Inflation and rising interest highlighted at real estate forum
FOrdham University’s Real Estate Institute and the Business Council of Westchester have partnered to host a virtual forum that examined the outlook for the New York regional real estate market.
Richard Haggerty of the Hudson Gateway Association of Realtors said real estate is driving the economy and is recovering from the pandemic that has upended the market and presented brokers with extraordinary challenges.
“We endured. We saw the opportunities of regionalization and worked collaboratively,” Haggerty said. “Now, more than even, we all need to work collaboratively and collectively to move our industry forward.”
Kathleen Corton, CEO of Hillcrest Finance LLC, said multifamily rents were up just about everywhere.
“They may have slowed down more recently but they’re still much higher than a year ago, so very positive news on the top line, but the cost of capital has also gone up, so we think multifamily values are down, not by much but they’re down,” Corton said. “The office is… very troubled. Partly because of that, the capital market with the availability of debt for the market It’s very hard to get equity because people don’t really know what it’s going to be like, so the value of the offices has gone down a lot and it’s very hard to refinance. retail…is oddly more positive than it has been for the past two years simply because it’s been beaten so badly and I think the industry is fundamentally very strong and probably the darling of the capital markets as well. On hospitality, the vale urs have dropped a lot. Hotels were hit first and hard.
Eamonn D’Arcy, professor of international property at Henley Business School in England, said that in London rents have gone up but vacancies have gone up at the same time, which usually doesn’t happen.
“We have a lot of evidence of a flight to quality,” D’Arcy said. “As a result, we now have a lot of office space, which may not be B-grade but has issues and that’s why the vacancy rate is increasing. There has been a big debate in the UK about people returning to work. Certainly interesting data from earlier this year for London suggested that the busiest day on the Tube (underground) is now Saturday, so people prefer to go out and socialize with friends but may not be ready to go to work, which is an interesting paradox. .”
D’Arcy said the residential market remains quite good and this reflects supply issues in the UK.
“There has been a lack of supply in the UK for a very long time and that has really resulted in a very buoyant and very stable residential market, particularly in terms of capital values,” said D’ Arcy. “I think inflation is a huge problem right now in the UK. We’ve just had a new prime minister and we’re all waiting for the political response to that. People are talking about property as a hedge against inflation.
D’Arcy said a big issue when it comes to office real estate is whether people will continue to work from home two or three days a week and what the demand for home offices will be.
Christopher Deutsch, vice president of China CITIC Bank International Limited, said banks include an interest reserve when taking out construction loans. He said many interest reserves are recalculated and borrowers are told they must fund any interest increases over the life of their construction project.
“If you’re a developer, you have very little choice as to whether you’re going to fund this or not, because time is your enemy,” Deutsch said. “You will find the funds, you will put them in the reserve. This affects your feedback on the project. If you bought the project or bought the land in 2018, 2019, you bought it with some return on equity in mind. You will not encounter this obstacle.
Charles Dougherty, vice president and economist at Wells Fargo, said interest rates raised by the Federal Reserve would slow economic activity.
“The slowdown in economic activity is likely to have a significant impact on commercial real estate across the board,” Dougherty said. “We expect a recession to be likely in 2023. We rate the probability at 60%; it’s not 100.
Dougherty expects commercial real estate in New York to be particularly hard hit in the event of a recession.
“New York City is still recovering from the effects of the pandemic,” Dougherty said. “The recession would only make this process even slower.”
Tim Jones, CEO of Robert Martin Company, said Covid has forced a few ongoing trends in real estate to multiply, namely trends towards work from home and e-commerce.
“As we move on from the pandemic, it will be very difficult to go back to the old ways of doing business,” Jones said. “One of those big trends has been the replacement of baby boomers by millennials, millennials, as the largest part of our working cohort. These people have very different expectations.
Jones said a lack of truckers has had a significant impact not only on construction activity and construction costs, but also on retailers. He pointed out that Walmart now pays truckers $120,000 a year.
Jones said demand for industrial real estate is very strong, as is demand for multi-family buildings.
“When they drive interest rates up, construction costs are already very high, you’re going to see a big reduction in supply creation,” Jones said. “You will reduce economic activity. You will certainly reduce economic activity in the housing markets for sale. In the short term, I think you could actually create more inflation in multifamily and maybe even industrial housing.
Nicole LaRusso, senior director of research and analytics, U.S. North Region, CBRE Group Inc., said rising interest rates and economic uncertainty are a headwind on office demand. short term.
“The economy is cyclical and will pick up again at some point, but right now I think the combination of how much office space we need, maybe we don’t need “So much office space, combined with economic uncertainty and higher occupant costs, will drive down demand for office space in the near term,” LaRusso said.
BCW President and CEO Marsha Gordon moderated the September 7 forum.