But California also has a number of challenges, and housing is arguably the most pressing. About 1.3 million renter households in the state, or 22%, are classified as extremely low income, according to the National Low Income Housing Coalition. And the state has a shortage of nearly 1 million homes that are affordable and available for these people, defined as those who earn less than 50% of the area median income.

A report this past December in The Wall Street Journal delved into the regulatory maze that has stalled many affordable housing projects in California and made them more expensive to complete. In San Jose, the cost to build a single unit of low-income housing in 2022 was $983,700, up 24% from the previous year.

San Francisco granted less than half as many housing permits last year as New Braunfels, Texas, which has one-eighth the population of the City by the Bay. And in one extreme example of a project that has been delayed by political battles and financing hurdles, a 49-unit apartment building in Los Angeles is reportedly set to open later this year after the nonprofit developer acquired the land in 2007.

Gov. Gavin Newsom recently signed several pieces of legislation that are expected to benefit developers of mixed-income multifamily projects. One of these bills is designed to streamline the approval process for qualified housing developments in jurisdictions that don’t create enough new supply by removing the need for an environmental study.

California has an estimated $68 billion budget shortfall across its current three-year fiscal forecast that’s tied in part to weaker-than-expected personal income tax revenues. The 25% decline in tax collections during the 2022-2023 fiscal year was “similar to those seen during the Great Recession and dot-com bust,” state legislative analysts wrote.

Still, California’s gross domestic product grew at an annualized rate of 2.9% in third-quarter 2023, close to the U.S. average of 3.5%. As of this past August, California’s nonfarm payroll employment exceeded its pre-pandemic level by 447,600 jobs. Employment gains in sectors like logistics, technology, construction and health care have surpassed job losses in other industries.

Silicon Valley is a hotspot for data center investments. CBRE reported that all of the new data center supply delivered in Silicon Valley during the first six months of last year was preleased. With an inventory of 410.7 megawatts at midyear 2023, Silicon Valley was the nation’s third-largest market for data centers, trailing only Northern Virginia and Dallas-Fort Worth.

The Golden State’s largest office markets continue to struggle. Newmark reported that San Francisco had a vacancy rate of 27.3% and asking rents reached a six-year low point in third-quarter 2023. In Los Angeles, office-using employment dropped by 3% during the first eight months of last year and 44% of all office buildings had vacancy rates of more than 20%. ●

Nowhere has the cooldown in U.S. industrial real estate been more apparent than in California’s Inland Empire, centered around the cities of Riverside and San Bernardino. A midyear 2023 report from Colliers showed that the metro area, which is the country’s largest industrial market, posted negative quarterly net absorption for the first time in more than 13 years.

Third-quarter 2023 data from Cushman & Wakefield showed a negative absorption figure of 1.8 million square feet (msf) from July through September. But absorption during the first nine months of the year remained positive at 1.2 msf. Asking rents in the Inland Empire at the end of Q3 2023 stood at $17.96 per square foot, down from a peak of $18.85 in Q4 2022 but still well above the national average of $9.73 for industrial space.

Cushman & Wakefield also reported five industrial sales valued at more than $25 million in the area during the third quarter. The priciest deal during that time was BentallGreenOak’s $144 million purchase of nine buildings totaling 458,000 square feet in the Chino submarket.

What the Locals Say

The resort markets along the coast — including the Coachella Valley, Palm Springs and Palm Desert — have done phenomenally well. They’ve far surpassed what they were doing in 2019 and have enjoyed record top-line revenues and record net profits. We’re now seeing those markets start to taper off.

On the other end of the spectrum are the downtown hotel markets that are heavily reliant on commercial business, and that’s gone in the opposite direction as people have continued to work from home. You have fewer employees in the downtown market, so that’s definitely impacted guest stays, as well as food and beverage, at those hotels.

We publish a biannual survey, and through the first six months of 2023, individual hotel sales transactions in California were down 53% from where they were in 2022. That is a record decline. We’ve been tracking sales for over 20 years and it’s even surpassed what we saw in the first six months of 2009. And that’s just tied to a huge disconnect between the buyer and seller expectations.

Hotels have not yet seen value declines of 70% to 80% like those seen in office space. But a classic example would be two of the largest hotels in downtown San Francisco. They’re both Hilton products, and in 2016, those hotels appraised for $1.6 billion. The publicly traded REIT that owns them has given the keys back to the lender. The debt is $725 million.

3 Cities to Watch

Irvine

This Orange County city has added a whopping 100,000 residents since 2010 to reach a current population of 314,000. Irvine serves as the home base for fintech firms like Acorns and Cloudvirga, as well as a number of startups in the software, digital media and real estate sectors. Three Nobel Prize-winning researchers hail from the University of California at Irvine, which has a highly diverse group of students and faculty.

Oakland

After losing its pro football and basketball teams in recent years, Oakland received another economic blow this past November when the Athletics baseball team announced its pending relocation to Las Vegas. Affordable housing is a key issue in the East Bay hub. Brooklyn Basin, a major redevelopment project that would build 3,700 new homes on the site of a former shipping dock, is still many years away from completion.

Sacramento

From agriculture and health care to education and clean energy, the California state capital has a diverse economy that produces more than $160 billion per year in goods and services. Colliers reported that the $773 million in commercial real estate sales across the metro area in first-half 2023 was down 63% year over year. Industrial and multifamily deals accounted for a respective 39% and 24% of this six-month sales volume.

Sources: Allen Matkins, Built in LA, CalMatters, CBRE, Colliers, Cushman & Wakefield, Executech, Forbes Advisor, KQED, National Low Income Housing Coalition, Newmark, SFist, The New York Times, The Wall Street Journal, UCLA Anderson School of Management, University of California at Irvine, Visit California, Wisevoter

The post Spotlight: California appeared first on Scotsman Guide.

Its beauty encompasses ski-ready slopes, alpine lakes, sandy beaches and glittering skyscrapers. And it’s a cultural center, where stars are born and trends are set. But for the average Californian, the cost of living is too high. Only 15% of households could afford a median-priced home as of third-quarter 2023, according to the California Association of Realtors. Consequently, California has the second-lowest homeownership rate among all states, trailing only New York.

More construction is desperately needed, but zoning issues, expensive fees, high material costs and scarce land make it difficult for developers. New zoning rules and approval processes have been implemented since Gov. Gavin Newsom took office in 2019, but most changes focus on multifamily buildings in an attempt to ease the state’s rental affordability crisis.

The number of new homes built reached a 15-year high point in 2022, but demand still isn’t being met. State officials say 180,000 new units per year are needed, with about 123,000 built in 2022. About half of those were single-family homes. The state wasn’t on track to meet that number in 2023. From January through November, 53,000 permits were authorized for new single-family homes.

Californians are getting creative to achieve homeownership, despite the challenges and a more expensive mortgage market. Many buyers are choosing to put down more money, with help from family or local downpayment assistance programs. Those who can are paying in cash or buying down interest rates. And many are choosing to “house hack.”

House hacking came to prominence several years ago, and renting out extra bedrooms to help pay the mortgage has become a relatively common practice. But Californians are leading the charge on a different kind of house hacking: the construction of accessory dwelling units, or ADUs.

