A report from the Wall Street Journal. “U.S. employees started heading back to the office in greater numbers after Labor Day but that pace is stalling now. The low level of employees at their desks is intensifying the pain for cities geared toward office life. Cities’ populations are falling. Apartment rents in downtown San Francisco have fallen 20% since their peak in March, according to CoStar Group Inc., as residents leave. Metro public-transportation systems in cities such as New York, San Francisco, Boston and Washington, D.C., have lost billions of dollars in revenue.”
“Values are falling sharply as a growing number of tenants dump sublease space on the market or demand lower rents from their landlords when their leases expire. Tenant searches for new office space have collapsed in once-hot markets. In San Francisco, this search activity in October stood at only 13% of what it was in January 2018, according to the VTS Office Demand Index. Bad loans are also higher. As of the beginning of November, 2.3% of office mortgages that were converted into mortgage-backed securities were more than 30 days delinquent, up from 1.7% in February, according to data firm Trepp LLC.”
The Real Deal on New York. “More than 200 renters have packed their bags and moved out of the tallest residential skyscraper in Manhattan this year. The New York by Gehry saw rental occupancy fall to 74 percent in September from 98 percent at the end of 2019, according to Trepp. The luxury apartments appealed to high earners in the Financial District. But since mid-March, the area has been almost a ghost town as employees work remotely. Only about 13 percent of New York workers are back in the office, and roughly 500,000 residents skipped town. No borough cleared out more than Manhattan.”
From SF Weekly in California. “People are leaving San Francisco. This flight has been observed in the many moving trucks criss-crossing the city. It has also been borne out in the falling median price of one- and two-bedroom apartments — both of which are going for 21 percent less than what they commanded a year ago. Now another metric underscores the trend.”
“According to United States Postal Service data obtained by Public Comment, change-of-address requests originating from San Francisco zip codes between March and November 2020 suggest that nearly 90,000 households have relocated outside of the city since COVID-19 swept into the United States. Over the past six months, the USPS received 124,131 requests, with just 28 percent listing new addresses in San Francisco.”
From Socket Site in California. “While the number of homes on the market in San Francisco has dropped 16 percent over the past two weeks with typical seasonality in play, inventory levels are now up over 130 percent on a year-over-year basis and climbing, versus 95 percent higher on a year-over-year basis when inventory levels peaked in the absolute last month, with 155 percent more condos on the market than at the same time last year and 75 percent more single-family homes.”
“And with the asking price for 29 percent of the single-family homes on the market having been reduced at least once and 42 percent of the condos, a little over 39 percent of all the homes on the market in San Francisco have been reduced, which is 7 percentage points higher than at the same time last year and the highest share of reduced listings since the fourth quarter of 2011.”
The Los Angeles Times in California. “Usually, high-end neighborhoods such as downtown L.A. and Santa Monica charge more per square foot. But during the pandemic, when businesses are closed and people are working at home, landlords are trimming prices. Zillow shows that in October 2020, 37% of rental listings in Los Angeles and Orange counties were offering at least one concession, or promotion, to attract renters to vacant units. This was more than twice as many as at the same time last year.”
“In L.A., 93.5% of the concessions included weeks or months of free rent. Others offered discounts on the deposit, free parking or gift cards. The effective savings over the life of a lease was 11.5%.”
From Business in Vancouver in Canada. “For decades, Vancouver had Canada’s highest rents and lowest vacancy rates, creating a multi-family mega-market that turned small landlords into paper millionaires and attracted some of the biggest players in the business. But the pandemic has hardened tenant-favouring legislation and honed thin margins in a city now characterized by soaring costs and restricted incomes.”
“With immigration to B.C. hitting negative levels – more people left the province for other regions than arrived in 2020’s first half for the first time in history – Vancouver rents are declining while insurance premiums for apartment buildings have increased an average of 75%, property taxes have soared and capitalization rates have flatlined in the sub-3% range.”
“It has also encouraged at least two of Vancouver’s largest longtime landlords to shove substantial portfolios onto the market, part of what Mark Goodman of Goodman Commercial Inc. in Vancouver calls an ‘avalanche’ of new listings. Goodman said that within a recent two-day period he heard from 12 apartment property owners who wanted to sell, and 11 of the buildings are in the city of Vancouver.”
From Biz News on South Africa. “Picking up a premium property for the proverbial song is the dream of most aspirant home buyers, one that has the best chance to be realised on Black Friday. With some luxury units in Africa’s wealthiest square mile attracting discounts of up to R500,000, sellers clearly are as keen as buyers to do a deal. Not all pundits agree with the practice of discounting real estate, not with decade-low interest rates in a competitively-valued property market, and arguing that these incentives tend to devalue the market.”
“Grant Smee, Only Realty managing director, doesn’t believe the industry should take part in Black Friday. The market currently offers the lowest prices and interest rates in decades, he says. ‘We are at risk of devaluing properties further. The industry should be focused on finding quality buyers and tenants for the properties on their books. In addition, it should negotiate deals in line with both sellers and buyers,’ says Smee.”
