Commercial Real Estate News / Insight / Weekly CRE News Roundup: Student Housing, NYC Office, & Multifamily

Weekly CRE News Roundup: Student Housing, NYC Office, & Multifamily

Published: 10-06-23 Category: Insight

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.

The outside of a student housing complex.

Another Friday, another edition of our weekly commercial real estate news roundup, where we walk you through some of this week's most notable happenings in the industry.

In case you missed it, here's last week's edition, where we covered bets on the US multifamily market by the nation's ultra-rich, rising property insurance expenses, and new CRE tax legislation making its way through the House.

Did you know? Chinese real estate developers often skip the fourth floor when constructing new buildings for reasons related to none other than their own superstition.

On today's agenda:

Blackstone, the world's largest commercial property owner, is placing big bets on the student housing sector thanks to the asset class's rising global demand, strong cash flows, and recession-resistant qualities.
According to more recent data, New York City office vacancies are showing no signs of slowing down.
Thanks to rising rates and higher rents, multifamily construction is starting to slow down.

Let's get started.

#1 – Blackstone Sinks Its Teeth Into More Student Housing, Chases Steady Returns

We've talked a lot about student housing here on MyEListing.com, and for good reason: Amidst the very recent economic turmoil thanks to runaway inflation, failing office space, and rising interest rates, the commercial property market has taken hit after hit. Many have turned to student housing not only to diversify but also to protect portfolio value.

Kathleen McCarthy, co-head of Blackstone's global real estate department, tends to favor student housing thanks to its resiliency and strong cash flows, saying that the asset class tends to generate reliable returns for both Blackstone and their investors.

Blackstone acquired housing provider American Campus Communities in 2022 for nearly $13 billion, debt and all, in hopes that rents would rise once colleges started to reopen again later that year. They were right.

Blackstone's student housing endeavors don't stop in the Land of the Free: They're also making investments in Canada, Australia, and other nations around the globe as demand for English-language degrees rises.

The visa policies posed by the US tend to restrict its influx of international students in some instances, so students looking to learn English instead opt for universities in Australia and the UK, universities that need more student housing to accommodate them.

Blackstone's investments here are by no means novel, but when the world's largest commercial property owner makes a move, the market notices. Time will tell just how steady those returns for Blackstone and its investors will be.

#2 – NYC, Despite Activity, Is Still Plagued by High Office Space Vacancies

According to recent data, NYC's office space availability rate is record-setting despite a couple of large transactions masking the truth: There's no doubt that the office space sector will still be gasping for air in the years to come.

The data highlights a 26% surge in office leasing and doubling demand in specific districts during Q2 2023. However, this optimism is tempered by the looming specter of 19.4% of available office space sprawling across Lower Manhattan, Midtown, and Midtown South.

Further complicating matters, the market faces the daunting task of absorbing an additional 43 million square feet of surplus space, which equates to the entire Financial District's size.

The data's positive outlook primarily hinges on two significant lease agreements, contributing to more than one-fifth of the spike in leasing activity. The substantial lease inked by Davis Polk and Wardwell at 450 Lexington Avenue and the city government's occupancy at 110 William Street disproportionately elevate the figures, concealing an otherwise sluggish demand trend.

Despite the recent upswing, the year-to-date leasing velocity for 2023 stands at 19 million square feet, marking a 21.4% drop compared to the same period in 2022. If demand persists at its current rate, the projected total leasing volume for 2023 could be nearly 13% lower than the 29 million square feet recorded in 2022.

Office investment sales in Q3 2023 experienced an 83% year-over-year decline, reaching a mere $200 million—among the lowest quarters on record. Despite noticeable growth in tenant demand across various sectors, Manhattan's office market grapples with an excess of vacant space due to tenant relocations, a challenge that might persist as large blocks of unoccupied space become available.

#3 – Multifamily Construction Slows Down Thanks to Tighter Lending, Rising Rates

The construction of new apartment complexes has witnessed a notable decline this year, primarily due to elevated interest rates, decreasing rental rates, and concerns about potential overdevelopment in certain regions.

According to data from the Census Bureau, the commencement of apartment building projects plummeted by 41% in August compared to the same month in the prior year. This drop brought the seasonally adjusted annual rate of new apartment construction to 334,000 units.

The market anticipates a surge in the opening of new rental properties over the next couple of years, reaching levels not seen since the 1980s. This influx of fresh supply has led to an increase in apartment vacancies and a flattening or decrease in rent growth in various areas.

Consequently, apartment developers are pausing their construction efforts to assess the profitability of their projects relative to safer investment opportunities. They are also evaluating how existing buildings in the market might impact their ventures.

The cost and availability of construction financing have emerged as significant challenges for builders. Banks now holding higher reserves to support potentially troubled property loans are lending less frequently and tightening their lending standards.

Interest rates for construction loans have doubled, rising from a range of 4% to 8%. This financing squeeze has made it challenging for developers to secure equity from investors still determining the future value of completed projects.

The future of apartment construction heavily hinges on fluctuations in interest rates. Developers and lenders will likely regain confidence and resume stalled construction projects if rates stabilize or decline in the coming quarters.

Another factor favoring the apartment construction market is the continuous rise in the prices of homes available for sale. This growing affordability gap should continue to drive demand towards rental properties in the foreseeable future.

Other Goings-On Around the Industry

Some other notable happenings in the industry for this week include:

Midwest Multifamily: An onslaught of new multifamily construction and development has taken the metro Omaha, Nebraska area by storm.
Saw It Coming: Borrowers of a $180 million office campus loan recently defaulted after their efforts to refinance (you guessed it) failed.
The End of an Era: One of the nation's highest skyscraper restaurants, The Chicago Signature Room, has shut its doors after 30 years in business.
Not All Doom and Gloom: According to new survey data, the US office space market is predicted to crash, yet a rebound in H2 2024 is also expected.
No Luck: A legal case that challenges the validity of New York's Rent Stabilization Law was recently thrown out by SCOTUS.