Single-Family Market Heats Up, Offices Stay Empty: June Multifamily News Roundup
The Biggest June 2021 Real Estate News
We have summarized the biggest multifamily and real estate stories to emerge in June of 2021. Large investment firms made headlines as many entered the single-family space for the first time, while housing starts rose less than expected. In New York, recovery for the broader economy has not translated into improved conditions for office owners, as some 80% of workers continue to work remotely.
Investment Firms Enter the Single-Family Market
Beginning in 2011, a combination of a foreclosure glut, low home prices, and depressed consumer demand allowed, for the first time, the purchasing of single-family homes for rental at scale. Newly formed companies and institutional investors purchased some 200,000 homes around the country, forming large portfolios.
The practice remained niche until recently. However, suburban homes have seen a resurgence in popularity throughout the pandemic, with young families and remote workers leaving dense coastal cities for homes with larger footprints and private outdoor space. This increase in interest has caused Wall Street firms like Blackstone—the former owner of single-family operator Invitation Homes—to re-enter the market and has motivated firms like private equity giant KKR to invest in the space. Other organizations like Invesco and Allianz have also made bets on suburban single-family homes.
This trend has led home-builders like Lennar and D.R. Horton to sell directly investment firms, as the liquidity of large companies allows builders to dispose of many houses simultaneously while commanding premium prices. The number of single-family properties owned by large investors accounts for a small number of the country’s supply, some 2-3%. That number will likely continue to increase as pensions funds and other Wall Street firms begin to treat single-family homes as an investment-grade asset class that, purchased in large numbers, can function like traditional multifamily properties.
Housing Starts Rise Less Than Expected
Numbers released in June showed that housing starts were up 3.6% in May. The increase was lower than the expected 3.9% increase, placing starts at a seven month low. Builders have blamed a shortage of skilled labor and the persistence of elevated lumber costs for the dip in construction. Despite some headwinds, the market remains strong; March had the most starts of any month since 2006.
New York City Office Market Unsteady
The first wave of workers returning to their desks has begun in New York City. Goldman Sachs and Barclays employees have resumed in-person work. Blackrock, Morgan Stanley, and other firms to follow suit soon. Some firms have taken a different approach. Synchrony Financial has told workers they cannot return to the office five days a week. UBS, hoping to distinguish itself from other bulge bracket banks, has chosen to allow some two-thirds of employees to split their time between the office and home.
These companies are exceptions. Most firms will reopen offices this fall, leaving millions of square feet in New York City skyscrapers empty. As of late June, one-fifth of all office space in Manhattan was available for lease. Office owners have begun improvements, such as installing air filtration systems and lounges to make leases more compelling and commuting more worthwhile. These improvements may not counteract a fundamental shift in demand for office space. A third of leases in the borough expire between 2021 and 2024. With hybrid work arrangements, many may downsize or negotiate far more favorable terms.
- In a sign that the short-term rental market is maturing, the company ReAlpha has announced it plans to purchase $1.5 billion worth of homes to rent out on Airbnb.
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