Beth Jo Zeitzer

Our new blog series, The Great Acceleration, focuses on trends that have been pushed forward in commercial real estate sectors, from retail and entertainment to office, multifamily, hotels and industrial properties. To ensure that you are alerted when new articles come out, make sure to follow R.O.I. Properties on LinkedIn.

While the booming numbers in multifamily properties have grabbed a lot of press, a less-well-publicized trend has taken shape in the years since the Great Recession: the rise of single-family rentals. Small homes and standalone condos for rent have been around for decades, but they have surged in popularity in Greater Phoenix. In addition, we are now seeing an uptick in entire subdivisions developed as all-rental communities—and trying to compete with multifamily-as-usual. NexMetro, with locations throughout metro Phoenix, Texas and Colorado, Lennar’s Next Gen, with locations in Anthem and Phoenix, and Christopher Todd Communities, with locations throughout the Valley, are among the notable brands seeking to capitalize.

Nationally, residential rental properties took a hit from coronavirus-caused economic weakness, but Arizona has defied the trends. Across the U.S., single-family rents grew 2.4% in April but only by 1.7% in May—the lowest growth rates since July 2010, according to CoreLogic’s Single-Family Rent Index. In contrast, among the 20 metro areas surveyed, Phoenix had the highest year-over-year rent growth in May (maintaining its streak since late 2018), with an increase of 6%, followed by Tucson (+3.5%).

As with all things COVID-19, the unknowns going forward include what happens with the overall economic environment, as well as specifics such as employment and the expiration of increased unemployment benefits. Still, we anticipate that the appeal of single-family rentals will persist through the recovery and beyond.

What’s Driving the Rise in Single-Family Rentals?

• Financial factors. Affordable homes have become tougher to find in Phoenix due to low supply and high demand, compounded by our nation-leading population growth. For many would-be homeowners, pricing may leave them locked into renting for a period of time. Due to the uncertainties resulting from the COVID-19 outbreak, others may not be confident enough in their job or financial status to make a move at the current time. A single-family home is often a better lifestyle fit than traditional multifamily.
• Comfort factors. Although the worst of coronavirus appears to be over, questions remain about how long it will be with us. As a separate dwelling, a single-family home offers peace of mind: having your own space rather than shared amenities, knowing who’s coming, going, and touching surfaces, and even a self-contained HVAC system rather than sharing air with adjacent units.
• Appeal to investors. While developers such as NexMetro, Lennar and Christopher Todd are investing serious capital, the single-family home offers advantages to smaller investors as well. A single-family home can provide cash flow and tax benefits, with much more liquidity and flexibility than multifamily properties—while still capitalizing on Phoenix’s need for rental options for those who cannot or do not want to purchase a property of their own.

Read previous articles in the Great Acceleration series:

• Has COVID-19 Changed Retail for Good?

Due to the coronavirus and other economic factors, the Phoenix real estate market is rapidly changing. To put an expert advocate on your side for buying, selling, or leasing residential and commercial real estate, contact R.O.I. Properties at [email protected] or 602-319-1326.

The Greater Phoenix residential real estate market has been marching along, not affected as much by COVID-19 as one might have assumed from the overall economic challenges.

Earlier this month, we anticipated that the moratorium on foreclosures—originally scheduled to lift on June 30—was going to start rippling through the market and adding to supply. [ https://roiproperties.com/do-forbearance-numbers-foretell-residential-foreclosures] However, many government sponsored or insured loans now allow for forbearance.  This provides a homeowner/borrower with up to 6 months of loan payment deferral for any FHA, Fannie Mae, Freddie Mac, Ginnie Mae, VA and USDA loan.  These options, provided by the CARES Act, are available until December 31, 2020, or until the national emergency is rescinded, whichever is sooner. Government-backed lenders (Freddie Mac, Fannie Mae, VA, FHA, and USDA) are now working with borrowers, who can provide an attestation—a statement that they are in hardship due to COVID-19 and need more time. The bank cannot ask them for financials or termination documents, but the lender must hold out on any activity against the borrower. It is important to note that forbearance is not equivalent to forgiveness. Depending on the program, the lender might tack payments on the back end of the loan or after the forbearance is over.

