Kansas City Capital Markets Second Quarter 2020 Report

This NGZimmer 2nd Quarter Report on Commercial Markets in Kansas City were slowed, but not in disarray. This 3rd and 4th Quarter deals likely will be active, but deals will be tough to close till after the Presidential election and indications of a Covid vaccine.

CAPITAL MARKETS

KANSAS CITY MARKET OVERVIEW

The pace of investment activity decreased in the Kansas City market, realizing a decline of 21.4% in total sales when compared to the prior    year. As a leading second-tier market, the Kansas City metropolitan area ranked fifth out of the largest nine Midwest markets in total sales volume during the past twelve months. Capitalization rates decreased 19 basis points (bps) compared to the previous 12 months, registering 6.23% in second-quarter 2020. Total net absorption across the industrial, office and retail sectors combined decreased 944,029 square feet year-over-year, registering 814,941 square feet of negative absorption in second-quarter 2020. The multihousing sector realized 3,095 units of net absorption  during the past four quarters, an increase of 4.6% over the similar time period a year ago. Over the past year, vacancy increased 200 bps, 30 bps and 20 bps for the office, multihousing and retail sectors, respectively.

Vacancy decreased 80 bps for the industrial sector during the same period. Over the last 12 months, the total sales volume for all property types registered $2.7 billion with multihousing and office assets accounting for 66.6% of sales.

Activity and listing inventory increased in late Q2 which should lead to an uptick in investment sales volume if buyer return and seller pricing expec- tations can both be met.  Newmark Grubb Zimmer expects the second  half of the year will be active despite the looming national election and continued uncertainty surrounding the pandemic. Significant allocations  to commercial real estate investment, attractive financing terms and the

stability of the Midwest markets have led to strong property values despite national macroeconomic uncertainty. Kansas City continues to be a stable market with solid fundamentals and will remain an attractive market for  real estate investment.

2Q20 KANSAS CITY – MARKET ANALYSIS

Original Post: https://ngzimmer.com/research-center/kansas-city-market-reports

Research Brief: Housing

Changing Lifestyle Preferences Shift Housing Demand to Suburbs

Pandemic alters housing choices. After being sequestered for months, with many people working from home and doing their shopping and schooling online, households are reevaluating their current accommodations. Larger residences with spaces appropriate for home offices and online learning that also have outdoor space to enhance social distancing are gaining favor. The ability to work remotely has diminished the value of a short commute in the home-search equation, making lower-cost suburban locations more favorable. This preference was already emerging as more millennials start families and reevaluate their urban lifestyles. With 60 percent of millennials now in the 30s, many are considering children and the importance of public schools is an emerging factor in homebuying decisions. These trends also bode well for Class A garden-style suburban rentals with larger square footage and ample outdoor space.

As stay-at-home orders lifted, households were on the move. Once states eased restrictions, residents began to search for more suitable options. Pent-up demand, a reprioritizing of housing needs and record-low interest rates bolstered home sales. The purchasing of existing homes soared 24.7 percent in July, the highest rate in more than 13 years and 8.7 percent above last July’s level, while new-home sales soared 13.9 percent. More renters with a stable employment outlook are considering homeownership; however, available supply dropped to the lowest point since 1982 in July. A lack of inventory coupled with elevated prices will limit the number of renters able to make a transition.

Strong sales amid tight supply boost construction. Single-family deliveries jumped 8.2 percent monthly in July as strong sales bolster homebuilder confidence. During the same period, despite delays due to the pandemic, multifamily starts soared past expectations, up 58.4 percent, even though apartment vacancy rates have ticked up and rents softened in recent months. The increase in construction is largely due to a greater number of projects that had been delayed because of the pandemic getting underway. Average monthly multifamily housing starts since the health crisis are 30 percent below the prior four-month period, however.

Developing Trends

Dispersed workforces buoy apartment demand. Although some companies have announced permanent work-from-home situations, most of the large tech firms are reluctant to commit. Google, Intel and others have indicated that employees will not return to offices until at least next summer. This enables their employees to sign full-year leases in other markets. Until a remote-work plan by these companies is cemented, these high-paid employees are unlikely to commit to purchasing a home regardless of ability.

Mortgage fees set to increase in September. Fannie Mae and Freddie Mac will add an Adverse Market Refinance Fee to mortgages on Sept. 1 to offset the uncertain expenses and risks due to the pandem- ic. It is not known how much of the increase lenders will pass on to borrowers; however, Fannie and Freddie estimate the additional fee will cost consumers roughly $100 per $100,000 borrowed.

Developing Trends

Dispersed workforces buoy apartment demand. Although some companies have announced permanent work-from-home situations, most of the large tech firms are reluctant to commit. Google, Intel and others have indicated that employees will not return to offices until at least next summer. This enables their employees to sign full-year leases in other markets. Until a remote-work plan by these companies is cemented, these high-paid employees are unlikely to commit to purchasing a home regardless of ability.

Mortgage fees set to increase in September. Fannie Mae and Freddie Mac will add an Adverse Market Refinance Fee to mortgages on Sept. 1 to offset the uncertain expenses and risks due to the pandem- ic. It is not known how much of the increase lenders will pass on to borrowers; however, Fannie and Freddie estimate the additional fee will cost consumers roughly $100 per $100,000 borrowed.

Sources: Marcus & Millichap Research Services; Capital Economics; Moody’s Analytics;
Mortgage Bankers Association; National Association of Realtors; National Association of Home Builders;
RealPage, Inc.; U.S. Census Bureau; Wells Fargo

Original Post: https://www.marcusmillichap.com/research/research-brief/2020/08/research-brief-august-housing

Apartment Rent Payments Fall for Third Straight Month

And the trend is likely to continue in September, forecasters warn, as states and FEMA try to roll out a program to partly restore unemployment benefits.    

Apartment rent payments continued their downward drift in August. But the industry’s eyes are focused on September, as states try to fill in the gap from expired unemployment benefits provided by the CARES Act.