Zoning changes in 2017 made it much easier to add ADUs to single-family lots in California, and construction of these units grew from 1,100 in 2016 to 20,600 in 2022 — or nearly 17% of all units built that year. ADUs are faster and less expensive to build than traditional homes.

These units can be financed with home equity loans and cash-out refinances. In October 2023, the Federal Housing Administration (FHA) property rehab financing program was updated to allow more ADUs to qualify. Additionally, FHA underwriting will now recognize both existing and anticipated rental income from ADUs to qualify borrowers. California even has a grant program to help lower-income homeowners build ADUs.

This trend may not solve the housing crisis in California, but ADUs can help homeowners afford their mortgage while raising their property value. Even if they’re not being rented, ADUs are a good option for homeowners looking to create multigenerational housing for family members without sacrificing privacy or space in their home. ●

Home sales in California, which slowed significantly in the second half of 2022, rebounded slightly in the second and third quarters of 2023 before falling again. According to the California Association of Realtors (CAR), the seasonally adjusted annual rate of existing single-family home sales in the state totaled 223,940 in November. This was the lowest rate recorded since the Great Recession and represented a 5.8% year-over-year decrease.

Bolstered by a lack of supply, median home prices rose last year. In January 2023, the median price was $751,330, the lowest since first-quarter 2021, according to CAR data. Prices wobbled but rose throughout the year to reach $822,200 in November.

Despite overall growth in home prices, California’s most expensive markets saw the most dramatic declines in the nation, according to a SmartAsset analysis of Zillow data. The Bay Area cities of Dublin, San Francisco, Palo Alto and Fremont were the four cities most impacted, with home values dropping by an estimated 13% to 15% during the year ending in May 2023.

What the Locals Say

The Greater Sacramento market has definitely slowed down in the past year, but it’s still a healthy market, in my opinion. We have a lack of resale homes on the market, but there’s a lot of new home construction in the area. Unlike the Bay Area, we have more land availability, so we have more developers who are taking some of the agricultural lands and expanding out. Our boundaries are pushing out, and we’ve got a lot of opportunity and a lot of growth.

Right now, I would say the majority of homes being purchased are new construction. They have more inventory and there’s more building going on. On the resale side, I would say it’s slowed down, but it’s still a very hot market. If homes are priced right, they’re selling in 10 to 15 days. The market is still strong, but new home construction is stronger than resale.

I’m seeing people from the Bay Area and other states that are wanting to move out of those locations. They want larger homes, larger yards, more community. We have that affordability compared to a lot of major cities in the United States. We have the ability to be outdoors all year round, with accessibility to Lake Tahoe, the Bay Area, San Francisco and Southern California. It’s a lot safer than a lot of other cities, and you have community support and that small-town feel.

3 Cities to Watch

ANAHEIM

Due to its status as an entertainment destination, Anaheim has an economy that differs from many of its Southern California neighbors. Disneyland generates billions of dollars each year for the regional economy. This once-affordable Orange County market saw a 14.2% increase in median home sales prices during the year ending in September 2023, the biggest uptick in the nation. The metro area’s median price is now $1.1 million, while the median price in the city is $875,000.

CHULA VISTA

The San Diego metro area is pricey, with households in nearly every city and suburb paying more than half of their income on major homeownership expenses. The exception is Chula Vista, the bayside city that’s south of San Diego and just north of the Mexican border. On average, homeowners here allocate 48% of their income to mortgage and real estate tax payments, with a median asking price of $725,000 and a median household income of $96,200.

BERKELEY

The Bay Area has seen home values tumble in the past year after prices shot up 36% from 2020 to 2022. Berkeley is no stranger to this phenomenon as the city’s estimated average home value fell by more than 11%, or $183,000, during the year ending in May 2023. But the highly desirable suburb, home to the University of California at Berkeley, was slightly more insulated than some of its more expensive neighbors, which saw prices plummet by as much as 15%.

Sources: Bankrate, California Association of Realtors, California Department of Finance, CalMatters, Forbes, John Burns Research and Consulting, KSWB-TV, Los Angeles Times, Office of Gov. Gavin Newsom, Orange County Register, San Francisco Chronicle, SmartAsset, The Real Deal, The Sacramento Bee

The post Spotlight: California appeared first on Scotsman Guide.

These even go as far as redeveloping entire districts. In Somerville, Massachusetts, 20 acres of the Union Square neighborhood is being redeveloped as part of a master plan. Centered around a new light rail station to connect the area to downtown Boston and beyond, the $2 billion project will bring 2.4 million square feet of space crafted for companies in the life sciences, technology, arts and innovation sectors.

Only 2 miles away in Boston’s Allston neighborhood, home of Harvard Business School, a 9-acre mixed-use development is underway. The Enterprise Research Campus will include two new laboratory buildings; hundreds of apartment units; hotel, retail and restaurant space; and a sustainably built conference center.

Outside of Boston, smaller developments are underway. On the Massachusetts border with New Hampshire, the city of Haverhill is redeveloping 3 acres of historic buildings and vacant property in its downtown. Under the tutelage of preservation society Historic New England, Haverhill is slated to gain new retail and commercial space, live-work spaces for artists, housing and a hotel.

Rise Development is planning a $100 million movie and TV studio in the Boston suburb of Braintree in its effort to create a “Hollywood East.” And in Concord, New Hampshire, nearly 1,000 units of housing are being planned for a 135-acre, mixed-use development along the Merrimack River.

Small towns are also getting in on adaptive reuse. In rural northern Vermont, the town of Hardwick is saving its iconic Yellow Barn. The historic building will be transformed into retail space, with a new food and agricultural business center to be constructed next door, providing community cold-storage and warehouse space for farmers.

The overall economy in New England was strong in 2023, with low unemployment rates and stable gross domestic product (GDP) growth. According to August 2023 data from the Federal Reserve Bank of Boston, overall employment in New England has fully recovered from the COVID-19 pandemic.

The leisure and hospitality sector across these states is about 6% behind pre-pandemic levels. But unemployment rates are below the U.S. average across the board, with no state topping 3.5%. Vermont (2%) and New Hampshire (2.1%) had some of the lowest jobless rates in the country as of October. ●

The vacancy rate for industrial properties in Greater Boston continued to climb in the third quarter of 2023, but net absorption rose sharply, according to Cushman & Wakefield. Vacancies reached 6.9%, partially due to a robust pipeline of new construction. Nearly 4 million square feet (msf) of inventory was delivered in the first three quarters of last year, with another 4.7 msf still under development.

Preleasing activity was slow at that time, with the pipeline only 17.7% leased. The impact is far from devastating, however, as Cushman & Wakefield predicted that even if the rest of the delivered inventory for 2023 went completely unleased, the vacancy rate would rise by a modest 60 basis points.

The 495 West submarket, encompassing Boston’s far western suburbs, saw the most marked improvement. The submarket accounted for 51% of Greater Boston’s total quarterly occupancy gains, lowering its vacancy rate by 440 basis points to only 2.2%.

What the Locals Say

The market is tough right now. The issue that we’ve seen on our end is not that rates are too high, it’s just that they went from historic lows to this level way too fast. It’s hard for business owners, now more than ever, to weigh purchasing over leasing.

