Category Archives: Economy

Office Fundamentals Continue To Improve

By Katie Hinderer - GlobeSt.com

DALLAS–The local office market has seen continuing improvement in market fundamentals in the second quarter of 2014. According to the latest report by Cushman & Wakefield tenant demand is stronger than it has been since 2006.

Direct and overall absorption has reached 2 million square feet in 2014, this is an increase of 37% compared to the 1.5 million square feet absorbed during the same time period in 2013. Major tenants who took space this year include Santander Consumer Finance, Perkins Coie, Lockton Companies, Liberty Mutual, Kohl’s, Nationstar Mortgage, Conifer Solutions, Ernst & Young, Time Warner Cable, Bell Helicopter and Trend HR.

To date there has been 8.3 million square feet of leasing activity, an increase of 9.8%. Class A space accounted for more than half of the leased space (57.3%).

Rental rates have also been rising this year. Asking full-service rental rates rose 3.9% to $21.19 per square foot. Class A space saw the greatest increase, 5.4%, rising to $26.22 per square feet.

During this period 2.5 million square feet of construction projects were completed. Of that, 1.4 million square feet were speculative projects. An additional 5.1 million square feet of office projects are currently under construction, including 12 speculative buildings, which will total 2.6 million square feet. Of this spec space, 30.7% has already been pre-leased. During the third quarter, an additional 2 million square feet of projects will break ground.

Personal Income, Spending Up in May; Mortgage Delinquency Rates Edge Down

By Dees Stribling, Contributing Editor – CommercialPropertyExecutive.com

The Bureau of Economic Analysis reported on Thursday that U.S. personal income was up $58.8 billion, or 0.4 percent, in May compared with April. Personal consumption expenditures – or PCE, as the government calls people out buying things — increased $18.3 billion, or 0.2 percent, month over month.

It turns out, however, that the increase in spending was due to rising prices, even though inflation is still fairly modest. Real PCE — PCE adjusted to remove price changes — decreased 0.1 percent in May, compared with a decrease of 0.2 percent in April.

The PCE price index increased 0.2 percent in May, the same increase as in April, and excluding energy and food, the month-over-month increase was also 0.2 percent. Compared with a year earlier, the May 2014 price index for PCE was up 1.8 percent, or roughly the same as the CPI. Take food and energy out of the equation, and the PCE price index was up 1.5 percent in May 2014 compared with May 2013.

Mortgage Delinquency Rates Edge Down 

Freddie Mac said on Thursday that the single-family serious delinquency rate for mortgages that it owns or insures declined from 2.15 percent in April to 2.1 percent in May. The current rate is down from 2.85 percent compared with May 2013, and is in fact the lowest rate since January 2009; the GSE’s serious delinquency rate peaked in February 2010 at 4.2 percent.

According to the company’s reckoning, “serious delinquencies” involve mortgage loans that are “three monthly payments or more past due or in foreclosure.” Such loans are rarely cured with back payments, but rather end up in foreclosure or a short sale. The “normal” rate for serious delinquencies – the pre-recession average — is about 1 percent, so the current rate is still elevated.

Separately this week, Freddie Mac released its Multi-Indicator Market Index (MiMi), which tracks the U.S. housing market. According to MiMi, most housing markets remain weak despite declining mortgage delinquencies, improving local employment, house price gains, and attractive mortgage rates.

The national MiMi value stands at -3.01 points, indicating a weak housing market overall with only a slight improvement (+0.05 points) from March to April and a three-month trend change of (+0.07 points), which is considered flat. However, on a year-over-year basis, the U.S. housing market has improved by 0.65 points as reflected in the national MiMi, according to the GSE.

Wall Street had a modest down day on Thursday, with the Dow Jones Industrial Average off 21.38 points, or 0.13 percent. The S&P 500 was down 0.12 percent and the Nasdaq declined a scant 0.02 percent.

