract signings). In May, after two months of decline, pending home sales shot up 44.3%—the highest month-over-month jump since 2001, when the index began.
“There’s very significant demand,” says Matthew Gardner, chief economist at Windermere Real Estate. He adds that demand is strongest right now in the suburbs and in smaller, cheaper cities—as buyers look to escape the biggest metros and more companies follow tech titans like Google, Amazon, and Microsoft in allowing employees to work remotely for the foreseeable future.
“If we continue to see an increase in working from home, people can move farther away, where they can get more bang for their buck,” Gardner says.
2. Home inventory remains low
Yet amid this glut of home buyers, the number of homes for sale to actually meet this pent-up demand is at an all-time low.
“There was insufficient supply last year,” says Lawrence Yun, chief economist of the NAR. “This year during the pandemic, the shortage has intensified.”
According to realtor.com’s market outlook, housing inventory in June was 27% lower than a year earlier.
And some reasons for the shortage of available homes have little to do with the recent coronavirus crisis. The number of homes for sale is at a “generational low,” says Gardner, because people are living in their homes longer than they used to. In fact, NAR data shows that Americans are spending an average of 13 years in their homes before moving.
The lower inventory is also the result of fewer distressed properties on the market, “due to the massive government stimulus support, including mortgage forbearance and generous unemployment benefits,” Yun explains.
3. Home prices are up
With demand for homes up and inventory down, the conditions are perfect for home sellers to get high prices.
“Many sellers can get top dollar in the current market conditions,” says Yun.
According to NAR , single-family home prices increased in most markets during the first quarter of 2020, with the national median single-family home price increasing 7.7%, to $274,600.
This good news may come as a surprise to sellers, since it was expected that the housing market would take a hit and home prices would drop because of the pandemic. That’s quite the contrary.
“Home asking price growth is actually higher now than it was before the pandemic,” Hale explains.
4. Mortgage interest rates are low, too
Another factor pushing home buyers to shop are the historically low mortgage interest rates.
According to Freddie Mac’s July 2 report, average interest rates recently reached a new record low of 3.07% for a 30-year fixed-rate mortgage. Given this means homes could cost potentially tens of thousands less over the lifetime of the loan, it’s understandable that mortgage purchase applications have jumped since last year.
5. The economy is showing slow signs of recovery
While the pandemic led to record high unemployment rates in March, these levels have recently fallen slightly, which could be a good sign that people are still eager and able to buy a home.
Continuing spikes in COVID-19 infection rates may have a negative impact on employment numbers in some areas going forward, but for now the national trends are heading in the right direction.
“The pandemic sharply curtailed economic production and consumer spending in March, April, and part of May. As a result, joblessness soared,” Hale explains. “But data from May and June suggests that businesses are adding back jobs as consumers get back to spending, and some companies are now scrambling to keep up demand. Some speculated that we’d see a sharp bounce back in activity, and I think it’s fair to say that’s what we’re seeing so far.”
6. Home buyers’ needs have changed
Along with working remotely, people have been spending more time at home in general—and this, in turn, has sparked a fresh deluge of home buyers whose current homes no longer seem as comfortable or roomy as they were pre-COVID-19. That is, if your dining table now doubles as your “office,” you might be tempted to trade in your short commute for another room or two so all can work from home in peace.
“People are looking at their existing home and saying, ‘If I have to work from home, then maybe my house just doesn’t work,’” Gardner says.
“Spending three months locked up at home taught a lot of people that where they live is important,” agrees Jed Kliman, managing broker at Windermere Real Estate in Seattle. “Clients I’ve been working with recently are trading up because they’ve spent more time in their homes and realized it didn’t meet their needs.”
Home offices, more privacy, outdoor spaces, and just more room are becoming more important to homeowners. Kliman says playing up these features and amenities when you sell your home can attract buyers. Home staging and visually appealing listing photos, though always important, are especially crucial in today’s market.
“Staging, professional photos, even video and 3D virtual tours—those are all really important because people start their home search online, and they have to be moved and captivated to go see a house,” Kliman says.
In addition to understanding market conditions, home sellers will want to know that the process from offer to closing may work a little differently today.
For example, social distancing may mean home inspections and repairs take a little longer. Kliman says some of his sellers have been doing their own pre-inspections and making reports available to interested buyers to speed up the process.
The bottom line: “You want to make it as easy as possible for a buyer to make an offer,” he says.
Just be prepared for the unexpected, Hale says.
“The time it takes to sell a home does seem to be shrinking, as states lift restrictions on business and consumers feel more confident and comfortable,” she says. “But depending on how infection rates evolve, this could change. This doesn’t mean we’re out of the woods completely.”
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U.S. house prices to rise another 10% this year
U.S. house prices are set to climb in double digits this year even as the Federal Reserve embarks on its expected series of interest rate hikes, according to a Reuters poll of property analysts who forecast a sellers’ market for another two years.
Record low interest rates and a scarcity of homes to buy, combined with unexpectedly explosive demand during the pandemic, sent the average house price up 17% last year, the strongest annual rise in at least two decades.
That has stretched affordability ever further, particularly for aspiring new homebuyers, a common theme across most developed economies as the global economy emerges from the worst of COVID-19 and central banks raise interest rates.
The Feb. 8-28 poll of 33 property analysts suggested U.S. house prices would rise 10.3% this year. That was an upgrade from 8.0% in the December poll, suggesting underlying demand for housing is still strong and housing supply is still tight.