“Leadhome CEO Marcél du Toit hopes that this year will be as profitable as last year when several properties that were discounted up to 20%, were sold on Black Friday. Discounts vary and discounted properties will sell for that price within a period of one week, he says. ‘During Black Friday particularly, sellers are willing to drop their price in order to sell. They understand that there is a time value of money at play. Discounting enables them to sell quickly instead of incurring holding costs for months in order to get the eventual sale,’ he says.”
From Live Mint on India. “Real estate developers in the Mumbai Metropolitan Region (MMR) are offering 10-15% discounts on new launches, hinting at falling realty prices in some of India’s most expensive neighbourhoods. Developers are keen to reduce home inventory levels, which are at historically high levels, to increase cash flows during the pandemic, according to brokers and real estate consultants.”
“‘Developers are reducing prices dramatically and I have seen prices drop on new flats by almost 20%,’ said Vishal Kadrekar, proprietor of Fair Value Property, which operates in and around Parel, Prabhadevi, and Worli. ‘Prices have risen very high over the years in MMR. There are projects that were launched in 1-2 years ago that still haven’t been sold. A premium 3-bedroom home in an under-construction project in Lower Parel cost over ₹9 crore a few years ago; now it’s dropped to ₹7.25 crore levels. In another premium apartment next to ITC Grand Central, the price has fallen from ₹47,000 per sq. ft two years ago to ₹38-40,000 now.’”
“Unsold inventory across six top cities rose to more than 19 quarters at the end of the first six months of FY21, with MMR and Chennai reporting the most unsold stock, according to Liases Foras real estate market data.”
From Domain News in Australia. “Rental vacancy rates continued to climb in November in Sydney and Melbourne. Rising vacancy rates are not expected to blow out further as interstate borders re-open and former short-stay rentals that had been tipped into the private rental market return to holiday use. Vacancies are highest in the apartment-heavy major CBDs. Melbourne CBD’s vacancy rate was still at a sky-high 14.4 per cent last month, the highest in the country. It was followed by Stonnington West and East which include the ritzy suburbs of Toorak, South Yarra and Malvern and likewise saw a jump in vacancy rates to 8.7 per cent and 7.1 per cent, respectively.”
“The impact of the lockdown, particularly in Melbourne, has been significant in the inner city, where rents have fallen by as much as 40 per cent this year, Harcourts Melbourne City director Dionne Wilson said. Rents had fallen across the board, though it depended on the type of property and whether or not it was furnished, she said. ‘Landlords are reluctantly accepting it,’ Ms Wilson told Domain.”
The Australia Financial Review. “Melbourne’s vacant dwellings rose 13.3 per cent over the two years to 2019, according to water meter data that Prosper Australia Research Institute says shows Victoria’s Vacant Residential Land Tax is not working and should be strengthened. The latest report by the think tank, found 69,004 residential properties, or 4.1 per cent of the 1,669,151 in the Victorian capital using less than 50 litres per day – the equivalent of a dripping tap. As many as 24,042 properties, or 1.4 per cent of the total, used zero litres of water per day. On both counts – zero litres and up to 50 litres per day – vacancies were up from the last count.”
“Prosper director of research Karl Fitzgerald agreed that newly constructed dwellings could account for some of the vacancy but said they were not the main reason. ‘I still feel there’s a lot of speculative behaviour that goes on in the market,’ he said. ‘We do feel that’s the primary driver. Vacancies have increased by 13.3 per cent since the tax was introduced.’”
The South China Morning Post. “China’s state media urged authorities to take a hard look at the rental apartment industry after a liquidity crunch at New York-listed services provider Danke sparked an outcry from furious landlords and tenants across the country. Danke, officially known as Phoenix Tree Holding, rents flats from landlords on a long-term basis, refurbishes them and then leases them to tenants. In what looks like an apparent cash-flow failure in recent months, the company has missed payments to landlords, employees and contractors. Tenants across the country have been evicted, in some cases violently, by their landlords, with some yet to repay bank loans arranged by Danke.”
“Official media including People’s Daily and Xinhua urged Danke to take responsibility for its debt-fuelled expansion that eventually spiralled out of control after the Covid-19 pandemic. They also called for tougher regulation in the fast-growing US$264 billion industry, which has benefited from a government push to develop the rental housing market, China’s sky-high property prices and an inflow of young workforce into big cities.”
“Tenants and landlords should not be the ones paying for Danke’s failure, People’s Daily, the Communist Party’s mouthpiece, said in a post on its official Weibo account on Friday. The industry and regulators should reflect on the business model, which relied on leveraged expansion, it said.”
“Danke’s crisis has sparked several conflicts between landlords and tenants that have been widely circulated on Chinese social media. In one case, an enraged Shanghai landlord smashed the door of a flat as well as the ceramic sink and the shower in the bathroom, in an attempt to evict the tenant. Another desperate tenant, a young female worker in Beijing, also made headlines after she told reporters her plan to commit suicide because of the undue financial burden.”
“The company operated more than 415,000 flats in 13 cities as of March, according to its latest quarterly report. The company has not yet made a profit.”