The new deadline eviction protections for single-family properties is now October 31, 2020, through Governor Ducey’s executive order of July 16, 2020, which provides continued protections for renters who are facing economic hardship as a result of COVID-19

These programs are good for the consumer, in the sense that the US government is stepping up to provide them with some breathing room, but they do not come without hazards. Taxpayers will end up paying for all of this down the road.

What to Do If You Are Experiencing Hardship

If you are currently experiencing hardship with paying your mortgage, this is a time to take a good, careful look at your alternatives. In addition to a discussion with your financial advisor, it may also be prudent to talk with a real estate expert. With inventory moving as quickly as it is, and with supply as low as it is, this can be an excellent opportunity to sell—particularly if you have concerns about employment or other financial issues in the coming months resulting from the coronavirus pandemic. It is advisable to bring those issues ahead sooner rather than later, and avoid waiting until the forbearance period is over.

During times of uncertainty, you need a steady, experienced hand in selling and buying homes or commercial investment properties. Contact R.O.I. Properties at 602-319-1326, or [email protected].

Over the course of the next few weeks, we will be running a blog series called The Great Acceleration. The focus? Trends that have been pushed forward in commercial real estate sectors, from retail and entertainment to office, multifamily, hotels and industrial properties. To ensure that you are alerted when new articles come out, make sure to follow R.O.I. Properties on LinkedIn.

What’s Driving the Great Acceleration in Retail?

The trajectory of retail changed forever this month in 1995. From its humble launch as an online bookseller, Amazon has evolved into a 800-pound gorilla in every aspect of e-commerce, digital streaming, shipping, cloud computing, and even grocery shopping—topping $1 trillion in market capitalization early this year.

By the calendar, 25 years may seem like a long time. Looking at the dramatic changes that have happened over that period, however, the shockwaves reverberated fast and furiously through our retail and shopping malls. The so-called retail apocalypse, with countless bankruptcies and revenue declines at brick-and-mortar locations, began in 2010. Since then, e-commerce sales have been growing at an average of 15% annually, according to the U.S. Census. In 2019, the total market share of online U.S. retail sales was higher than general merchandise sales for the first time in history.

Then the coronavirus pandemic arrived, which is where the Great Acceleration comes into play, in aspects such as:

• Working around social restrictions. The advantage of e-commerce was clear from the moment shelter-in-place orders were announced. Even now, as restrictions are lifted, many consumers are choosing to order from the comfort of their home rather than heading to a store—particularly those with family members in high-risk health categories.
• Easy, fast, reliable shipping. Early in the COVID-19 pandemic, the supply chain had significant challenges, even to the point of restricting shipments to essential items at one point. Nonetheless, shipping has returned to being a convenient option for those who wish to avoid public spaces.
• Food delivery. Although grocery stores remained open as essential services, the pandemic saw increasing numbers of consumers turning to online ordering—leading to a record $7.2 billion in U.S. sales in June. Interestingly, a study found that 50% of in-store supermarket shoppers in the past 30 days also ordered groceries online.
• Contactless payment options. For brick-and-mortar stores, adapting to cashierless transactions is another trend that was happening at a reasonable pace, but was forced to accelerate with the desire to limit interpersonal contact.

Has Retail Real Estate Changed Permanently?

According to the research firm Competera: “In the US, as many as 29% of surveyed consumers state that they will never go back to shopping in person again.” To meet the surge in online demand, retailers such as Walmart, Amazon, Dollar Tree, and 7-Eleven hired an estimated 300,000 workers.

For now, brick-and-mortar stores have even more difficult challenges than they originally perceived with an upstart online vendor that changed the game for bookstores. Human beings are social animals, but depending on how long coronavirus persists, we simply cannot be as openly social as our nature might prefer.