Prices are forecast to rise 5.0% next year and 4.1% in 2024, marginal upgrades compared with 4.0% and 3.7% in the last poll.
Predictions are based on the Case/Shiller index.
Russia’s invasion of Ukraine and the ensuing conflict has injected some caution into interest rate expectations, which could keep 30-year mortgage rates lower and in turn may leave the near-term trend largely intact.
“The recent pace of home price increase is clearly unsustainable,” said Brad Hunter, head of independent consultancy Hunter Housing Economics, who expects just under 8% house price inflation this year, followed by 4.1% in 2023.
“The expectation is for the rate of increase to slow to a pace closer to the pace of income growth of households made up of people who are in their late 20s and early 30s. The millennials are driving the surge in demand for single-family homes. There is, however, very little risk that home prices will decline in this cycle.”
When asked what federal funds rate would bring about a significant slowdown in the housing market this year, analysts returned a median of 1.75%. That is 50 basis points above where a separate Reuters poll predicted it to end 2022, at 1.25%, and also well above money market pricing.
“We consider a funds rate above 2% to be restrictive, a rate that would slow economic growth and probably dampen housing activity,” Nancy Vanden Houten, lead U.S. economist at consultancy Oxford Economics, said.
In the meantime, house prices are set to keep climbing.
A like-for-like analysis showed 12 of 18 analysts had upgraded their predictions from the December poll. While four kept them unchanged, two analysts downgraded them.
Roughly 57% of analysts, or 17 of 30, predicted double-digit house price rises this year, nearly double the 30% in the last poll. All but one of 27 analysts said it would remain a sellers’ market this year and will only turn in 2024.
Already at historic lows, housing inventory levels are likely to worsen as rising input costs encourage builders to build more expensive homes where profit margins are better than the starter homes which are in such high demand.
Existing home sales, which make up about 90% of total sales, were expected to average a little over 6 million annualized units this year, around where they’ve been over the past 19 months.
Asked to rate U.S. house prices on a scale of 1 to 10 where 1 was extremely cheap and 10 extremely expensive, analysts who in most Reuters polls since 2017 had rated it 7 or below nudged the median assessment higher in the latest survey to 8.
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Amid Land Shortage, it’s a Landlord’s Market for Industrial Real Estate
In late November 2018, the worlds largest industrial property REIT, Prologis, erected the nation’s first multi-story warehouse located minutes from downtown Seattle. Amazon quickly leased a considerable chunk of the three-level, 590,000-square-foot industrial space, Home Depot soon followed suit. Multilevel warehouses are typical in Asia, some industrial buildings in Hong Kong are as high as 27 stories. It’s a much newer development in North America, but Prologis’ warehouse behemoth won’t be the last. Adventurous developers plan to build taller warehouses in New York, San Francisco, and Washington, D.C.
Prologis’ Seattle facility foreshadowed the predicament industrial real estate currently finds itself in: an insatiable demand for warehouse space and a scarcity of land to build on. Industrial real estate was already hot before the pandemic, but the boom in e-commerce during the lockdowns has put things into hyperdrive. Across much of the world, industrial vacancies are at record lows, rents are going through the roof, and developers can’t keep up. This perfect storm of factors has created an intense industrial market that shows no signs of letting up.
“I’ve been working in industrial real estate for 27 years, and I’ve never seen it this intense,” said Kris Bjorson, International Director of Industrial Brokerage at JLL. “It’s a really unprecedented time for the U.S. industrial market. It’s unbelievable to be under a 4 percent vacancy rate nationally. It’s usually in the double-digits.”
Industrial rent growth in the U.S. and Canada hit a record-high of 17.6 percent in 2021 due to the rise in e-commerce, supply chain disruptions, and retailers boosting inventories to ensure customers get goods on time, according to a recent Prologis Research report. With vacancies so low, retailers are finding themselves in bidding wars for new space. And in some gateway logistics markets or close to major ports, rent growth is astronomical. For example, industrial rent growth in California’s Inland Empire, located in easy delivery distance to much of Southern California’s coastal area, was an incredible 58 percent in 2021.
More than a shed
It is becoming more expensive than ever to build a warehouse. Prologis Research says the price of construction materials rose 40 percent in the U.S. in 2021, while land values spiked 50 percent in the U.S. and Canada. Today’s logistics facilities are more complicated than ever to build due to popular requests like indoor and outdoor amenities for workers and infrastructure for robotic automation. At the pandemic’s start, warehouse developers hesitated on many new projects, which has had long-lasting effects. The project development cycle slowed down, and construction timelines continue to drag on. Everything from increased costs, materials shortages, and increased regulatory hurdles have pushed timelines back. All these factors are creating hellish market conditions for warehouse tenants who have no choice to pay for exorbitant rent increases.
The U.S. will need an additional 330 million square feet of warehouse space by 2025 to keep up with e-commerce growth, according to CBRE. The real estate services firm estimates that e-commerce sales will rise by $330 billion between 2020 and 2025. The problem is that developers are running out of land. Land scarcity is leading developers and retailers to come up with creative solutions. Multi-story warehouses are one solution, but so are conversions of big-box retail stores into fulfillment centers. Bjorson of JLL said tenants are also increasingly willing to compromise on new space. They’re considering Class B and Class C warehouses and second-and third-tier markets.