Here in Boston, we see fairly drastic differences within neighborhoods. For instance, in the Back Bay, the office market has been strong. It’s insulated because it’s a highly desirable area with a live-work feel and a strong residential component. But the Financial District has been struggling and has seen high vacancy rates continuing after the pandemic. On the retail side, it’s similar. There are some areas that are doing well, with relatively low vacancies, whereas downtown — since the daily influx of workers is much lower than it was before — it’s harder for retail businesses to sustain themselves. So, there’s higher vacancy downtown.

Investors, developers and businesses do consistently want to be in Boston because there are so many industries and institutions located here. There are lots of highly regarded colleges and universities like Harvard, MIT, Boston University and others, as well as internationally recognized hospitals.

Life sciences are a big thing in Boston right now, with ground-up developments and office conversions. There’s a constant influx of people to the city, and on the investment side, we seem pretty well insulated from giant upturns and downturns.

3 Cities to Watch

New Haven

Connecticut’s second-largest city is home to nearly 140,000 people. Steeped in history, New Haven’s centerpiece is Yale University. The university and its attached hospital and medical system are the city’s largest employers, combining for about 45,000 jobs. Biotech is another key industry in New Haven, spurred by the redevelopment of former factories into a scientific research campus. Advanced manufacturing and food services are economically significant too.

Springfield

The “City of Firsts” is the third largest in Massachusetts and is famous for innovation. Springfield is the birthplace of basketball and of Dr. Seuss. It’s also the home of the first American-made automobile and the nation’s first military armory, an important facility during the Revolutionary War. Firearms manufacturer Smith & Wesson traces its roots in the city to 1856. Other major industries in the metro area include health care, aerospace and financial services.

Portland

Artsy, outdoorsy Portland is Maine’s most populous city. Its metro area is home to 550,000 people. Originally a fishing and trading settlement, Portland still boasts a working waterfront in the heart of a trendy downtown. Portland has seen intense development interest in the past several years, including new housing, luxury hotels, a convention center, a 10-acre waterfront neighborhood, and the redevelopment of a famous downtown office building into modern mixed-use space.

Sources: Boston Real Estate Times, Business Wire, City of New Haven, City of Springfield, Connecticut by the Numbers, Connecticut History, Engineering News-Record, Federal Reserve Bank of Boston, Maine Business Magazine, National Parks Service, Patch.com, Portland Press Herald, Springfield Regional Chamber of Commerce, Visit Portland, WWLP-TV

The post Spotlight: New England Region appeared first on Scotsman Guide.

The New England states of Maine, Connecticut, Rhode Island, Massachusetts, New Hampshire and Vermont lead the country in rising temperatures, according to the National Oceanic and Atmospheric Administration. These states have seen an increase of 3 to 4 degrees Fahrenheit since the beginning of the 20th century.

The Gulf of Maine is warming at one of the fastest rates of any body of water in the world in the past five years. In the past few years, blue crabs have been seen with more regularity off the coast of the Pine Tree State.

Rising temperatures could take a toll on industries across the region, according to the Climate Reality Project. Fruit farms could be at risk if unseasonably warm spring weather causes trees to bud early, with crops later lost to frost. Ski resorts support about 44,500 jobs in the region and generate about $2.6 billion in annual revenue. Warmer temperatures could mean later openings and earlier closings for resorts, putting stress on the industry.

The New England fishing industry already sustained a 16% decrease in jobs from 1996 to 2017 due to warming waters affecting the supply of Atlantic cod, shrimp and lobster. Dwindling stocks have forced some boat captains to declare bankruptcy.

About 15 million people live in the New England region. Massachusetts ranks as its largest economy. The Bay State had a gross domestic product (GDP) of $691 billion in 2022, good for 12th among all states. Connecticut ranked No. 23 with $319 billion in GDP. Each of the other states in the region ranked in the bottom half of the nation for GDP size, with Vermont coming in at No. 50 with a GDP of $40.8 billion.

Nationwide, the cost of a home is six times higher now than it was in 1980. Led by the Boston metro area, Massachusetts has witnessed a much higher increase over that time, according to an investigation by The Boston Globe. Home prices in The Bay State are 11 times higher now than in 1980. ●

Home prices in the New England Region were showing signs of heating up last year. U.S. home prices rose by 3.7% in August, according to CoreLogic, but prices in New England posted far higher year-over-year gains.

New Hampshire had the biggest increase in the U.S. with a yearly jump of 9.4%, followed by Maine and Vermont at 8.9%. Rhode Island was fourth at 8.4% while Connecticut tied for fifth at 8.1%.

Massachusetts had four of the nation’s 100 most expensive communities ranked by ZIP code, according to RealtyHop report released this past November. A ZIP code in the Back Bay neighborhood of Boston finished at No. 17 with a median list price of $3.7 million. Connecticut had three of the top 100 most expensive ZIP codes. The vast majority of these pricey locations were in California and New York.

What the Locals Say

I’m in the northeast corner of Connecticut in Windham County. Massachusetts and Rhode Island are 10 to 15 minutes away. What’s happened is people are coming from Rhode Island and Massachusetts because they’re finding that they’re going to have more of a chance to buy a home here, even though it’s still competitive.

There were 386 new listings in the county in October 2023 and 277 of them sold right out of the box within seven days. That’s how fast they were going. They call us the quiet corner, but it hasn’t been so quiet. In 20 years of doing this, it was a wild run and it’s still busy. Our numbers are not where they were last year, but they’re still really close. People have cash. I don’t know where it’s coming from. All appraisals are coming in solid. They’re not coming in under asking price. The comparables are still there.

People don’t care about the rate. If they’re older and smarter, they’ve already been through it. They say, ‘When I owned my first home, I paid 13%,’ so it doesn’t bother them.

It comes in spurts. One week, everything’s happening. The next week it slows down. In October, in this little area, we closed 20 loans. That’s pretty good in this market. Once we start seeing rates in the 5% or even low 6% range, people are going to go crazy and start refinancing.

3 Cities to Watch

Boston

The largest city in Massachusetts continues to struggle in the wake of the COVID-19 pandemic. As of spring 2023, foot traffic in the two ZIP codes that make up the city’s Financial District was down 48% from pre-pandemic levels in 2019, according to University of Toronto researchers. And the regional office vacancy rate stood at 19.1% in January 2023, the highest in 20 years, according to The Boston Globe.

Manchester

This area was originally called Harrytown before being renamed as Manchester in 1810. Affordable housing is a top issue for New Hampshire, but the state is hampered in providing it. Much of the land that allows for single-family homes is already built upon. In Manchester, there are concerns that changes to density, such as allowing for accessory dwelling units, could encourage the creation of short-term rentals.

Stamford

The second-largest city in Connecticut has nearly 135,000 residents. Stamford was already home to three Fortune 500 companies: Charter Communications, credit card provider Synchrony and United Rentals, the world’s largest equipment-rental company. It recently gained a fourth with the arrival of tobacco giant Philip Morris, which relocated its headquarters and brought some 200 jobs from Manhattan.