San Diego Apartment Market Emerges as a Top Performer in 2013

by  - PropertyManagementInsider.com

San Diego’s apartment market has historically been reliably steady, but rarely a top performer in terms of rent growth. But in 2013, rent growth in San Diego topped the levels seen for the U.S. overall and for most other Southern California markets.

San Diego Performance Highlights Q4 2013

San Diego is one the nation’s more steady and reliable apartment markets; in good times it doesn’t post especially good revenue growth but in bad times it doesn’t post especially bad losses.

But at the end of 2013, San Diego is starting to see some pretty good momentum just as the U.S. average rent growth change has started to cool. As of Q4 2013,San Diego registered 3.6% rent growth while the U.S. apartment market as a whole registered 2.9%.

One of the driving factors for this growth has been a strong economy. In 2012, employment hit a decade high in the metro and while job numbers cooled slightly in 2013, the market experienced a 1.8% job expansion rate, good enough for second best in Southern California. San Diego is also the first Southern California market to return to pre-recession employment levels.

With solid rent growth and a strong economy, it’s no surprise to see occupancy performing well. As of Q4 2013, occupancy is at a healthy 96.4%, a level the metro has sustained for the past three years.

Despite the good news, there are two potential market factors that could change this momentum. One, the metro’s job growth has been primarily fueled by lower paying jobs, when traditionally limits rent growth; and two, construction is up to decade-high levels (a potential 1.9% expansion rate). But given these factors, MPF Research expects occupancy to hold steady in 2014 while rent growth cools slightly to 2.9%.

Office Market Remains Stuck in a Rut

 and  - NREIonline.com

The national vacancy rate for office properties remained unchanged during the fourth quarter at 16.9 percent. Given how slowly the office sector’s recovery has progressed, this is not necessarily reason for worry.

Since the third quarter of 2007 the national vacancy rate hasn’t declined by more than 10 basis points in any given quarter. For all of 2013, the vacancy rate fell by just 20 basis points, roughly comparable to the 30 basis point decline in 2012.

National vacancies remain elevated at 440 basis points above the sector’s cyclical low, recorded in the third quarter of 2007, before the recession began that December. Tepid supply growth and lackluster demand have remained largely in balance during this recovery, accounting for the slow pace of vacancy compression.

 

 

With most employment growth coming from low-paying, low-skilled jobs that do not utilize office space, demand remains weak. The amount of occupied stock rose by 8.9 million sq. ft. in the fourth quarter. This is a meager increase from the 7.6 million sq. ft. that were absorbed during the third quarter. This was, however, largely due to a jump in completions. For the quarter, 9.3 million sq. ft. came on-line, up from last quarter’s 6.3 million sq. ft. of new construction.

This dynamic between net absorption and construction held throughout the year. For 2013, quarterly net absorption averaged 7.1 million sq. ft., a 69 percent increase from 2012′s average of 4.2 million sq. ft. For construction, the quarterly average was 6.5 million sq. ft., a 109 percent increase from 2012′s average of 3.1. Demand certainly increased in 2013, with office buildings entering the market mostly occupied (or leasing up quickly). This is in line with strict requirements for pre-leasing from lenders that provide construction and development financing.

The bottom line is that until the growth rate in high-wage, high-skill jobs that require office space accelerates expect slack demand for existing inventory to be the norm and vacancy compression to be slow but steady.

Rent growth plods along

Asking and effective rents both grew by 0.7 percent during the fourth quarter. Asking and effective rents have now risen for 13 consecutive quarters. During 2013 the average asking rent increased by 2.1 percent while effective rent grew by 2.2 percent. This was somewhat better than 2012′s performance when asking rents grew by 1.8 percent while effective rents grew by 2.0 percent.

 

 

Unfortunately, there is too much vacant space for market dynamics to be conducive to significant rent growth. With the national vacancy rate at 16.9 percent and declining slowly, landlords remain unable to drive asking rents upward or pull back on lease concessions. That does not mean that rents are unable to slowly creep up—as they did in 2013—but stronger, healthier rent growth is only possible at far lower vacancy rates such as were observed before the recession. Reis’ historical data indicates that national vacancies need to compress by another 300 basis points before rent growth accelerates on a broader basis. Given the pace of vacancy declines, it will take another few years to get there.