Converting retail to warehouse space can be complicated, though, and they amount to very little of total industrial inventory. Cushman and Wakefield reports that retail-to-warehouse conversions account for less than one-tenth of one percent of total industrial space in the U.S. There are several challenges in retail-to-industrial conversions, including community acceptance, building design, location, and lease considerations. For example, most retail tenants don’t benefit from having a warehouse as a neighbor. A neighboring warehouse can lead to loss of retail foot traffic and a potential loss of revenue because of lower rent rates. Alternative tenants for landlords of vacant retail buildings are usually more attractive, such as healthcare and even daycares.
Two hours from my back yard
Community acceptance of warehouse space is another thorny issue that adds to the challenges of land scarcity. Many residents associate warehouses with noise, pollution, and truck traffic. In places like north and central New Jersey, there’s considerable resident pushback against warehouse sprawl. Residents there see the increase of warehouses overtaking the older form of residential development and eating up the region’s open space. More than 100 warehouses totaling 26.5 million square feet of rentable space are planned for New Jersey in the next three years. This growth has spawned numerous lawsuits by community groups. A recent lawsuit aims to stop plans to build a 510,000 square foot warehouse in Phillipsburg, New Jersey, which residents say is ‘utterly incompatible’ with the town’s purpose as a place to escape crowded developments.
These warehouses need to be built closer to urban areas so community education is something industrial brokers have had to do, according to Bjorson at JLL. One reason that communities have opposed warehouses is because of the expectation the jobs will be low-paying. While that used to be the case, Bjorson said warehouse jobs are much better-paying than they used to be. When Bjorson talks to local communities, he often avoids the words ‘industrial’ and ‘warehouse’ and sticks with the safer term of ‘fulfillment center,’ which has a better connotation. He said opposition still exists, but more communities are coming around because they realize these facilities must exist due to the e-commerce boom.
“People want their packages the same day or maybe even within 20 minutes,” Bjorson said. “This demand is being driven by us customers. And it can’t always be from a store. Sometimes it needs to be from a nearby warehouse.”
Community opposition to warehouses is a challenge for industrial real estate, especially as vacancies remain low. Overcoming it requires developers and tenants to talk about how they limit nuisances, such as reducing hours of operation and banning engine idling. When safety and environmental considerations are enforced, warehouses can also be a boon to the local economy by increasing property tax revenue.
The industrial real estate market is hot right now, perhaps too hot for its own good. Record rent growth and low vacancies are squeezing tenants who are scouring America for scarce land to build on. Tenants and developers are getting increasingly creative about securing space, as a large percentage of new construction in the pipeline is already pre-leased in much of the nation. Innovations like multi-story warehouses will likely become more common, as well as developers looking to convert retail sites and move to secondary markets. Land supply and entitlements will continue to be a hot topic in the industrial real estate world in 2022. E-commerce will continue to boom and supply chain disruptions could drag on for the rest of the year. The perfect storm of factors creating this market intensity may mean the only place to go for industrial real estate is up, perhaps literally, in the form of verticle warehouses.
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Inside the Wildly Speculative World of Metaverse Real Estate
Since Facebook rebranded as Meta in October 2021, the word ‘metaverse’ has floated around more than ever, often leading to puzzled looks among non-gamers. Mark Zuckerberg’s multi-billion-dollar bet to recast the battered social media giant into the builder of the next iteration of the internet has many asking justifiable questions. The metaverse sounds like science fiction because, well, it is. The term was coined by sci-fi writer Neal Stephenson in his 1992 dystopian novel Snowcrash. It’s been a common sci-fi trope over the years of living in a virtual world, also shown in the book and film Ready Player One. But if it sounds far out compared to ‘traditional’ real estate, it helps to know that very real, large sums of money are being spent on digital real estate speculation.
First off, what is the metaverse? A simple definition is what our current version of the internet looks like, but instead, it’s fully immersive. Right now, metaverse platforms exist like Decentraland and The Sandbox, but they’re 2D and primarily browser-based. The long-term vision of the metaverse is to have enhanced virtual reality and augmented reality capabilities. An example of this vision would be to step into a virtual shopping mall, purchase a unique digital item for your avatar, and then sell the same thing later in a different virtual world.
Metaverse activities would also include attending concerts or anything else you’d do IRL, except you’re interacting with people all over the world via an internet based platform. We currently consume content on the internet, soon metaverse enthusiasts say we will experience it. All the metaverse platforms now exist separately, but the eventual goal is interoperability so users can jump from world to world. For this lofty vision to happen, there will need to be a new internet infrastructure and VR and AR tech will have to improve with higher internet speeds and super processors that handle hyper-realistic graphics.
Since Facebook morphed into Meta, CNBC reports that digital plots of land have skyrocketed by 500 percent. Digital currency investor Greyscale predicts the metaverse will grow into a global market of goods and services worth $1 trillion annually. The Metaverse Group formed recently, claiming to be the world’s first “vertically integrated real estate company focused on the metaverse economy in the world.” The company has assembled a portfolio of digital properties in the ‘Big Four’ virtual worlds of Decentraland, Somium Space, Sandbox, and Cryptovoxels. Real estate sales in those four platforms reached $501 million in 2021, according to MetaMetric Solutions, a metaverse data provider. At its current pace, metaverse real estate sales could top $1 billion in 2022.