Sources: Axios, Boston Planning & Development Agency, Choose Stamford, Climate Reality Project, CT Insider, Federal Reserve, HuffPost, Maine Public Radio, Manchester Journal, MassLive Media, New Hampshire Employment Security, Stamford Advocate, The Boston Globe, The Josiah Bartlett Center for Public Policy, The Providence Journal

The post Spotlight: New England Region appeared first on Scotsman Guide.

In first-quarter 2022, West Virginia was the only member of this region to record positive economic growth. In Q1 2023, the region was led by the District of Columbia, which posted yearly gross domestic product (GDP) growth of 1.4%. North Carolina, South Carolina and Virginia each registered gains of 1%, with Maryland at 0.7% and West Virginia at 0.2%.

The region’s most powerful economy is North Carolina, which had a GDP of nearly $716 billion in 2022. Once known as a center for textiles, furniture and tobacco, the state is now a hub for manufacturing, research and technology. It boasts a manufacturing workforce of more than 455,000, the largest in the Atlantic Region. North Carolina also has more than 250 automotive manufacturers. Vietnamese automaker VinFast announced plans last year for a $4 billion electric vehicle plant at the Triangle Innovation Point southwest of Raleigh.

Virginia is second in the region with a GDP of $663 billion in 2022. The northern part of the state benefits from proximity to Washington, D.C. It’s estimated that 30% of Virginia’s economy is tied to federal agencies, workers and contractors. Many of the nation’s military headquarters and top federal agencies (including the CIA and the Pentagon) are in Arlington and other parts of Northern Virginia. Long an agricultural center, Virginia is now known as a trade, technology and manufacturing leader, but it remains a major producer of vegetables, tobacco, cattle and poultry.

Maryland has a GDP of $480 billion. Like Virginia, the state’s proximity to the U.S. capital is a major influence on its economy. The Capital Region, which includes five counties closest to Washington, D.C., accounts for about half of Maryland’s GDP. Top economic sectors there include IT, telecommunications, aerospace, defense and biotechnology.

South Carolina has a GDP of $297.5 billion. Its largest employment sectors include trade, transportation and utilities; government; professional and business services; leisure and hospitality; and manufacturing. The Palmetto State is No. 1 in the nation for exported sales of tires and passenger cars. BMW, Mercedes Benz and Volvo are among the automakers with operations there.

The District of Columbia had a GDP of $165 billion last year. The main industries include the various aspects of the federal and local government. Professional, scientific and technical services combine with administrative positions to account for more than 40% of all employment. The technology, hospitality and tourism industries also are key economic drivers.

West Virginia has the smallest economy in the region with a GDP of $97 billion. But it continues to be one of the nation’s most important mining states through the production of coal and natural gas. ●

The Richmond area continues to be in growth mode, with total employment increasing by 4.2% during the year ending in third-quarter 2023, according to Cushman & Wakefield. Such growth has also influenced the industrial property sector, where more than 1 million square feet (msf) of new space was delivered in the quarter.

About two-thirds of this space wasn’t preleased, helping to push up the marketwide vacancy rate to 3.3%. Some of the projects that were added in Q3 2023 include a 400,000-square-foot block of sublease space and a 242,000-square-foot data center.

While industrial starts have slowed compared to prior years, Cushman & Wakefield reported that the city’s current project pipeline totals more than 4.6 msf, with about 84% of this total preleased. Such figures point to a strong industrial marketplace. Leasing activity in the third quarter topped 1 msf and exceeded 3.8 msf for the year. A strong fourth quarter was also expected.

Another sign of the sector’s strength is evident in rent growth, which rose an impressive 11.6% during the first nine months of the year and was 57% higher since the start of 2020. New leases and renewals for second-generation space are going for $8.50 to $9 per square foot, better than the marketwide asking rent of $7.60.

What the Locals Say

Raleigh is probably in a better position than most cities right now, in all honesty. The city has become a hotspot for people from all over the country, whether they are from the West Coast, the Northeast or even Florida. That attraction of new people has trickled down to the commercial space, so businesses in general are still growing here.

That means properties are still being sold and refinanced, but that isn’t true of all buildings. Like the rest of the country, there are some properties that are vacant and others where landlords are offering free rental space to make it appear that there are tenants. With that said, Raleigh is one place where things are still moving and lenders have yet to hit the pause button.

Industrial and multifamily properties are still doing well. Airbnb rentals are OK. They are still able to rent but they are not as strong as they were a year ago. Retail is doing OK in Raleigh as well. Where you see the most vacancies right now are in the office sector. Those properties are having a hard time filling up, probably because of the work-from-home movement.

As for 2024, we are expecting more of the same. We’re getting more calls from borrowers telling us that some lenders are no longer lending. I see that continuing. I think the number of lending sources is going to shrink. But there will still be some lending, which means the market isn’t going to freeze. That is very important. If the market freezes, everybody has a problem.

3 Cities to Watch

Annapolis

The state capital of Maryland is steeped in American history and boasts a strong tourism industry. The charming port city of 40,000 people is situated on Chesapeake Bay, and it’s known for its various boatyards and as the home to the U.S. Naval Academy. St. John’s College, with roots dating back to 1696, is also located in the city. State and federal government agencies are the region’s largest employers, but there’s also a thriving technology sector.

Raleigh

Often rated as having one of the nation’s best economies, this fast-growing North Carolina city of 477,000 residents is one of the nation’s leading technology and science research hubs. Nearby is the famed Research Triangle Park, a 7,000-acre innovation center that houses more than 375 companies, including science and tech firms, government agencies and startups. Raleigh is also home North Carolina State University and a variety of business incubators.

Charleston

Founded in 1670, the South Carolina city of 153,000 people is a favorite with tourists who come for its beauty, history and Southern charm. This past April, The Wall Street Journal named Charleston as the sixth-best labor market in the country among small metro areas. The Port of Charleston, the deepest on the East Coast, is among the top 10 container ports in the U.S. The city is also home to Joint Base Charleston and a large Boeing operation.

Sources: Charleston.com, City-Data.com, City of Raleigh, Cushman & Wakefield, Data USA, Economic Development Partnership of North Carolina, Federal Reserve Bank of St. Louis, Maryland Daily Record, North Carolina State University, Research Triangle Park, St. John’s College, South Carolina Department of Commerce, South Carolina Ports Authority, Substack, The Wall Street Journal, Virginia Economic Development Partnership, Visit Annapolis, Visit Raleigh, Washington DC Economic Partnership, WFAE-FM, WJLA-TV, WorldAtlas.com

The post Commercial Spotlight: Atlantic Region appeared first on Scotsman Guide.

North Carolina (8.5%), Virginia (7.2%) and Maryland (6.5%) each eclipsed the national average of 6.1% growth during the year. West Virginia was the lone outlier in the region as its population shrank by 3.3%. It joined Illinois and Mississippi as the only states to experience a net loss last year.

The Atlantic Region also encompasses Washington, D.C. After bottoming out at the turn of the century with a population of 572,000, the nation’s capital saw a significant boom over the next 20 years. Even after a slight decline since the onset of the COVID-19 pandemic, the District of Columbia still has 672,000 residents.