As far as the retail real estate angle, construction starts in retail are the lowest the Phoenix market has seen in 10 years, according to CoStar, with just 118,000 SF in starts in Q1 and 100,000 SF in Q2. Vacancy rates have ticked up to 7.2%. On a national basis, retailers paid just under 60% of the rent owed to landlords during April and May. Recently, Forbes noted a trend of retailers asking for lease modifications, including percentage leases that consist of a base rent along with a percentage of monthly sales. LINK.

As with so many elements of COVID-19, the long-term effects will not be clear for years—but it is safe to say the unexpected changes have put immediate competitive stress on investors, retailers, and commercial property owners. Whether adopting new in-store technologies and hygiene safeguards, or increasing their online brand presence and sales, the need for agility and speed will be a matter of survival.

Even with the challenges of the Great Acceleration, there are reasons for optimism in retail real estate. For example, more than 80% of Target’s fulfillment orders are completed at stores. Ironically, it may be Amazon that ultimately “saves the mall,” as the company eyes portions of the J.C. Penney portfolio. The former retail giant’s big-box spaces would be ideal for distribution and fulfillment centers: well-located, large spaces, with large parking fields and good access to population bases and freeways. (LINK) In addition, do not be surprised if Amazon’s longer-term play incorporates grocery and physical retail elements—nor if other e-tailers take a similar tack, and take advantage of vacated physical retail spaces.

The Phoenix commercial real estate market is fast-moving—and our team is ready to help you meet the challenges. To put an expert advocate on your side for buying, selling, or leasing retail properties and other commercial real estate, contact R.O.I. Properties at [email protected] or 602-319-1326.

The coronavirus pandemic has reinforced age-old wisdom such as the importance of hand-washing and introduced new habits such as wearing masks in public places. For office environments, the health and safety of personnel, customers, and visitors is creating additional virus-proofing requirements that may have long-lasting implications for business operations—and even for buying, selling, and leasing office properties.

With still much unknown about the transmission of coronavirus through the air and by contact, the baseline recommendations from the CDC for offices will seem familiar: cleaning and sanitizing surfaces, conducting daily health checks, encouraging face masks, and implementing social distancing. Read More. Beyond the basics, numerous other virus-proofing initiatives are being taken to stem the biohazard tide in office properties:

• Architects are busy reimagining spaces, as we transition from traditional, fully occupied office environments to a blend of socially distanced in-office configurations and work-from-home regimens. Read more.
• Developer George Oliver made mid-construction changes to its redevelopment of the Alexander, a class-A office development in Chandler, including touchless accessibility and upgraded HVAC systems. Read more.
• For high-rises with elevators, the CDC offers recommendations such as six-foot spacing while waiting in line, limiting the number of riders, urging people not to talk, and having hand sanitizer available outside. Read more.
• Some companies are implementing biometric identification of people entering buildings—including a technology that would open doors automatically for those eligible to enter. Read more.
• The epidemic task force at ASHRAE recommends ensuring the introduction of sufficient outside air and, if possible, upgrading HVAC filters to a denser material, from the standard MERV-8 filter to a MERV-13 filter, which can catch more particles. Read more.

Implications for Buying, Selling, and Leasing Office Properties

Not surprisingly, the concept of virus-proofing is already starting to have an impact on office space transactions. If you own an office property, health elements will be a top priority for people when positioning it for sale or lease. Similarly, if you are interested in purchasing or renting an office property, you may want to make sure certain safeguards are in place—or upgrades can be made—to protect yourself and your employees.

Whether you want professional advice about a specific asset class or assistance in building your strategic plan for selling, buying or leasing commercial real estate assets, R.O.I. Properties is here for you. Contact us at [email protected] or 602-319-1326.

The outlooks for individual commercial real estate sectors continue to change rapidly due to the ongoing impacts of COVID-19. For the most up-to-date information and analysis, please follow R.O.I. Properties on LinkedIn:
https://www.linkedin.com/company/r-o-i-properties