Meanwhile, high-end retailers like Louis Vuitton and companies such as Nike and Walmart are also joining the metaverse gold rush. Walmart recently filed a trademark application and plans to offer its own cryptocurrency and NFTs in metaverse stores. And don’t forget about the celebrities cashing in. Snoop Dogg announced last year he’s planning his own virtual world on the Sandbox platform called the ‘Snoopverse’ that’ll feature “virtual hangouts, NFT drops, and exclusive concerts.” An NFT collector going by the name of P-Ape doled out $450,000 to buy a piece of digital land next to Snoop’s virtual mansion.
Metaverse enthusiasts believe buying and selling a digital property will one day become a part of the global real estate industry. The vision is of a real estate company adopting virtual world strategies and portfolios alongside their real-world portfolios.
A brokerage company like eXp Realty could be the first to try it. eXp is a fully remote organization with more than 60,000 agents in 17 countries worldwide. The company has built a $6 billion business without a single brick and mortar location, and in 2016 they teamed up with Virbela, a metaverse world for work and education, to develop a virtual office environment in the cloud called eXp World. Agents create their own avatars and log onto the virtual campus to conduct business. Everything from interviewing to onboarding takes place in the eXp World. It’s not a stretch then to imagine a firm like eXp having agents selling digital plots of land in worlds like Decentraland.
Other firms like Toronto-based Tokens.com and Republic Realm are already spending big money buying and developing digital land. Republic Realm, a metaverse real estate firm, paid a record $4.3 million for land in Sandbox, where it plans to create 100 islands with villas and a market of boats and jet skis. Ninety of the islands sold for $15,000 a piece on the first day and some are now being re-listed for $100,000. Tokens.com recently raised $16 million to invest in digital real estate, which it’ll use to buy land and hire staff. The company recently spent $2.4 million for land near Decentraland’s Fashion District, where it plans to host fashion events and virtual retail shops.
The value of a digital property is tied to how popular the particular virtual world is. Decentraland, one of the more popular worlds, says it has about 300,000 active monthly users and 18,000 daily users. The Sandbox boasts rapid growth with about 500,000 users and 12,000 unique virtual landowners, and the platform has attracted major brands and celebrities.
These pale in comparison to online games like Fortnite, which has an estimated 80.4 million active monthly users. Video game platforms like Fortnite are not one of the ‘Big 4’ metaverses where companies buy digital land. But, these are immersive environments where users can make in-app purchases and should also be labeled a metaverse, according to Colin. He said investors are placing bets on the platforms that look like they’ll be big players. The investors who gobble up land now stand to make a fortune. But if a platform fails and gets abandoned, it could be a considerable loss.
Investors have been bullish on the metaverse, betting that young people used to spending so much time online will naturally gravitate toward it. But the verdict isn’t out yet on whether people actually want to spend their time in a metaverse. Twenty-one percent of Americans familiar with the metaverse are ‘suspicious’ of it, and 23 percent think it’s “tech companies trying to figure out a new way to make money,” according to a survey by Ipsos MORI, a market research firm. These opinions could change over time, much as most people warmed up to social media. And more than likely, younger generations will drive the metaverse’s growth. Skeptics only have to look at the vast engagement numbers of Fortnite to see there’s growth potential. And the money spent on in-game purchases in Fortnite shows people are willing to spend real dollars. Epic Games, the maker of Fortnite, announced in April 2021 that it was worth $30 billion.
Despite skepticism from some, digital properties are being bought and sold in virtual worlds, and there are emerging ways for real estate investors to get involved. Top sales in Decentraland for the seven days ending January 29, 2022, include a property that sold for $425,100, according to Motley Fool. The previous owner had bought the digital land in 2019 for less than $8,000. Minimum asking prices for parcels in Decentraland have recently been around 3.087 Ether, which is the equivalent of $13,675. There’s even an emphasis now on enabling people who own virtual land to monetize it through things like e-commerce and generating capital as digital landlords.
Buying virtual real estate has its own idiosyncrasies. Every metaverse platform that sells real estate has a marketplace where you buy it. The marketplaces vary with each platform, but they generally include the property’s unique coordinates on the virtual map, the asking price, and where the property is located in relation to business districts, transit, and other popular locations. There are also a couple of third-party marketplaces to buy property, OpenSea and Non-Fungible.com. These sites list virtual properties from more than one metaverse platform at any given time.
TerraZero Technologies is a newer company calling itself a ‘metaverse land developer,’ acting as a real estate company of sorts for entrepreneurs and small businesses who want to do business in the metaverse. CEO Dan Reitzik says they will provide the upfront capital for people looking to buy metaverse land, and then they can pay it back over time like a digital mortgage. TerraZero has also created a tool with listings and provides information on metaverse properties available on different platforms. “Very soon, a company like Apple will go to their commercial broker, and they’ll say they want a new store in Chicago and also a new store in the metaverse,” Reitzik said. “The commercial broker will have to figure out how to get that land in the metaverse.”
When buying virtual real estate, investors first need a digital wallet to purchase the cryptocurrency for the platform they’re interested in. For example, you can buy digital land in Decentraland with that platform’s currency, called MANA, but you can’t use MANA for other metaverses like The Sandbox. Some platforms allow investors to use the cryptocurrency Ethereum, which can be used directly or in exchange for the platform’s currency. Making an offer and closing on a digital property is a breeze compared to IRL properties. In most cases, you make an offer on the platform, and the owner ejects or accepts it. Once the price is settled, clicking the buy button is all that’s left to do. Blockchain funding happens quickly and the transaction is recorded in a digital wallet, which indicates the investor holds the NFT title for the digital land.
