SoCal Multifamily Sales Pulse - May 31, 2021 - June 6, 2021
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Here's What's Happening In The Market, Here’s What This Means For You
Rising Lumber Prices Now Impacting Multi-Family Developers
The increase in lumber costs has impacted single-family home construction and now doing the same to apartment-building developers, The Wall Street Journal reports. Multi-family buildings are made with several different materials, but wood remains a major component. This is especially true in low to mid-rise buildings. Lumber is also used for flooring and cabinets.
Multi-family building developers such as Trammell Crow Residential and Greystar Real Estate partners admitted to being surprised at the lumber price tag. A lot of homeowners have noticed the price increase when they purchase wood at their local hardware store—costs are more than three times what they were at this time in 2020, according to industry executives. Meanwhile, the price of softwood lumber, which is used for framing, has increased more than 83% of what it was at this time last year, according to CoStar Advisory Services. Lumber and wood prices in general are up 34% from last year, CoStar said.
These price increases are not limited to lumber, The Wall Street Journal reports. Other material costs for multi-family construction have gone up 25% to 30% over the past year for fuel, copper and steel. CoStar reported the increase was the largest for such materials since 1988.
How Lumber Price Increases Impact Investors, CRE
Multi-family property investors are keeping a close eye on both labor costs and rents to determine the sector’s health. They’re also watching lumber prices, as well as other materials, The Wall Street Journal reports. CenterSquare Investment Management LLC assistant portfolio manager Alexander Snyder said if rents stay constant, the increased costs will impact apartment development returns.
The rise in lumber costs has not affected high-rise development as much, however. Development for these buildings use less wood and partition walls are now typically framed with steel studs. Meanwhile, the decreased demand for commercial properties like office buildings, malls and downtown apartment buildings has slowed down construction business in the U.S. Subcontractors have responded by lowering their prices to get any CRE projects that are moving forward. Gaining CRE projects has helped offset the high lumber prices.
It was just 12 to 18 months ago that subcontractor margins were approximately 20% for some projects due to the heavy workload, David Askie, director of cost planning at Lendlease told The Wall Street Journal. Currently, margins are closer to 5%.
“They want the work,” Askie said
Orange County
Orange County multifamily Closed Sales Last Week were down quite a bit to just 13 Closed Sales. That's the lowest amount of weekly sales in the last few months. I don't think it's anything indicating a slow down as the Closed Sales - Average Days on Market was still very low at just 34 days and over half of the Closed Sale were Transactions that Sold At or Above Asking Price. I think the decline in Closed Sales Last Week is partially due to the short week caused by the Memorial Day holiday on Monday. The Total Number of Active Listings remained consistent at 139 total listings as there were 12 New Listings Last Week. The overall Absorption Rate was down from 2.12 months to just 1.63 months and the Average Cap Rate dropped further to 4.22%.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
Long Beach
Long Beach multifamily sales were also down with just 4 Closed Sales Last Week. This is the lowest amount of weekly sales in the last few months. Again, I don't think it's anything indicating a slow down as the Closed Sales - Average Days on Market was still very low at just 27 days. The Total Number of Active Listings remained consistent with 106 Total Active Listings. The overall Absorption Rate was down from 2.2 months to just 1.98 months and the Average Cap Rate was nearly unchanged at 4.77%. The Average Gross Rent Multiplier went from 14.21 to just 13.3, quite a significant drop.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
Los Angeles County
Los Angeles County multifamily Closed Sales were down from 100 Closed Sales the previous week to 80 Closed Sales Last Week. Again, I think the decline in Closed Sales Last Week is partially due to the short week caused by the Memorial Day holiday on Monday. Sales activity is similar to prior weeks with more than half of the Closed Transactions Selling At or Above the Asking Price. There was a big increase in New Listings Last Week with 143 new listings but the overall Months of Inventory declined from 12 months to 11 months and the Total Number of Active Listings inched up slightly to 1,722 listings overall. The Absorption Rate declined slightly from 3.93 months to 3.88 months.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
San Diego County
San Diego County multifamily sales were down into single digits with 9 Closed Sales Last Week after being at 10 or more Closed Sales for several weeks. But the Closed Sales - Average Days on Market dropped to just 19 days and over half of last week's Transactions Sold At or Above Asking Price. San Diego County multifamily continues to lead the way for Southern California multifamily sales. With 29 New Listings Last Week and Months of Inventory declining from 14 months to 13 months it doesn't look to be changing any time soon. The Absorption Rate was up slightly but the Average Cap Rate and Average Gross Rent Multiplier were almost unchanged.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
Riverside County
There was a slight decline in Riverside County multifamily Closed Sales Last Week with 8 Closed Sales. Last week also saw an increase in Closed Sales - Average Days on Market. This stat is usually around 45 days or less when last week it came in at 72 days. Last week also saw a slight increase in the Total Number of Active Listings from 89 to 93 and the Absorption Rate was down to 1.9 months. The Average Cap Rate declined from 5.81% to 5.66%.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
San Bernardino County
San Bernardino County multifamily sales were also down quite a bit last week with just 2 Closed Sales Last Week. This stat usually ranges from 8-16 Closed Sales per Week. But Closed Sales - Average Days on Market dropped to just 16 days. Granted it's a small sample size to try to analyze Closed Sales. There were 14 New Listings Last Week which is about normal for most weeks and listing inventory remained steady with 141 Total Number of Active Listings. Absorption Rate, Average Cap Rate and Average Gross Rent Multiplier were just about unchanged from last months numbers.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
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