Top metros reap outsized gains

In the current market environment, weakness at the national level does belie strength found in a handful of metropolitan markets and selected submarkets. With the technology and energy industries  continuing to grow and create a meaningful amount of high-wage office-using jobs, the performance of markets with a concentration of companies in these industries continues to excel. This is a familiar trend over the last few years.  The markets with the highest year-over-year effective rent growth in the fourth quarter were San Jose (+5.0 percent), San Francisco (+4.5 percent), New York (+4.2 percent), Houston (+3.7 percent), Seattle (+3.0 percent), Boston (+2.9 percent) andDallas (+2.8 percent).  Also at the top of the list was Orange County (+2.8 percent), a metro we haven’t mentioned much.  A combination of recovering tourism and an increase in demand for space from the healthcare industry has helped support the metro’s office market. Orange County ranked fourth in terms of quarterly effective rent growth (+1.3 percent) in the last three months of the year.

New York has reclaimed the title of the tightest market from Washington, D.C., with a 9.9 percent vacancy rate at the end of the fourth quarter of 2013. Washington fell to second place at 10.3 percent. While both markets experienced vacancy rate increases during the quarter, Washington’s rise is more troubling. While New York’s was likely a short-term aberration, Washington-based employers continue to bear the brunt of budget cuts and political brinkmanship. Although the budget has been passed and the shutdown proved to be ephemeral, haggling over the state of the federal government’s finances is far from over.

Near-term office outlook

The outlook for 2014 is for moderate improvement versus 2013. Many companies refrained from hiring in 2013 because of so much uncertainty. As this fog of uncertainty dissipates, particularly surrounding policy making in Washington, D.C., it should serve as a catalyst for hiring. We expect that the labor market, including the professional, managerial, technical and sales-related occupations that typically reside in office buildings, will improve throughout the year. Therefore, we anticipate that vacancy compression will increase modestly, to about 40 basis points.

Rent growth should continue to accelerate next year, rising by close to 3 percent on an asking rent basis and by over 3 percent on an effective rent basis. It has taken the economy and the office market years to claw their way back from the depths of the worst recession since the 1930s. 2014 is not likely to be the breakout year, but there are reasons to be more optimistic.

Brad Doremus is senior analyst, and Victor Calanog is head of research and economics, for New York-based research firm Reis.

Why 2014 Will Be a Holder’s Market

By Les Shaver - MultiFamilyExecutive.com

Just because it seems like cap rates can’t go down any farther, and many formerly favorable markets will be flooded with supply, that doesn’t mean everyone wants to sell.

There are many good reasons to buy and hold too. And, they are many of the same reasons the apartment sector has been a favorite of investors over the past few years.

Pent-up demand from Echo Boomers (with 21.8 million individuals ages 18 to 34 living at home in 2012, according to the Census), and the promise of economic growth in 2014 and 2015 mean the apartment market hasn’t hit its ceiling.

“Although the rate of acceleration is slowing and pricing is a concern, apartment fundamentals are still generally healthy,” says Lili Dunn, chief investment officer for Greensboro, N.C.–based Bell Partners. “Rental housing benefits from strong demand driven by robust rental household formation, which is fueled by demographic trends and, to a lesser extent, job growth.”

Economists believe the apartment market still has a lot of upside over the next four or five years, at least, pointing to about 2.2 million new jobs created in 2013.

“That is a recovery,” says John Sebree, director of Calabasas, Calif.–based Marcus & Millichap’s National Multi-Housing Group. “It’s a lethargic recovery. But it’s still a recovery that’s gaining speed. This year, depending on whom you talk to, we’re anticipating 2.7 million to 3 million new jobs. These new jobs will continue to increase the formation of new households.”