North Carolina has the region’s largest economy at $716 billion, ranking No. 11 among all states. The Tar Heel State is known for legacy industries such as textiles, tobacco and furniture making, but it’s also on the cutting edge of 21st century advances in aerospace, biotechnology and financial services.

Virginia has the nation’s 13th-largest economy at $663 billion. The Old Dominion features a diverse array of business sectors from defense and data storage to food processing and logistics. A number of key projects are underway in Virginia, including a $9.8 billion wind farm off the Atlantic coast that’s set to power 650,000 homes and businesses; a multistory Amazon warehouse that will supply 1,000 jobs in Virginia Beach; and an $87 million infusion by Wells Fargo into its existing Roanoke customer service center.

With nearly 650 residents per square mile, Maryland ranks No. 5 among all states for highest population density and has a robust economy that is the nation’s 17th largest ($480 billion). The Old Line State has some 12,500 farms and a plethora of well-known food makers and distributors such as McCormick and Co., Perdue Farms, Pompeian Inc. and Domino Sugar.

In South Carolina, population centers like Columbia, Charleston and Greenville power an economy valued at $298 billion. Due in large part to its favorable tax incentives, the Palmetto State is becoming a hub for the burgeoning electric vehicle (EV) manufacturing industry. Within the past year, EV companies have struck four major deals totaling more than $6 billion to build plants across the state.

West Virginia’s $97 billion economy ranks in the bottom quartile of all states. The aforementioned population loss isn’t helping the Mountain State’s fiscal health, but there are bright spots. A five-year forecast released last year by West Virginia University economists called for slow but steady job growth through 2027. Several key developments are underway, including the expansion of a Toyota production plant, GreenPower Motor Co.’s new factory to build clean-energy school buses, and Berkshire Hathaway’s renewable- energy microgrid that will power a 2,000-acre industrial park. ●

Zillow data shows steady and sustainable home price growth across the Atlantic Region over the past year. As of September 2023, annualized price growth was in the 2% to 3% range for most of these states, with Virginia leading the way at 4%.

The opposite trend occurred in Washington, D.C., where prices dropped 2.9% year over year. After peaking at $650,617 in June 2022, the typical home value in the nation’s capital stood at $614,146 this past September (a 5.6% decline).

According to real estate brokerage McEnearney Associates, the 5,200 sales in D.C. through the first nine months of this year were down 23% compared to the same period in 2022. Notably, however, sellers were more willing to offer concessions as the average subsidy reached $3,031, up from $2,026 during the first nine months of last year.

Personal finance website WalletHub recently ranked the North Carolina cities of Cary, Durham, Raleigh and Charlotte among the nation’s 30 best real estate markets. The analysis was based on metrics like affordability, price forecasts, the percentage of homes built since 2010, and the shares of mortgages that are delinquent or seriously underwater.

What the Locals Say

I would say that South Carolina is affordable. It’s expensive no matter where you are with inflation and things like that, but real estate taxes here are significantly less for residents. For nonresidents, it’s a different tax rate. It’s about encouraging people to make this your primary place of residence, not just using it as a vacation destination. South Carolina is also one of the most flexible states if you have a service-connected disability. If you’re a veteran with a 100% disability rating, you pay zero real estate taxes.

With mortgage rates nearing 8%, you could get sucked up into negativity quickly, like quicksand, and never get out of it. My team, we just don’t get too caught up in a lot of the noise and the negativity. We understand it. We’re watching it to be knowledgeable of the market, but we’re not feeding into it. There’s a difference. We’re not letting that control our day and our next move. I think there’s a lot of lenders that need to hear that message: Just focus on what matters and reconnect with the client for what they need.

The overall prices to build homes and get the finished product have gone up, but we’re seeing more homes that are catered to support the starter family. We’re seeing a lot of mid- to upper-level new homes but not what we would consider luxury-class or very high-end homes. These are homes for families. These are everyday, hardworking families that need a home. It’s important enough for the family to make that a priority over something else that might not be as important.

3 Cities to Watch

Charlotte

The Queen City added more than 15,000 new residents during the year ending in June 2022, census figures show, good for the fifth- largest numerical increase among U.S. cities. This growth also made Charlotte the 15th- largest city in the country with a population of nearly 900,000. With a presence in the NFL, NBA, Major League Soccer, NASCAR and the PGA Tour, Charlotte rates as the third-best city for sports business behind only Dallas and New York, according to the Sports Business Journal.

Virginia Beach

Virginia’s largest city (455,000 residents) anchors the Hampton Roads metro area and its population of 1.8 million. The area has relatively affordable housing, with a median value of $318,300 for owner-occupied units, roughly on par with the national average. Virginia Beach is a magnet for tourism: Visitor spending topped $2 billion for the first time in 2021, surpassing pre-pandemic levels by 8%. Tourism supports 31,000 jobs and generates $295 million per year in tax revenue for the city.

Wheeling

As the heart of West Virginia’s Northern Panhandle, Wheeling has a metro-area population of 136,000. It benefits from a strategic location along Interstate 70 between Pittsburgh and Columbus, Ohio. Major employers include WVU Medicine, WesBanco and professional services firm Williams Lea. Hundreds of millions of dollars are being infused into public and private projects in the city’s central core, including a $17 million rehab of a historic suspension bridge and $32 million in streetscape improvements.

Sources: City of Virginia Beach, Manufacturing Dive, McEnearney Associates, North Carolina Department of Commerce, Reuters, Sports Business Journal, U.S. Bureau of Economic Analysis, Virginia Economic Development Partnership, WalletHub, West Virginia University, Wheeling News-Register, Wisevoter, WorkForce West Virginia, World Population Review, Zillow

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The Dallas-Fort Worth metroplex led all U.S. markets at that time with nearly 73,000 apartment starts, equating to inventory growth of 8% in the North Texas hub. Apartment supply in San Antonio was also on pace to grow by 8%, although the number of units under construction there totaled only 17,000. In Austin, meanwhile, rental stock was set to soar by 15% as developers had broken ground on more than 45,000 units.

IPA forecast a “sharp decline in future delivery volumes beginning in 2025,” but analysts also noted that a recent cooldown in rent growth for these metros is likely to be temporary. Investors seeking opportunities in the Texas multifamily sector could be attracted by an anticipated rise in rent growth in 2024, while appreciation “above the long-term norm seems likely to return in early 2025.”

The Lone Star State’s economy is outperforming the nation as a whole. Data from the U.S. Bureau of Economic Analysis showed annualized gross domestic product growth of 3% for Texas in first-quarter 2023, compared with 2% national growth. Meanwhile, the Federal Reserve Bank of Dallas reported that the seasonally adjusted annual rate of job growth in Texas (3.2%) exceeded the U.S. average (2.2%) during the first six months of this year. Employment growth in the energy, information, construction and financial services sectors were especially strong for Texas compared to the rest of the nation.

Dallas Fed analysts also reported that the major office markets in Texas are continuing to expand. In terms of square footage under construction, Texas had three of the top 20 markets in the country as of June 2023: Austin (No. 5), Dallas (No. 8) and Houston (No. 14). Additionally, Austin ranked first among all U.S. office markets for new construction as a percentage of existing stock (6.2 million square feet, or 6.9% of current stock in June).

