CRE This Week - What's impacting the United States market?
November 25, 2024 - US commercial real estate news, macroeconomic indicators and market analysis.
Week of November 25, 2024
Welcome to the latest edition of CRE This Week, curated by Altus Group’s US research team.
Our team has handpicked pertinent and noteworthy market indicators, articles, original research, and significant industry dates that are critical to the US commercial real estate sector. We understand that your time is valuable, so we're excited to deliver research that helps you stay informed and saves you some time each Monday morning.
For more key economic indicators that matter to commercial real estate, see Top Indicators by Major Asset Type.
Economic print
Macro economic factors impacting CRE
The US Census Bureau released its monthly report on new residential construction for October on November 19. The release showed that building permits were issued at a seasonally adjusted annual rate of 1.42 million in October, down 7.7% year-over-year and 0.6% lower than the revised September 2024 figure of 1.43 million. Housing starts came in at 1.31 million, declining 3.1% from the prior month and 4.0% from the previous year. Completions reached 1.61 million, rising 16.8% compared to last year but slipping 4.4% month-over-month.
Developers continue to hit the brakes on multifamily construction, with starts dropping 12.6% compared to October 2023, the tenth consecutive annual decline, amid high borrowing costs and concerns about slowing rental growth.
Single-family home starts fell 3.1% month-on-month, driven by large drops in the Northeast (-28.7%) and South (-10.2%). Overall building permits for all units rose 0.5% month-over-month, but have been contracting on an annual basis since June 2024, signaling a potential supply slowdown ahead.
A shrinking overall construction pipeline may offer some support to the multifamily market, which continues to grapple with a surge of new completions. However, attention remains focused on the Federal Reserve, as anticipated interest rate cuts are expected to eventually revive the resale market for existing homes and ease pressure on rental demand.
The National Association of Realtors reported on November 21 that September’s existing home sales rose 3.4% versus the prior month to a seasonally adjusted annual rate of 3.96 million. Sales also rose 2.9% year-over-year
October marked the first year-over-year increase in existing home sales in more than three years (+1.8%), signaling a potential start to some thawing in the housing market. Despite this, affordability challenges persist. Median home prices for existing homes rose to $407,500, continuing their upward trend and likely pushing more prospective buyers toward renting for longer.
Inventory for unsold single-family homes rose 0.7% month-over-month, with months of supply sitting at 4.2. While this signals improving conditions for buyers, it also creates a complex dynamic for multifamily demand. Affordability pressures are driving households to rentals, but a wave of new multifamily units in high-demand markets could limit rent growth and occupancy as both sectors compete for shifting demand.
S&P Global released its Flash US Manufacturing Purchasing Managers Index (PMI) for November on November 22. The report showed that Manufacturing PMI rose from 48.5 in October to 48.8 in November, marking the fifth consecutive month of contraction in the manufacturing sector, though at a moderating rate of deterioration. Production fell sharply and at an increased rate, while all other components ticked higher. The employment component rose for the first time in four months.
Persistent contraction in manufacturing output, though moderating, could soften demand for industrial real estate. Warehousing and logistics facilities may face vacancy risks if manufacturing declines persist, especially as unplanned inventory accumulation reverses. Extended supplier delivery times could temporarily boost space demand, but weak new orders may pressure long-term leasing, with occupiers potentially favoring shorter or more flexible terms.
News
News to know
REIT active managers shift allocations to digital, healthcare | ConnectCRE, November 19, 2024
In Q3 2024, REIT managers shifted investments toward digital and healthcare sectors, according to Nareit. Data centers and telecommunications are now the most overweight sectors, at 130% and 123% of their index shares. Telecommunications saw a 3.3% year-over-year increase for the second consecutive quarter. Investments in timberland and self-storage also rose, while allocations to retail, industrial, and residential declined. Residential remains the top allocation at 16.4%, followed by telecommunications (15.5%) and healthcare (13.9%).
Big cities take up fight against algorithm-based rents | Wall Street Journal, November 19, 2024
The federal government’s lawsuit accusing rental software firm RealPage of price-fixing could drag on for years. Meanwhile, cities like San Francisco and Philadelphia have swiftly acted by enacting laws that restrict the use of algorithmic rent-pricing systems in residential properties. These regulations specifically target the use of nonpublic data from individual landlords, allowing tenants and local prosecutors to sue non-compliant landlords. Other jurisdictions, including San Diego and New Jersey, are also considering similar measures. In response, RealPage is offering landlords the option to exclude nonpublic data from its software, which constitutes a small portion of the data used for setting rents. The extent to which this nonpublic data impacts actual rent prices remains uncertain and may be clarified as the Justice Department’s case progresses.