And, Dunn doesn’t think there will be an oversupply of apartments to sap the demographic-driven demand. She points out that the supply in the pipeline is expected to decline after hitting 300,000 units in 2014, and thinks supply concerns are overblown. “New supply is also still within reasonable levels of long-term averages,” she says.

While many well-heeled investors are starting to dispose of their apartment holdings and chase yield in other asset classes, some economists think weaknesses in those other sectors—such as office and retail—will help apartment investments maintain their value.

“Some people are still risk adverse about other property types and are taking a long-term hold approach to this,” says Ryan Severino, senior economist and associate director of research at New York–based Reis.

With these economic tailwinds, Severino doesn’t expect to see a market implosion like the one that occurred in the late 2000s, where condo converters, not buying on a cap-rate basis, pushed prices to unsustainable levels.

“Even in the markets where cap rates are rising, it isn’t like 2008 and 2009, where we had a massive expansion in cap rates that clobbered the market,” Severino says. “I don’t think you’ll see that performance from the underlying economy or see demand erode like that [again].”

Brokers and market researchers are concerned about where pricing is heading, but aren’t exactly planning for an Armageddon-like scenario.

“Unless something blows up, I don’t see a hard crash,” says Dan Fasulo, managing director at New York–based Real Capital Analytics (RCA). “But I guess, who does see a hard crash? By just looking at line graphs we [have] leveled off. Cap rates aren’t moving lower. The rate of increase in pricing is slowing. You can expect more of that over the next couple of years.”

Why 2014 Will Be a Seller’s Market

By Les Shaver - MultiFamilyExecutive.com

Jared Kushner hadn’t been running New York–based Kushner Cos. long when he noticed something problematic in early 2007: He could no longer justify buying apartments.

“I remember sitting with my dad and saying we couldn’t make sense of the buys in the markets—buying at 4 caps and financing at 6 percent,” Kushner says. “The dynamics really didn’t seem to make sense for multifamily.”

So, the Kushners made a decision. “We basically said, if we’re not buyers, we’re sellers,” Jared says. “We were able to market the portfolio and get an extraordinary price.”

The timing was impeccable. Kushner sold 17,000 units in 86 complexes to AIG and Morgan Properties in June 2007 for $1.9 billion. In 2008, the economy fell into recession. By 2010, acquisition pricing looked a lot better to Kushner (as it did to other opportunistic buyers around the country). So, over the past four years, the company has scooped up $3.5 billion worth of assets as the younger Kushner expanded the firm’s footprint beyond the Garden State to his new home in New York City, plus seven markets around the country.

Early on, Kushner found a number of buying opportunities. “The last couple of years have been a phenomenal time because [interest] rates have been low, cap rates have been high, and the spread seemed to make sense for us to be very aggressive buyers,” Kushner says.

But that dynamic is changing as more investors chase yield off the beaten path. “We haven’t been able to find the opportunities in the seven national markets that we’re in,” he says. “Gardens have been trading at prices beyond where we are comfortable. So, we’re super focused on New York City, which is a market that seems to have no end in sight for how it will continue to perform.”

Kushner certainly isn’t alone. As single-property transactions and cap rates head to near-record levels, interest rates perk up, and inflation fears hover, some industry analysts (and even a few executives) have started to ask themselves the same question the Kushners pondered in 2007—Is now the time to think about selling?

As it seems with every question in real estate, there’s no easy answer.

Disposition Decision
Some indicators say it’s 2007 again. As of the third quarter of 2013, cap rates came in at 6.2 percent nationally. “That’s every bit as low as 2007,” says Dan Fasulo, managing director at New York–based Real Capital Analytics (RCA).

With $22 billion of sales volume in the third quarter of 2013 and $30 billion in the fourth quarter of 2012, the apartment market was reaching the lofty volume it hit during the last boom. In fact, single-property deals are at an all-time high.