As for appraisals in the metaverse, there’s no standard formula. Digital real estate is new, very experimental, and very volatile. Until recently, investors could buy a parcel of virtual land for a few hundred bucks on most platforms. Now, asking prices are usually a few thousand. Investing in metaverse real estate is highly speculative because there’s not much of a transaction history. And unlike real property, if the platform folds and goes offline, you no longer have that virtual land because it no longer exists.
There’s also the problem of scarcity in decentralized platforms like Decentraland. There are only so many parcels of land available, so that’ll inevitably lead to prices going higher, said Reitzik of TerraZero. Centralized platforms like The Sandbox, owned by private companies, don’t have this problem, as they can increase the number of land parcels if they want. Some say location doesn’t matter because users can quickly jump all over the virtual worlds, while others say getting a piece of digital land next to prominent attractions is an obvious benefit. Look at the aforementioned $450,000 sale price of the digital land next to Snoop Dogg’s Sandbox mansion for evidence of this.
As exciting as metaverse real estate investing sounds, it’s also extremely uncharted territory. No one quite knows how the digital land market will behave, so investors curious about virtual land buying and selling will probably be cautious about how much money they allocate to it. That’s all the more reason why the vast sums invested by some big brand names seem a little shocking. Many predict 2022 will be a year where activity in metaverse platforms ramps up even more, so more real estate investors may start taking notice. Prices for digital land parcels have skyrocketed, and they could continue to grow but any metaverse investor has to face the reality that these platforms could be abandoned making their property completely worthless. It’s a bit of a gold rush right now, and just like the real-life California Gold Rush, some virtual land speculators will make out big, and others will fail spectacularly.
PLANNING ON SELLING?
Planning to sell your home this spring? While this winter is expected to bring a record-breaking number of buyers to the market, spring will bring more inventory and more competition.
Why wait until just before your home goes on the market to prepare it? There are plenty of things you can do right now that will cut down on the time and effort you’ll need to spend in the spring.
Have your Home Inspected
One of the most common reasons a home sale falls apart or is delayed is because of problems that the buyer learns about after the home inspection. Typically, price negotiations will reopen, but if the problems are beyond the buyer’s budget, they may just walk away from the deal.
If you have your home inspected now, you will not only avoid unpleasant surprises in the middle of the transaction, but you’ll have the rest of winter to get any repair projects out of the way. Chip away at these projects steadily and by spring your home could be in good shape.
The pre-listing home inspection isn’t a must, but if you’re concerned about any problems the home might be hiding, it’s best to bring them to light now.
Get a Head Start on Curb Appeal
Most landscaping tasks will have to wait until spring, but if you have inside space and a sunny window, you can get a head start by growing your own flowers from seed. Just wait until after the last frost to plant them outside.
You can also consider touching-up any chipped paint on doors and trim, creating an outdoor seating area, or updating your front door hardware. Replacing a ratty mailbox, installing new house numbers, and purchasing a new front porch doormat are other great ways to spruce up your curb appeal over the winter months.
Invest in Buyers’ Favorite Features
You know those weekends when it’s just too cold and miserable to leave the house? What better way to pass those gloomy days, than by adding some nice touches to the interior and exterior of your home.
The National Association of Home Builders surveyed prospective home buyers and learned that the top two desired features in a home are a laundry room and exterior lighting. A whopping 87% of home buyers will appreciate an investment you make in either of these areas.
How to get started? For your laundry room (or nook or closet), take this opportunity to add function. Consider adding a shelf, storage cabinet, or a wall-mounted drying rack.
As your luck would have it, wireless lighting has come a long way thanks to advancements in power and power storage technologies. Does your home have a path that could some extra visibility? A side yard that could use a motion sensor light? Shine some light on those darker areas to delight prospective buyers.
House prep may be less appealing than bingeing your favorite TV shows all winter, but doing some legwork now will help to ensure that your home will be the star of the spring real estate market.
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Renters Across US Face Sharp Increases – Averaging Up To 40% In Some Cities
Americans face having to move or pay much bigger slice of income to stay in their homes as prices outstrip wages.Joshua Beadle of Sarasota, Florida, lived in a 950 sq ft loft apartment for four years for about $900 a month until about one year ago when the owner sold the building and he was forced to move.
“Over the course of one year my rent has increased 116%. How does someone who works gigs and is making the same amount of money afford a price increase of $1,050 a month?” said Beadle. “Every month that I pay my rent I breathe a sigh of relief knowing I can live one more month, but I know that I am one emergency away from not being able to afford living expenses.”
According to an analysis conducted by RedFin, rents in the US jumped 14% in December 2021 to $1,877 a month, the largest rise in more than two years.
Some of the most affected cities included Austin, Texas, with a 40% increase in rental prices compared with a year previous, New York City at a 35% increase, and several metro areas in Florida exceeding over 30% increases in rental prices.
There is less housing available for rent or sale now than anytime in the past 30 years, with supply shortages worsening, contributing to rising rental costs, inflation, and making home ownership more unattainable.
For Beadle, his situation is now untenable.