Although much of the growth in Texas is centered on the aforementioned metros, other portions of the Lone Star State are thriving too. In the Permian Basin region of West Texas, for instance, the populations in and around the cities of Midland and Odessa are expected to triple from 2010 to 2050. The regional economy is heavily dependent on oil and natural gas extraction, and these industries currently appear to be embracing steady growth rather than chasing the high production volumes that sparked previous boom-and-bust cycles.

Further to the west, El Paso and the surrounding Borderplex region are home to 2.5 million people, including a large bilingual workforce. The metro area accounts for 17% of all trade activity between the U.S. and Mexico, and it’s the fifth-largest manufacturing hub in North America with some 320,000 workers. ●

During the two-year period ending in June 2023, asking rents for industrial properties in the San Antonio metro area grew by 25% to reach $8.15 per square foot, Cushman & Wakefield reported. Vacancy rates, meanwhile, fluctuated quite a bit during the same time frame and nearly doubled after bottoming out at 3.9% in third-quarter 2022.

This past September, private equity firm Harbor Capital acquired a vacant distribution and manufacturing center in the southwest suburb of Von Ormy. The Class A facility encompasses 198,000 square feet and sits in close proximity to two interstate highways. And the metro area’s largest industrial sale of Q2 2023 involved a two-building portfolio totaling 648,000 square feet in northeast San Antonio.

In May 2023, the Koontz Corp. announced plans to develop a 188-acre “industrial megasite” on the city’s southwest side. The project is expected to take at least six years to be finished and involves “the largest developable infill site left in San Antonio that is receptive to industrial and manufacturing,” according to a sales and leasing partner. Last year, NorthPoint Development broke ground on a $230 million industrial park in the eastern suburb of China Grove, with the first phase reportedly set to be delivered in Q3 2023.

What the Locals Say

Austin definitely has a high profile. It’s one of those markets that continually performs. There are some issues with overbuilding, but we’re mostly on track and things are as vibrant as they’ve ever been. We’ve definitely noticed increased activity from institutional investors.

The demand for rental housing is still very strong. In terms of the banks, lenders have pulled back a little bit, but we have so many debt funds that have come out with construction money. I’m working on two multifamily construction loans right now. The biggest thing I tell borrowers is, “Let’s go to your existing banks where you have deposits and use that as value.” A lot of people don’t put as much value onto existing relationships at banks these days.

I don’t think Texas is any different than the rest of the nation in terms of what’s happening with refinancing maturing debt. We don’t have so much of a problem with the maturing notes that are on long-term fixed debt. It’s the short-term maturities — somebody who did a two- or three-year loan a couple years ago. They bought a rate cap and now they’re having to fund that again. They never thought the rates would go to 8.5% and they’re just having a little bit of sticker shock.

Sometimes they do have to come to the table with money, or we can structure some kind of creative debt stack. We’ll say, “Here’s your first lien, and we can put some preferred equity on top so we can get you out of your maturing debt and you don’t have to write a check at closing.”

3 Cities to Watch

Austin

The Texas capital continues to grow at a remarkable rate. According to 2022 census figures, Austin became the 10th-largest U.S. city with 975,000 residents and was the nation’s fastest-growing large metro area for a 12th straight year. Business Facilities recently ranked Austin as the No. 2 best business climate among large metros, an accolade propelled by the city’s life sciences and technology sectors. The office vacancy rate jumped to 25% in Q2 2023, Cushman & Wakefield reported.

Corpus Christi

This Gulf Coast city (population 317,000) is the eighth largest in Texas. Corpus Christi is the largest U.S. port for crude-oil and liquefied natural gas exports, and area community colleges are partnering with the energy sector to meet demand for skilled workers. The local naval air station directly employs 8,400 people and generates $3.3 billion per year in economic output. The USS Lexington (aka “The Blue Ghost”), a retired aircraft carrier turned museum, has resided in the city since 1992.

Lubbock

The home of Texas Tech University, Lubbock has grown by 15% since 2010 to include 263,000 residents. Along with education, the local economy is powered by agribusiness, food processing, health care and IT firms. Hundreds of millions of dollars have been invested in downtown Lubbock in recent years, including the repurposing of a former bank building to house municipal services. A private developer is building a Class A student housing complex with 730 beds that is slated to open in 2025.

Sources: Business Facilities, City of Austin, City of El Paso, Commercial Property Executive, Connect CRE, Cushman & Wakefield, Federal Reserve Bank of Dallas, Institutional Property Advisors, Lubbock Economic Development Alliance, NPR, San Antonio Express-News, Texas Comptroller of Public Accounts, Texas Demographic Center, Texas Economic Development Corp., Texas Tech University, USS Lexington Museum, World Population Review

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California to Texas is the most popular migration route in the nation, according to census data, with more than 107,000 people moving from the Golden State to the Lone Star State in 2021. Expensive real estate for both homeowners and business owners in California is one reason for the inflow. Tech companies like Oracle and Tesla have relocated their headquarters to Texas, bringing educated workers with them.

Relative to the overall population of Texas, new arrivals are more likely to have a college degree and be young, between the ages of 20 and 29. They’re also more likely to work in STEM careers or be managers, according to data from the Federal Reserve Bank of Dallas. The massive influx of young, educated people into science, technology, engineering and math jobs sustains the state’s job market and, on average, employment is growing about twice as fast in Texas compared to the rest of the nation.

Luckily for these new arrivals — and the mortgage originators who serve them — housing is still relatively affordable in Texas. Several cities in Texas have been named among this year’s best U.S. real estate markets, including those for first-time homebuyers.

WalletHub’s annual Best Real Estate Markets report crowned McKinney, Texas, as its top market in 2023. The report uses 17 metrics to determine which markets have the best blend of housing and maintenance affordability, population and job growth, home price appreciation and more. McKinney, a suburb of the Dallas-Fort Worth metroplex, was followed by its neighbor, Frisco. Denton, Allen and Austin also made the national top 10.

A SmartAsset report with a focus on first-time buyers also ranked five Texas markets in its top 10 for 2023. Based on metrics such as affordability, available inventory, relaxed competition, demographics and growth potential, SmartAsset found Killeen (a small city situated between Austin and Dallas), to be No. 1. The city, known for its proximity to U.S. Army base Fort Cavazos, had a median home sales price of about $250,000 in May 2023, with a “reasonably young” population and about 3,000 homes on the market each month.

Texas has attracted not only domestic migrants but international movers too. While the COVID-19 pandemic slowed cross-border moves into Texas, mirroring a national decline in international moves due to border closures, foreign interest in Texas real estate has picked up.

According to Texas Realtors, international homebuyers spent more than $4 billion in Texas from April 2022 to March 2023, snapping up nearly 10,000 homes. Some 2.8% of home sales in Texas were tied to international buyers, compared to 1.8% of U.S. sales during this period. ●

Unsurprisingly, total home sales in Texas are down from last year’s pace. In July 2023, 25,870 homes were sold in the state, down 8.4% from the prior month and down 32% in a three-year period, according to the Texas A&M University Real Estate Research Center. The share of new construction sales increased significantly within the past year, going from 15.2% to more than 20%.