Part of that might be from a lack of supply on the market. That situation could actually make dispositions appealing for opportunistic sellers in 2014, especially for those that made value-add acquisitions (and have now stabilized those properties) during the recession.

“Now is a very good time to sell because of the number of buyers in the marketplace,” says John Sebree, director of Calabasas, Calif.–based Marcus & Millichap’s National Multi-Housing Group.

You can put Lili Dunn, chief investment officer for Greensboro, N.C.–based Bell Partners, in the opportunistic category. Bell, which completes about $1 billion in transactions a year, seizes good opportunities to buy and sell. But, in the near term, the company expects to be a net seller.

“Pricing is back to peak levels,” Dunn says. “There seems to be a dislocation between cap rates and projected growth rates in some areas. It is a great time to take advantage of markets that have peaked and/or assets that have maximized operating performance.”

While some companies, like Bell, can be opportunistic sellers to prune their portfolios, there is an argument to be made that this may be a better sales environment than owners may see in the next few years. So, if large institutional investors want to sell, now is the time. Already, some are leaving the market. Bloomberg reports that Washington, D.C.–based Carlyle Group “is reducing holdings of multifamily housing as rent growth slows from a post-recession surge.”

Many of these investors may be looking to park their money in other classes, such as office and retail. In fact, Fasulo sees more upside in office and retail, where rents are still 20 percent to 30 percent lower than peak.

“I think the market will be hard-pressed to continue its momentum,” Fasulo says. “As far as double-digit gains in pricing, I think that game is pretty much over. Your serious players in the market are expecting debt costs to be higher going forward, with little room to raise rents higher.”

Though there’s not a lot of evidence of it so far, rising interest rates could eventually pull cap rates up. Ten-year Treasuries jumped from 1.6 percent in May 2013 to 2.6 percent at press time. If cap rates eventually follow, buyers might have to make a decision.

“Sellers have expectations of where prices should be,” Kushner says. “The question is, do cap rates widen out and do people keep hitting those prices and settling for less return on investment relative to risk?”

If buyers eventually balk at those decreasing returns, sellers might have to make price adjustments. Overdevelopment could eventually add more supply to the market, also forcing sellers to adjust.

With supply ramping up, you might face more competition from other sellers over the next few years than you might in the near term,” says Ryan Severino, senior economist and associate director of research at New York–based Reis. “If you’re in a position to harvest those gains (from a value-add situation) and redeploy that capital into something else that might present better return options going forward, now is not a bad time to do it.”

Top 10 Rent Growth Markets of 2014

By Lindsay Machak - MultiFamilyExecutive.com

Industry experts project that some of the largest metro areas will see some of the largest rent growth next year. Yet some hot secondary metros, such as Denver and Nashville, are also among the top markets for 2014.

Seattle will continue to grow in 2014 and is expected to see the biggest percent change in rents, according to New York-based Reis.

San Francisco will push rents by about 4.7 percent next year, according to the MPF. The Bay Area’s job growth market continues to improve, as the unemployment rate dropped from 6.9 percent in July to 6.1 percent in September, according to the Bureau of Labor Statistics.

Meanwhile Texas markets Austin, Dallas and Houston are each showing strong fundamentals heading into the new year. Job growth in all three markets will give the boost they need to push rents by about 3.9 percent next year. While some people may fear Austin is seeing too much development, most mangers aren’t worried about it. As far as Dallas and Houston, both markets are seeing rapid development, and are among the hottest secondary markets in the nation.

The Top 10 Rent Growth Markets for 2014:

1. Seattle: 5.8
2. San Francisco: 4.7
3. Denver: 4.6
4. San Jose: 4.5
5. Nashville: 4
6. San Diego: 4
7. Austin: 3.9
8. Dallas: 3.9
9. Houston: 3.9
10. New York City: 3.8

Lindsay Machak is an Associate Editor for Multifamily Executive. Connect with her on Twitter @LMachak.