Since mid-2021, the real estate sector has seen the launch of 594 opportunity funds raising over $210 billion, with 33 funds totaling $6 billion targeted toward distress, according to data from Preqin. However, more than four years after the pandemic began, many funds remain undeployed as investors shift away from acquisitions. Contributions to opportunity funds have declined from $70 billion in 2022 to $31 billion in early 2024, while investment in distressed assets has plummeted from $4 billion in 2022 to only $240 million this year. Industry experts note a backlog in transactions, with many funds seeking extensions due to current market challenges.
NYC gets historic push for 80,000 homes with $5 billion pledge | Bloomberg, November 21, 2024
New York City Mayor Eric Adams reached a landmark agreement to develop 80,000 new homes through the "City of Yes for Housing Opportunity" rezoning plan. The deal passed a City Council subcommittee after the city and state committed a total of $5 billion for affordable housing and infrastructure, including an additional $1 billion from Governor Kathy Hochul. The rezoning aims to tackle NYC’s worst housing crisis in five decades and is set for a full City Council vote in December. Amendments to the plan eased some controversial measures, such as parking requirements and restrictions on accessory dwelling units, reducing the total new housing units from 109,000 to 80,000. Despite these changes, housing advocates hailed the plan as a historic step toward addressing the city’s housing shortage.
Washington D.C., once deemed "recession-proof" due to its federal workforce and related industries, is experiencing significant economic challenges. Office vacancy rates have soared to 22.7%, and business activity remains below pre-pandemic levels. Private sector employment saw no growth last year, weakening the city's residential demand. Numerous buildings have sold for significantly less than their assessed value while notable defaults, such as the Waldorf Astoria Washington, have occurred. The incoming Trump administration may also contribute to the murky outlook: while numerous federal agencies will be expected to return to the office fulltime, numerous Federal jobs are expected to be cut. Experts warn that the District's economic woes may worsen before improving, highlighting the urgent need for diversification beyond federal dependence.
Research Spotlight
Catch the latest insights from the Altus team
US CRE Investment and Transactions Quarterly report
Last week we launched our inaugural US CRE Investment and Transactions Quarterly report, a uniquely expansive and granular look at investment sales volume, pricing and pacing, and transactional activity at both national and market levels. Watch the short video below, as our Associate Research Director, Cole Perry, shares a quick overview, and a few of the key findings.
View the results or download the full report here
This week’s CRE Exchange Podcast also focuses on the US CRE Investment and Transactions Quarterly report with Omar Eltorai and Cole Perry sharing a more detailed breakdown of the most interesting trends from the report across the major property sectors and top market. Listen to the episode with our player, or tune into the podcast on your preferred podcast platform.
Important dates
Upcoming data releases and events
Data releases (Times in EST)
Monday, November 25
10:00AM: NAHB Housing Market Index
Tuesday, November 26
9:00AM: S&P CoreLogic Case-Shiller National Home Price Index, Data Release
9:00AM: FHFA All Transactions House Price Index, Data Release
10:00: New Home Sales, Data Release
Wednesday, November 27
8:30AM: Durable Goods Orders, Data Release
8:30AM: Consumer Spending, Data Release
8:30AM: Wholesale Inventories, Data Release
10:00AM: Personal Consumption Expenditures (PCE) Price Index, Data Release
About our research team
Omar Eltorai
Research Director
Altus Group
Omar Eltorai is a Research Director at Altus Group. With more than a decade of experience in the industry in investment management and financing roles,
Omar's focus is on macro, capital and market trends affecting the US CRE market. Beyond regularly authoring articles and reports, his commentary and analysis has been featured in various media publications, including: Wall Street Journal, Globe Street, and Yahoo! Finance.
Cole Perry
Associate Director of Research
Altus Group
Cole Perry is a Associate Director of Research with Altus Group's Research team. In this role, Cole delivers key insights into macroeconomics, capital markets, and the broader commercial real estate sector.
Cole boasts a rich background in Commercial Real Estate analytics with previous roles at CompStak and Brixmor Property Group. He holds dual M.S. degrees from Columbia University in Urban Planning and Real Estate Development.
Disclaimer: The opinions expressed in this newsletter are solely those of the authors and are not endorsed by Altus Group Limited, its affiliates and its related entities (collectively “Altus Group”). This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice or services of Altus Group. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy, completeness or reliability of the information contained in this publication, or the suitability of the information for a particular purpose. To the extent permitted by law, Altus Group does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. The distribution of this publication to you does not create, extend or revive a client relationship between Altus Group and you or any other person or entity. This publication, or any part thereof, may not be reproduced or distributed in any form for any purpose without the express written consent of Altus Group.
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