In July, the average home was on the market for 56 days, the same as the previous month. This marked a deviation from a yearlong trend of a consistent rise in the number of days on market. Active listings rose to 2.3% of all homes, or about 85,000 listings. Texas had 3.3 months of supply to meet July’s sales pace.

Home prices saw modest but steady gains, with new and existing home prices rising 0.2% from June to July to reach $337,700. The notable exception occurred in the Austin-Round Rock metro area, which saw a pullback of 0.5% from June to July. The capital city, however, still has the highest average prices in the state. These small dips and gains throughout the state reflect relative price stability across local markets.

What the Locals Say

Both 2020 and 2021 were really hard on people in Texas who weren’t your ideal buyer. In our local market in Austin, we went a year and a half, two years where you couldn’t do an FHA loan to buy a house. That’s because there were 25 other offers, and somebody was putting 20% down and waving the appraisal. There were a lot of first-time buyers who really wanted to get their foot into being a homeowner and creating that path to generational wealth for their family, but they literally could not.

The bright spot for me this year and in our current market is that we’ve had the opportunity to help a bunch of people who are first-time buyers, who are using downpayment assistance to get their first house, who are first in their family to be homeowners. They’re getting into houses and they’re going to wind up with a bunch of free equity in a year when these rates come down.

People want three things when they buy a house: They want to be able to get the house that they want, they want to get a good deal on it in terms of the sales price, and they also want to have a good rate. And the only way they’re going to get that is if they buy now. If they wait until the rates come down, they’re going to overpay for the house. If they buy now, they can actually shop to find the house they want and get a good deal on it. When the rates come down, they can refinance, and that gives them the trifecta. That’s really the only way to get all three of those things in our market right now.

3 Cities to Watch

McKinney

Named as the best housing market in America by WalletHub, McKinney balances affordability and good economic conditions. An affluent suburb about 30 miles north of Dallas, McKinney is home to more than 200,000 people. It was recently named the 12th-richest city in the nation, with a median household income of $100,775, low unemployment and a low poverty rate. McKinney is known for its charming downtown area that includes the preserved late 19th-century Chestnut Square Historic Village.

Georgetown

Situated about 30 miles north of Austin, Georgetown is the fastest-growing city in America for two years running. The city’s population growth rate was 14.4% for the year ending in July 2022, equating to nearly 11,000 new residents. Georgetown’s largest employer is aerospace and defense manufacturer AirBorn Inc., while tech giants Dell, eBay, PayPal, Apple and more have a local presence. In August, the median home listing price in Georgetown was $499,900, down nearly 5% year over year.

San Antonio

Home to the Alamo, the River Walk and the Tower of the Americas, San Antonio is one of the premier tourist destinations in Texas, welcoming nearly 35 million visitors in 2022. About 140,000 area residents work in tourism and hospitality, and last year’s tourist counts and total payrolls for hospitality workers exceeded pre-pandemic levels. Other major local employers include Joint Base San Antonio, USAA, Toyota and UT Health San Antonio. The city’s median list price in August was $309,500, down 3% year over year.

Sources: ARC Relocation, Austin American-Statesman, CultureMap Fort Worth, Federal Reserve Bank of Dallas, Georgetown Economic Development, Greater San Antonio Regional Economic Partnership, KSAT-TV, National Association of Realtors, Site Selection Magazine, SmartAsset, Southern Living, Texas A&M University, Texas Realtors, WalletHub

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In 2020 alone, about 250,000 new businesses incorporated in Delaware, pushing the total number to 1.6 million. That’s more than 1.5 businesses for every person, adult or child, in the state. Companies incorporate there for numerous reasons, including privacy, expediency and a corporate-friendly court structure.

Most importantly, the state’s tax structure is business friendly. Companies can reduce their state tax burden by 15% to 25% by coming to Delaware as opposed to other states, according to a 2013 study published in the Journal of Financial Economics. (Delaware derives 40% of its state budget from business-formation revenues.) Because of this, students at every law school in the country are said to study the Delaware corporation statute and how Delaware courts interpret the law.

In this sense, tiny Delaware plays a prominent role in the business-heavy world of the Mid-Atlantic Region, which also includes New York, New Jersey and Pennsylvania. While many of the largest companies are incorporated in Delaware, many of these same firms actually do business in the stretch between New York City and Philadelphia. More than 80 companies on the Fortune 500 list are headquartered in this region, including 40 in the Big Apple and 13 in the City of Brotherly Love.

The Mid-Atlantic Region encompasses some of the most productive states in the nation. The gross domestic product (GDP), or the sum of all goods and services, in New York totaled more than $2 trillion in 2022. This ranked No. 3 among all states, according to the U.S. Bureau of Economic Analysis.

Pennsylvania ranked sixth in the U.S. last year with a GDP of $923 billion. New Jersey ranked ninth at $745 billion, while Delaware was No. 42 with a GDP of about $87.5 billion.

The U.S. population grew slowly between July 2021 and July 2022, according to census data, adding 1.2 million people to reach a total of 332.2 million. Most of this growth came from immigration. The Northeast region recorded notable population losses during this time frame.

The state of New York’s population dropped by more than 180,000 people as nearly 300,000 residents moved to other states (the second- highest outmigration in the nation behind only California). New Jersey ranked No. 4 as it lost more than 64,000 residents to other states.

Pennsylvania’s population shrank by 40,000 during the year, with the losses almost entirely due to outmigration. Among the Mid-Atlantic Region states, only Delaware saw a population increase in this time frame, adding about 14,000 residents. ●

The Mid-Atlantic Region suffers from an acute lack of housing inventory, so much so that a real estate agent told Fortune magazine earlier this year that homebuyers are “fighting over crumbs.” One of his clients bid $51,000 over asking price in the spring but didn’t expect to get it. More than 200 people showed up at the open house.

All four of these states saw a huge decline in the number of homes for sale this past summer. New York had about 48,300 homes on the market in July, a 21.2% year-over-year decrease, according to Redfin. New Jersey had some 25,500 homes for sale at that time, down 35% year over year. In Pennsylvania, the 35,700 homes for sale represented an annualized decline of 21.3%. And the 1,750 listings in Delaware were 23.3% below year-ago levels.

There is evidence that supply should grow. In 2022, three of the Mid-Atlantic states ranked in the top half of the nation for building permits issued for single-family homes, according to census data. More than 18,000 permits were issued in Pennsylvania, with another 13,200 in New Jersey and 11,000 in New York. Fewer than 5,900 permits were authorized in Delaware.

What the Locals Say

It’s still a very active market in Philadelphia and the surrounding counties, especially in the suburbs. Last year, you had 10 to 15 people per home in the suburbs putting in offers. Now it’s five. There’s just not enough inventory.

Rates hadn’t deterred people until this past 30 days (in late August), now that most are firmly above 7%. Prices are still elevated. If rates come down by 1% or 1.5%, then you’re just going to have a swarm of people right back at it with the same amount of inventory.

With the severe lack of inventory, with rates more than double what they were a year ago, and now what we’ll call “temperate expectations” for the job market, consumer confidence in housing could be lacking. You’re going to see seasonality come into play when that hasn’t been the case in real estate for the past five to 10 years. You’re going to see a slower winter for sure unless some radical shift happens.