8 Threats to Apartment Owners in 2014

By Les Shaver - MultiFamilyExecutive.com

As the rest of the economy has foundered, apartment owners have surged coming out of the recession. But the good times might not last forever. Here are eight things that could wreck their joyride.
1. Fannie Mae and Freddie Mac
It’s been more than five years since the speculation about Fannie Mae and Freddie Mac started, yet they remain a vital source of liquidity in the sector, especially in secondary and tertiary markets (where other lenders are less likely to go). “Fannie and Freddie are the most dominant lending sources in our industry,” says John Sebree, director of Calabasas, Calif.–based Marcus & Millichap’s National Multi-Housing Group. “If that is changed, it will have an effect on our values and our ability to finance properties.”
2. Unemployment
The apartment sector has seen great rent growth over the past few years without its customers enjoying real income growth. If the sector wants to continue to grow, employment, and wages, must increase. And, if things regress, the industry will suffer. “You put unemployment and the economy in the macro bucket,” says Dan Fasulo, managing director at New York–based Real Capital Analytics. “They’ll be hovering above everything we do and directly impacting values.”
3. Rising Interest Rates
When interest rates rise, they reduce investor-levered returns, which obviously hinders valuations. “The interest-rate market, and how much interest rates increase and over what period of time, will have a huge effect on value,” Sebree says. “If Treasuries jump 100 or 120 basis points, that will have an effect on cap rates.”
4. Overdevelopment
Simple supply and demand dictates that when more apartments show up in your neighborhood, it generally decreases the value of those properties that were there already. “Supply is an issue at the submarket and neighborhood levels,” says Ryan Severino, senior economist and associate director of research at New York–based Reis. “It’s not a uniform thing.” But in markets with oversupply, valuations will take a hit.
5. An Exodus of Capital
Already, some players, like Washington, D.C.–based Carlyle Group, are trimming their apartment holdings. If the movement gets bigger, it could hurt values. “Capital is moving out,” Fasulo says. “Your smart money players, chasing yield compression in the market, are already playing in the other sectors where there is a bigger spread.”
6. Inflation
Inflation will hit apartment owners, but, ultimately, the sector is in a good position to handle higher prices. “If we look at what inflation will do, it will increase rents, but it will increase expenses and interest rates [too],” Sebree says. “It will probably increase values, as well. If inflation happens at a higher rate than what many are predicting, the investors that have locked in long-term debt will be in better shape than others.”
7. Political Threats 
When Bill de Blasio was elected the next mayor of New York City last month, apartment owners in the city, including Fasulo (who owns units in Brooklyn) took note. “The mayor of New York has a lot of power to impact change very quickly,” Fasulo says. “Understanding the positions of the new mayor-elect, I’m not sure I’d make a bet that operating expenses for New York City apartment owners would be going down.”
8. Geopolitical Issues
Apartment industry executives, like everyone else, are susceptible to what happens in the outside world. If gridlock in Washington or recessions in other countries plunge the U.S. into recession, multifamily owners suffer. “One of my greatest concerns that I believe will impact apartment values and fundamentals is uncertainty about global economics and our government policy,” says Lili Dunn, chief investment officer forGreensboro, N.C.–based Bell Partners (though she remains hopeful the economy will remain along its path of moderate growth).

U.S. Housing Price Rise Slows; Consumer, Investor Confidence Down

By Dees Stribling, Contributing Editor – CommercialPropertyExecutive.com

S&P Dow Jones Indices reported the latest S&P/Case-Shiller Home Price Indices on Tuesday, which cover the three months ending in September. According to the company, the National Home Price Index was 3.2 percent in the third quarter of 2013 and 11.2 percent over the last four quarters.

In September 2013, both the 10- and 20-city composite indexes gained 0.7 percent month over month and 13.3 percent since the same time last year. While 13 of 20 cities posted higher year-over-year growth rates, 19 cities had lower monthly growth in September than August. Prices are still rising, in other words, just not as rapidly as they had been, a trend that might mean that the current run up isn’t a much of a bubble.