His $1,500-a-month rent was already a struggle for him to pay, and if late on rent payments he incurs a $100 fee. With the latest rental increase of nearly $450, he worries about his future in Sarasota, a community he’s lived in and helped build as a promoter and organizer for LGBTQ events over the years.
“Now, I can’t even afford to live in the community that I helped to create,” added Beadle. “This is not OK, There needs to be an answer for the young, single people who are trying to survive and thrive. We can’t just be happy with being able to pay rent one more month not knowing if we will have a place to live next month.”
Though rental prices in the US initially dropped due to the Covid-19 pandemic, prices rebounded in 2021 and increases quickly began to outpace pre-pandemic growth trends. These soaring costs – coupled with a broader surge in inflation – have wiped out any wage gains experienced by low-income Americans, as rental prices were already far outpacing wage increases in the US.
Between 2001 to 2018, renter incomes grew by 0.5% while rental prices increased by 13%, leaving 20.4 million households, nearly half of all renters in the US, burdened by the cost of rent with more than one-third of their income going toward rent and utility bills.
A report published by the Roosevelt Institute in November 2021 emphasized solutions for these soaring rent prices, including increasing the supply of affordable housing and expanding rights for tenants who are currently at the mercy of landlords and real estate developers without rent control and rent stabilization policies in place.
Owens argued against solutions put forth by some economists seeking to rely on contractionary monetary policies such as raising interest rates through the Federal Reserve.
“We advocate for an aggressive increase in supply and for the federal funding required to get that done,” said Owens. “But because we’re not going to see that happen quickly, and because when you have a supply shortage, landowners and landlords really have quite a bit of power because you don’t have a lot of options, we think rent control should be on the table to really take the edge off of those annual increases.”
Without these comprehensive actions, the report notes, landlords, especially in markets where affordable housing supply shortages yield them significant power, will continue to hike rental prices, further burdening the incomes of renters and expanding their profits without any capital improvements to housing
One week before his wedding in January 2022, Joey Texeira and his partner received a lease renewal from their landlord in New York City, with a 30% increase to rent of $750 a month for a one-year lease renewal or a 41% rent increase of $1,050 a month for a two-year lease renewal for an apartment they have lived in since December 2020. The lease renewal would start on 1 May.
“We’re very stressed and don’t know exactly what we plan to do yet,” said Texeira.
His husband was also unexpectedly laid off recently and their neighbors downstairs were recently priced out of the apartment building with a rental increase of $250 to $500 added to their monthly rent.
“It’s criminal,” said Texeira. “Renters are completely unprotected. The only thing a landlord has to do is give proper notice in proportion to the percentage increase. Technically my landlord could have increased my rent 100% and there would have been nothing I could do. Renters need help and better protections.”
Sabrina Marie DeAngelis, a tutor in Austin, Texas, recently experienced her rent increase from $920 to $1,440 a month for an apartment she has been living in since 2014, which she first rented for $675 a month.
She was forced to accept the renewal with a monthly rental increase of $520, as she suffers from a disability that makes moving difficult and doesn’t have any family living nearby to help. DeAngelis tried applying for rental assistance benefits, but she didn’t qualify for assistance and Covid-19 rental relief funds in her area were already depleted by the time she applied.
During the pandemic, DeAngelis decided to return to school to complete her master’s degree in hopes of increasing her income in the long term, taking a short-term cut in her income to attend school.
“Now I’m forced to increase my work hours while going to school,” said DeAngelis. “My productivity at work and school has been terrible because I’m stretched thin on time. On top of that, almost all my income is going toward rent and bills.”
Latest Supply-Chain Shift Favors Trading Partners Who Are Closer to Home
When we last analyzed the fallout from shifting global supply chains, we highlighted the looming growth in U.S. East Coast port traffic as imports from Southeast Asia increasingly bypassed gridlocked West Coast ports. From July 2020 to November 2021, monthly imports from Southeast Asia to the East Coast rose by an average of 32% above 2019 levels. Trade route traffic has continued to shift as higher shipping costs, tariffs and pandemic disruptions roil overseas supply chains. Meanwhile, trade clarity provided by the United States–Mexico–Canada Agreement is driving import growth with trade partners closer to home, specifically Mexico.
Trends for U.S. trade in goods show a strong rise in imports from Mexico and Canada after the USMCA went into effect in July of 2020. Monthly import values from July 2020 to November 2021 have come in 14% and 8% above 2019 values, respectively, for Mexico and Canada. Imports to the U.S. have surpassed pre-pandemic levels for both countries, though this has occurred faster for Mexico. In fact, the swift and strong recovery in U.S.-Mexico trade is most apparent in inbound truck figures.
The number of inbound trucks from Mexico to the U.S. surpassed pre-pandemic levels, growing around 11% in 2021, after contracting only 2% in 2020. Meanwhile, inbound truck counts from Canada shrank by 8% in 2020 and failed to recover to pre-pandemic levels, despite 7% growth in 2021, according to the U.S. Department of Transportation’s Bureau of Transportation Statistics. Both trade partners have largely benefited from a strong recovery in U.S. consumer demand, although Mexico appears to be faring better.
After the implementation of USMCA, shifts in consumer spending significantly expanded global trade in goods. But the logistical pressure from this surge in demand has upended global supply chains as well, driving shipping costs higher. In this environment, Mexico appears to benefit due to its proximity and competitive import costs compared to China.
