Weekly CRE News Roundup: CRE Sales, Student Housing, & NYC Cinema
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Happy Friday and first day of September! Welcome to yet another edition of our weekly commercial real estate news roundup, your one-stop-shop for the most notable commercial real estate events of the week.
Here's last week's edition, in case you missed it, where we discussed the continued opening of new brick-and-mortar retail stores, stabilizing rents, and how malls around the United States are recovering from decades of decline.
On today's agenda:
- Certain sectors of the commercial real estate market are seeing upticks in sales, signalling a potential market bottom.
- Rents for student housing are outpacing apartment rents. As a result, investors are pouring billions into this relatively recession-resistant asset.
- Three investment giants, Blackstone, Vornado Realty Trust, and Hudson Pacific Properties, are planning to tap into the growing demand for streaming by building Manhattan's first major production studio complex.
Let's get started.
#1 – The CRE Market May Have Bottomed Out as Sales Volume Rises
The multifamily, industrial, hospitality, and even office space sector of the US CRE market saw upticks in sales volume in Q2 2023, leading experts to believe that the market may have already bottomed out. According to recent data, all four of these asset classes saw decent price growth, with some performing better than others.
The multifamily real estate market, in particular, continues to benefit from the nation's shortage in housing supply and increased lending standards keeping prospective homeowners out of the market. Multifamily sales volume rose modestly from Q1 2023 and still leads the market even after a year of substantial decline.
The office space sector also saw a modest, quarter-over-quarter sales increase in Q2 2023. Central business districts continue to experience the brunt of the sector's distress, yet many highly vacant office complexes are being sold at discounted prices due to decreased rental incomes. Office space cap rates currently sit at around 7%, the highest they've been since 2013.
The industrial real estate sector, after a year of significant performance, is starting to level out yet still remains highly liquid. Industrial sales volume increased by 11% in Q2 2023 over Q1. According to experts, solid fundamentals and rent growth potential continue to draw investors to industrial properties.
Finally, the hospitality industry has proven to be uniquely resilient to market turbulence: Strong travel demand spearheads the sector's consistent price growth as daily rates prove to be a welcomed relief from lease terms for consumers.
#2 – Student Housing Investment Volume Surges Thanks to Rising Rents
Student housing investments are generally seen as mostly recession-resistant: Demand for student housing, even in times of economic turmoil, stays relatively inelastic, and this is what we're currently seeing despite rising interest rates and inflation.
Over the last six months, average off-campus student housing rents grew by about 7%; some universities even saw rental growth as high as 20%. This was especially true for universities located within the Sun Belt region of the United States, where costs of living are generally lower and housing investments have picked up.
According to recent research, average student housing rental growth nationwide dropped consecutively throughout the fall of 2019, 2020, and 2021. Rental growth then spiked to nearly 5% in July of 2022 and has once again posted gains in 2023.
2021 and 2022 saw nearly $10 billion of investor money funnel into the student housing sector. While investor pace has slowed a bit in 2023 thanks to rising interest rates, approximately 52% of student housing deals that occurred in H1 2023 came from investor funds, a significant jump over H2 2022's 12%. Universities and publicly traded REITs, on the other hand, have been reducing their student housing investments.
While multifamily apartment rents outside of the student housing sector have also risen, they've done so at a more moderate pace. It stands without question that, in the current market, student housing remains a more appealing investment than regular multifamily apartments.
#3 – Investment Giants Team Up to Build Manhattan's First Major Production Studio Complex
Demand for streaming services is continuing to rise, and the investment giants Blackstone, Vornado Realty Trust, and Hudson Pacific Properties are teaming up to build Manhattan's first major production studio complex to tap into the growing market.
The finished product will be called Sunset Pier 94 Studios, set to adorn the Hudson River close by to the residences of notable NYC film stars. The facility will reach a massive 266,000 square feet and charge premium rents for its studios, writers' rooms, soundstages, and other creative facility features.
Sunset Pier 94 Studios will be yet another facet of the entertainment industry to live within the bounds of NYC's waterfront properties. Blackstone, Vornado, and Hudson all plan to leverage programs and tax benefits of NYC as well as partnerships with other city agencies to drive their project to completion and prop up the city's struggling TV and film production industry.
Vornado, by leveraging its long-term Pier 94 lease, will retain 49.9% ownership in the building; Blackstone will see a 24.5% stake; and Hudson will claim 25.6% ownership.
Industry challenges, like the recent Writers' Guild of America strike, arose thanks to differences between creative producers and studios. Nonetheless, despite the uncertainty, experts believe the industry will see rebounding demand once the strike is resolved.
Other Goings-On Around the Industry
Some other notable happenings in the industry for this week include:
- Debt Shrinks, Lenders Back Out: Recent market data illustrates that commercial real estate debt originations have plummeted by nearly 52% over last year. Lenders are also backing out of the market.
- Paying the Man: Commercial property sales and development negotiations are being plagued by rising commercial property insurance rates, most especially in disaster-prone areas.
- Seller's Market: The commercial real estate market, as it stands today, still favors sellers thanks to rising asking prices and decreasing inventories.
- The Ganja Herb: New York City's tax revenue could increase exponentially by as soon as 2027 thanks to its thriving legal cannabis market.
- Housing Rates: Surging mortgage rates are slowing down new deals and loan applications.
Thanks for reading this week's commercial real estate news roundup! Until next week, do your research, stay diligent, and happy investing.
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