“The second and third quarters of 2013 were very good for home prices,” David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in a statement. “Housing continues to emerge from the financial crisis: the proportion of homes in foreclosure is declining and consumers’ balance sheets are strengthening. The longer-run question is whether household formation continues to recover and if home ownership will return to peak levels since in 2004.”

Consumer Confidence Drops

Consumers were feeling a little more uncertain this month, according to the Conference Board, which said on Tuesday that its Consumer Confidence Index dropped from 72.4 in October to 70.4 in November. The Present Situation Index edged down to 72.0 from 72.6, and the Expectations Index declined to 69.3 from 72.2 last month.

Consumers’ assessment of overall current conditions decreased slightly. Those claiming business conditions are “good” edged up to 19.9 percent from 19.5 percent, while those claiming business conditions are “bad” increased to 25.2 percent from 23 percent. Consumers’ appraisal of the job market didn’t change much, with those saying jobs are “plentiful” ticking up to 11.8 percent from 11.6 percent, while those saying jobs are “hard to get” decreasing to 34 percent from 34.9 percent.

Conference Broad chief economist Lynn Franco noted in a statement that “Sentiment regarding current conditions was mixed, with consumers saying the job market had strengthened, while economic conditions had slowed. When looking ahead six months, consumers expressed greater concern about future job and earning prospects, but remain neutral about economic conditions. All in all, with such uncertainty prevailing, this could be a challenging holiday season for retailers.”

Investor Confidence Down Too

The State Street Investor Confidence Index was released on Tuesday as well, and it came in at 91.3 in November, down 4.2 points from October’s reading. The decline was because a relatively steep drop in European investor confidence, down from 111.3 last month to 101.5 in November. Investor confidence in North America and Asia improved slightly.

Wall Street had a lackluster day on Tuesday, with the Dow Jones Industrial Average gaining a hard-to-see 0.26 points, or less than 0.01 percent. The S&P 500 managed to gain 0.01 percent, while the Nasdaq was up considerably more, 0.58 percent.

Job Growth in Jacksonville Outpaces Florida, U.S. Averages

By Philip Shea, Associate Editor – MultiHousingNews.com

After three years of tepid employment growth, the Jacksonville metro is poised to create 12,500 new jobs before year’s end—amounting to a 2.1 percent increase, with even more expected in 2014. As a result, vacancies are expected to recede back to pre-2007 levels, with minimal deliveries expected over the next two years.

Hendricks-Berkadia reports that sectors such as finance, education and health care have been integral to the boost in jobs, with locally based Foundation Financial Group creating 60 new positions within the past year. Additionally, expansions of several hospitals such as St. Vincent’s Medical Center Clay County and Brooks Rehabilitation are expected to create nearly 800 new jobs.

All of this positive development in the local economy has brought the overall vacancy rate down to 8.1 percent, with another 60 basis points expected to be shaved before the end of the year. While this figure ranks far higher than the national average, it is far lower than the near-15 percent rate seen at the height of the recession in 2009.

Additionally, the pace of rent growth is expected to rise, with asking rents expected to rise 3.4 percent to $849 per month in 2013 and 4 percent to $883 per month in 2014. The most expensive submarket continues to be the areas near the beach, with rents there rising 3.4 percent to $1,029 between 2011 and 2012.

As alluded to previously, hiring is expected to accelerate even further over the next 18 months, with another 19,000 positions expected to be added throughout 2014. Other metro employers seeking to expand their operations include the Mayo Clinic, CMG Financial, and Digital Risk—the latter of which has a plan to bring 1,000 jobs to the state over the next few years.

While permitting activity is expected to pick up pace over the next two years, actual deliveries will remain modest, with 560 units and 675 units expected to be completed in 2013 and 2014, respectively. One of the larger developments currently under way, the 294-unit 220 Riverside, is slated for completion by the end of this year.

With a pause in bulk completions and demand on the rise, the metro is likely to see a marked increase in investment activity throughout the current development cycle.