Since the China-U.S. trade war started, tariffs placed on Chinese imports have remained elevated along with higher shipping costs. Tariff- and shipment-related costs as a share of customs value for Chinese imports saw a significant increase starting in 2018, according to U.S. Census Bureau trade data. Costs to import Chinese goods as a share of customs import value grew from around 8% in 2018 to over 18% in 2021, while costs for Mexico have remained at around 2% over the same time period.
Import shipment costs have also risen in other countries, with farther-flung locations typically seeing higher costs. This is not the case for Mexico and Canada, which have very different cost structures despite similar geographic proximity to the United States. Mexico consistently provides both a lower shipment and tariff cost alternative.
As U.S. retailers and manufacturers develop shorter and lower-cost supply chains, Mexican exporters are poised to benefit, specifically maquiladoras, which are Mexico’s export-based assembly plants. Mexico’s National Institute of Statistics and Geography tracks the performance of these plants, with export figures since 2015 showing continued revenue growth. Maquiladora revenues for 2021 have surpassed pre-pandemic levels, albeit with diverging performance across the multinational cities on the U.S.-Mexico border. These border cities typically grow in tandem, with Tucson, Arizona/Nogales, San Diego/Tijuana, McAllen, Texas/Reynosa, El Paso, Texas/ Juarez and Laredo, Texas/Nuevo Laredo performing relatively better since 2019.
Research by the Federal Reserve Bank of Dallas indicates that a 10% increase in maquiladora production on the Mexican side of the border results in a 7.1% increase for Nogales, Arizona, employment, along with increases in Texas of 6.6% in McAllen, 4.6% in Laredo, 2.8% in El Paso, and 2.2% in Brownsville, according the Dallas Fed report. Recent employment trends for El Paso, McAllen, Brownsville and Laredo, which together make up over 60% of maquiladora revenue for the cities analyzed, show a strong performance through the pandemic as maquiladora business remained consistent.
Unemployment rates have generally retreated rapidly from pandemic peaks. El Paso and Laredo unemployment rates have dropped to 5%, below the 5.2% Texas average as of November 2021. McAllen unemployment remains elevated at 7.7%, largely driven by rapid labor force growth despite total employment already reaching pre-pandemic levels. At 6.9%, Brownsville, remains a laggard in the employment recovery, despite strong 2021 retail tax collections that point to a healthy consumer economy here.
Texas-Mexico border cities are not just interlinked with regard to employment, but also consumption, as around 30% to 40% of retail sales on the U.S. side can be attributed to Mexican nationals, according to the Federal Reserve Bank of Dallas. Although the pandemic affected border crossings and sales at the outset, 2021 retail tax collections across these cities have surged above 2019 and 2020 levels, as local and cross-border economies have reopened.
Goods consumption in these cities, which benefit from both local and international consumer demand, is expected to continue to accelerate, according to Oxford Economics forecasts. In fact, goods consumption for the four major multinational cities on the Texas-Mexico border is expected to grow 1.2 percentage points faster than the average for the nation. McAllen stands out, as goods consumption here is expected to outperform relative to the state of Texas as well.
In addition to the recent outperformance in employment and consumption growth, these four multinational cities are positioned to provide a growing labor force. All four cities are expected to grow their respective labor forces at a faster rate than the overall country, with McAllen and Laredo achieving similar growth performance to that of Texas. Strong labor supply, specifically in these last two cities, makes these more attractive for new industrial development and potential warehouse tenants.
Favorable trade trends, a rebounding maquiladora export economy, rising employment and consumption, coupled with a healthy labor supply, all paint an attractive picture for investment in these multinational markets.
Related: As US-Mexico Trade Booms, One Border City’s Industrial Market Reaps the Rewards
Industrial fundamentals also provide an encouraging view of these markets, with industrial vacancies at 5% or below for McAllen, Laredo and El Paso. The majority of available industrial supply has been absorbed since 2016, allowing vacancy rates to remain healthy across these geographies. New construction is limited, with forecast vacancies expected to remain tight as well.
Industrial investors and developers looking to navigate the newly emerging trade environment may want to consider a presence in McAllen, Laredo or El Paso. The healthy economic and demographic recoveries of these multinational markets, coupled with the current global trade backdrop, provide further room for these to grow into significant distribution hubs in the years ahead.
Juan Arias is a strategic consultant with CoStar Advisory Services in Boston.
Blackstone Bets on Logistics and SFR’s to Continue Hot Streak
When the asset management group Blackstone was founded in 1985, Peter G. Peterson and Stephen A. Schwarzman originally formed a mergers and acquisitions advisory boutique. Schwarzman approached Peterson, his former boss at Lehman Brothers, about starting an investment firm, and he wanted to make private equity investing the heart of the business model. Over the past three decades, Blackstone’s private equity business has been one of the largest investors in leveraged corporate buyouts. But within this past decade, Blackstone has also grown into a behemoth in the commercial real estate industry.
Blackstone (NYSE: BX) estimates the value of its global real estate portfolio is $448 billion, making it the world’s largest real estate company, according to a 2020 report by Fortune. Blackstone reported $684 billion of total assets under management at the end of the 2021 second quarter. Private equity (33 percent) claimed the most share, and real estate (30 percent) claimed the second most. The company also operates in two other segments, hedge fund solutions and credit and insurance. Blackstone had a bit of a down year in the pandemic-ravaged 2020, as its shares gained 15.8 percent. But the company bounced back strongly in 2021; its shares are up more than 105 percent from a year ago.
