The Weekly Briefing - January 25th, 2021

The Weekly Briefing – January 25th, 2021

In This Week’s Brief:

  • Commercial Real Estate Transaction Activity Bouncing Back
  • Robust Residential Construction Investment Pushes Overall Construction Spending Higher
  • Households and Businesses Avoiding Bankruptcy Throughout the Pandemic

Commercial Real Estate Transaction Activity Bouncing Back

Year-end data from Real Capital Analytics (RCA) shows commercial real estate pricing held steady over the past year. In select sectors, pricing improved with transaction volume nearing recovery. RCA’s same-store pricing index for all types of commercial real estate climbed 7.3% YOY, and commercial real estate transaction volume more than doubled quarter-over-quarter to $145.4 billion in 4Q20.

Garden-style multifamily stands out as one of the top performing property types during 2020. Median price per unit rose 6.6% YOY to $140,000 with pricing spreads compressing between the top and bottom quartiles. Quarterly transaction volume for garden apartments finished on par YOY at $26.9 billion. While multifamily generally performed well, the median price per unit for mid & high-rise properties increased at a slower pace of 1.7% YOY with quarterly transaction volume down 12.8% YOY.

Suburban office properties registered pricing gains last year as the median price per square foot improved 10.6% YOY and the median cap rate compressed 20 basis points to 6.5%. Prices grew the fastest for top-quartile trades, suggesting high-quality assets are still trading and commanding a premium. Suburban office transaction volume jumped 42.6% quarter-over-quarter but is still down by approximately a third year-over-year.

Garden MF Prices (L) & Trans. Volume (R) in Billions    Sub. Office Prices (L) & Trans. Volume (R) in Billions


Robust Residential Construction Investment Pushes Overall Construction Spending Higher

The residential sector led the way in construction spending growth during the first 11 months of 2020, up 10.0% YOY compared to an increase in overall construction spending of 4.3% YOY. Residential construction investment had initially dipped during spring 2020 but quickly rebounded as builders responded to higher demand for new homes fueled by low mortgage rates and limited inventory of existing homes.

Nonresidential construction spending also improved last year but experienced a wide divergence in outcomes from one subsector to the next. Healthcare construction spending increased 5.0% YOY, and commercial construction, which includes both retail and warehouses, grew 4.2% YOY. In contrast, lodging construction investment dropped 13.6% YOY as developers were deterred by continued softness in travel activity.

Despite a surge in lumber prices during the second half of 2020, overall construction costs appeared to stay in check last year. ENR’s two primary construction cost indices, which incorporate the prices of materials and labor, grew 1.9% YOY and 3.4% YOY respectively.

Year-on-Year Change in Construction Spending by Sector: January-November 2020


Households and Businesses Avoiding Bankruptcy Throughout the Pandemic

After a meaningful drop in bankruptcy filings last year, additional stimulus anticipated in the coming weeks could further shore up households and businesses and further limit the pandemic’s economic toll. Personal bankruptcy filings began to slow last April and were down 30.2% YOY through the first 11 months of 2020, according to data compiled by the American Bankruptcy Institute.

Business bankruptcy filings experienced a smaller but still meaningful decrease of 16.8% YOY. Companies that entered bankruptcy last year include well-known retailers that were already struggling prior to the pandemic, such as JCPenney and Neiman Marcus. But some companies that filed for bankruptcy were undercut by pandemic disruptions, such as restaurant chains and gyms, which were deemed non-essential in many areas.

The cause of the slowdown in bankruptcy filings is not readily apparent from the data. But the federal government’s broad fiscal interventions last year, including broad support from the Federal Reserve, undoubtably played a meaningful role. Many households and firms also benefited from lenders granting forbearances on loans and/or allowing delayed payments.

Personal Monthly Bankruptcy Filings

 

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This is a general analysis of the real estate market prepared by Bridge Investment Group LLC (“Bridge”) and is not related to any specific products or services of Bridge or any affiliate. Sources for statistics and other factual data included herein are maintained by Bridge Research. Such data has not been verified by Bridge and we can give no assurance that it is accurate or complete. Statements contained herein that are nonfactual constitute opinions of Bridge, which are subject to change. Financial projections contained herein are estimates only and are based on assumptions, including assumptions regarding future rent growth, the availability and cost of financing, changes in market capitalization rates, and various micro- and macro-economic trends. No assurance can be given that either the projections or the assumptions will prove to be accurate. Investment in real estate involves substantial risk of loss.
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