The company began investing in real estate in 1991, starting mainly by acquiring a series of hotel businesses like Days Inn of America and Super 8 Motels. Nowadays, Blackstone only allocates about five percent of its portfolio toward hospitality assets, and the firm focuses mainly on warehouses, rental housing, and net lease properties. Frank Cohen, Blackstone’s global head of Core+ Real Estate and chairman and CEO of Blackstone Real Estate Investment Trust, told Nareit the pandemic may have changed many things globally. Still, it has not altered Blackstone’s investment thesis that much. “We remain focused on acquiring a diversified portfolio of high quality, stable, income-producing real estate assets concentrated in our highest conviction investment themes,” Cohen said. Cohen noted that the logistics, rental housing, and net lease sectors have resilient cash flows and some of the best fundamentals, which is why they stick with them.
Some real estate sectors have been hit hard by changes wrought from COVID-19, such as retail, office, and hotels, but they comprise a small share of Blackstone’s real estate portfolio. Blackstone’s real estate investment trust, BREIT, owns property across almost all asset classes but has amassed 407 million industrial square feet, 182,000 residential units, 11 million self-storage square feet, and 12 million square feet of data center space. Recently, Blackstone has been highly active in gobbling up industrial/warehouse space, much like other real estate investment trusts and private equity firms. In 2020, Blackstone purchased 13 industrial warehouses from Iron Mountain for $358 million. The portfolio of 13 properties spans 2.1 million square feet in California, Pennsylvania, and New Jersey, and Iron Mountain will continue to use the facilities and enter into a 10-year lease with Blackstone. Blackstone will get a steady revenue stream through rent payments as the warehouses appreciate value, part of another move that pushes the New York City firm even deeper into the logistics market.
An analyst at Pitchbook said the booming e-commerce industry had turned industrial real estate into “the best performing core real estate type in the last decade,” even before the pandemic blew the lid off e-commerce sales. Supply chain disruptions and the importance of last-mile logistics have also pushed industrial warehouse demand. A recent JLL report said the industrial market could require another one billion square feet by 2025. If JLL’s estimate turns out to be accurate, Blackstone stands to benefit significantly. In June 2019, the company purchased a portfolio of logistics assets from Singapore’s GLP for $18.7 billion. The portfolio spans 179 million square feet and put Blackstone in business with Amazon, GLP’s largest tenant. Later that year, Blackstone also acquired Colony Industrial, a REIT that invests in warehouses, and it purchased 22 warehouses in the U.K. from Clearbell Capital for £120 million ($161 million).
Logistics is one of Blackstone’s highest-conviction investment themes, and that trend looks likely to continue. Logistics accounted for just two percent of the company’s real estate portfolio in 2010. Still, that number has since grown to 38 percent by the end of 2020, making it Blackstone’s largest sector exposure. The company’s logistics holdings are so extensive now that they rival the REIT king of warehouse properties, San Francisco-based Prologis. Combined, Blackstone and Prologis own about 1.6 billion feet of warehouses worldwide. But even with those two big fish at the top, the logistics sector is still highly fragmented. In the United States, JLL reports about 14 billion square feet of logistics space late in 2019.
Blackstone launched Link Industrial Properties in 2019 to operate its warehouses, which will likely focus on last-mile facilities that help enable rapid delivery to big metro centers. Blackstone’s heavy investment in industrial and logistics could be a huge boon given the forecasted growth of e-commerce. Material Handling & Logistics reports that e-commerce sales grew between 39 and 44 percent in 2020, and CBRE predicts that by 2025, e-commerce will account for 26 percent of all retail sales in the U.S. A challenge in many parts of the U.S. and global market will be to build enough distribution facilities to meet demand. If facilities aren’t built fast enough, it could push industrial rents up even higher than the record rates they’re at now. It’s not a bad problem to have for firms like Blackstone and Prologis that control so much industrial space.
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Why You Should Re-Key Locks in Your New Home Immediately
Purchasing a home can be a long and stressful process. Even after closing, you’re likely to have a long to-do list before you can finally sit down and relax in your new home.
With all of this going on, it can be easy to forget simple tasks such as re-keying the locks. Below we’ll discuss why re-keying all the locks and deadbolts in your new home should be at the top of your priority list, and a few things to consider.
Home Security
The most obvious reason to re-key your locks immediately is security. This is important even if you know and trust the previous homeowners; remember, you don’t know what spare keys may be floating out there. You may trust the previous home owners not to enter the home, but do you trust all their extended family, friends, cleaning services, or anyone else who may have received a spare key over the years?
The only way to ensure that only your family has access to your new home is to re-key all the locks immediately.
How Much Does It Cost?
The actual costs to re-key locks will vary by locksmith, and will depend on how many locks there are. However, on average you can expect to pay around $75 per hour. On top of this, you may also pay a trip fee between $50 and $100.
These costs are to re-key the existing locks, not to change the locks entirely. To learn about the differences between re-keying and changing locks, you can reference our article here.
How Do I Re-Key the Locks?
As mentioned earlier, you can always call a locksmith to re-key your locks. If you’d rather save some money, you also have the option to re-key the locks yourself. If you’re going to attempt the DIY route, you’ll want to do some research on what type of rekey kit you need for the brand of lock, and consult a how-to guide such as this one.
By our Preferred Vendor, Choice Home Warranty.
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