The Philadelphia market is sandwiched between two of the most expensive cities in the world in New York and Washington, D.C. Philadelphia doesn’t suffer the major swings up or down. It’s always been a very resilient market. We get a lot of clients that are relocating from New York and D.C., and they’re keeping their jobs, but they’re able to work remotely. They’re moving to Philadelphia because of the affordability factor.

3 Cities to Watch

Philadelphia

More than 2 million people descended on the city of Philadelphia on July 4, 1976, to celebrate the bicentennial of the signing of the Declaration of Independence. The City of Brotherly Love (population 1.6 million) is already planning events for the semiquincentennial, the nation’s 250th birthday, on July 4, 2026. Whether it will attract the same crowds remains to be seen. The 1876 centennial in the city was wildly successful, but the 1926 sesquicentennial proved a flop.

New York City

The Big Apple has lost about half a million people since the COVID-19 pandemic swept the country, according to census figures released this past May. New York City remains the largest city in the U.S. with a population of 8.3 million, more than double the size of Los Angeles (4 million). Housing costs haven’t reflected the recent population loss. In 2022, New York remained one the 10 most expensive cities in the country with a median sales price of $683,000, according to Redfin.

Trenton

The capital of New Jersey relies heavily on state government for its economy. Trenton has convenient access to both Philadelphia and New York City, as well as Princeton University, which is in the neighboring eponymous town. Trenton (population 90,000) is undergoing a renewal for its 250th anniversary in 2042 while trying to learn from past failures. For instance, two downtown renewal projects in the 1960s displaced 2,000 families while adding state office buildings that did little to benefit the community.

Sources: CNBC, Corporate Crime Reporter, Federal Reserve, Forbes, Patch, Philadelphia Business Journal, Redfin, Science Direct, The Atlantic, The Encyclopedia of Greater Philadelphia, The New York Post, Trenton 250, U.S. Bureau of Economic Analysis, WHTM-TV, WHYY-TV, Yahoo Finance, Zillow

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Economic recovery from the COVID-19 pandemic is mixed, but all four states saw yearly gross domestic product (GDP) growth of 1% or more in first-quarter 2023. The highest GDP growth was recorded in Pennsylvania (1.9%), nearly on pace with the national growth of 2%. Growth in the Mid-Atlantic states was mostly in line with their Northeast neighbors.

Using 12 economic indicators to measure inclusive growth, the Brookings Institution’s Metro Monitor 2023 report tells a story of a region tested during the pandemic. Notably, extra-large metros in the Mid-Atlantic appear to have struggled the most, while many large and midsized metros showed remarkable improvement.

The report measures a broad range of growth indicators, including GDP and jobs; wages and productivity; poverty rates; and racial income and employment gaps. The largest metros in the Mid-Atlantic Region, including New York City, Pittsburgh, Philadelphia, Buffalo and Rochester, landed in the bottom half of all U.S. metros analyzed for post-pandemic inclusive growth.

But the region’s smaller cities thrived, welcoming growth and narrowing inclusivity gaps. New York’s capital, Albany, ranked No. 44 prior to the pandemic and jumped to No. 23 among the 192 metros studied. In Pennsylvania, two metros jumped from the bottom half of the rankings to the top: Allentown (up 62 spots to No. 52) and Harrisburg (up 51 spots to No. 66). Other Mid-Atlantic metros saw similar improvement, including Syracuse and Utica (New York), Trenton (New Jersey) and York-Hanover (Pennsylvania).

Although many larger Mid-Atlantic cities took an economic hit, recovery is still in progress. And even though some commercial real estate sectors are struggling in 2023 — especially the office market — other sectors are getting healthier, deals are still happening and new developments are breaking ground. Tourism figures have surpassed or approached pre-COVID levels in New York, Philadelphia and Pittsburgh, boosting retail demand.

In NYC, developers are reinvigorated and The New York Times reported a “wave of new development” in the boroughs outside of Manhattan. Some 56,000 rental units are expected to be delivered from 2022 to 2025 in Brooklyn alone, fueled by an affordable housing tax subsidy. Developer Silverstein Properties announced a “shovel-ready” double-skyscraper project this past summer that will house 100 affordable apartments, a casino, performance hall and massive luxury hotel. And in August 2023, NYC Mayor Eric Adams rolled out a plan to convert empty office space into as many as 20,000 new housing units. ●

Manhattan is on track to welcome 63.3 million tourists this year and the summer tourism season boosted the retail market significantly. Foot traffic increased, subway ridership surpassed 4 million daily riders and Broadway show attendance returned to 87% of pre-pandemic levels. More than 20,000 new hospitality jobs were filled this past May. With people flooding the city and a lot of space discounted, retailers are snapping up new locations and expanding.

According to a second-quarter 2023 retail report from Cushman & Wakefield, available retail space declined or stayed steady in nine of 11 Manhattan submarkets. In the SoHo, Madison Avenue and Third Avenue submarkets, available storefront space hit historic lows. Retailers signed 20 new leases in SoHo during the quarter and the vacancy rate fell to 13.4%, its lowest point since 2014.

Manhattan retail asking rents have stabilized since their trough in second-half 2021. While still lower than 2019 levels, prices climbed 2.2% year over year in Q2 2023. Demand from luxury and apparel brands remained strong, especially in the Madison Avenue submarket. Most discounted space there had been leased by midyear, Cushman & Wakefield reported, driving rents up 9.4% year over year to an annualized rate of $813 per square foot.

What the Locals Say

The New York market is always going to be the pinnacle of U.S. real estate. Everybody wants to be in New York. Everybody wants to own prime properties in New York. Buyers will always be attracted here. The question is, can they afford it?

The sellers think that because it’s New York, or it’s the tri-state area, they should demand a premium for their properties. And in this market, if you can’t finance it with a reasonable deal, it doesn’t make sense. If properties were more reasonably priced, given today’s conditions, there would be more activity. Banks are pulling back, and we’re seeing more people having to resort to private loans and bridge lenders to bridge that gap until the banks want to get back in the business.

Sellers are still selling properties at what they think are reasonable cap rates, which probably aren’t, given financing conditions. That’s suppressing deal values. I have customers calling me and trying to buy a property at a 4.5% cap rate when rates are 6.5%, and they don’t understand why the property doesn’t have cash flow.

We’re seeing a lot of activity moving out of the primary urban markets into more tertiary markets to get better deals. We have a lot of people now who are moving further upstate, where it’s more rural, or into other areas just to get out of the competitive New York market. Whether it’s upstate or into less-populated areas in Connecticut or New Jersey, we see people expanding a bit because they’re not finding the prices they want in the urban areas.

3 Cities to Watch

Buffalo

Just 20 miles south of Niagara Falls, Buffalo (276,000 residents) supports a metro-area population of more than 1.1 million. During the Gilded Age, Buffalo was one of the largest cities in the nation and had the most millionaires per capita of any U.S. city, due to massive industrial growth. The city is now a major trade center for Canadian imports and exports. M&T Bank, Kaleida Health, Tops Markets and aerospace firm Moog Inc. are headquartered in Buffalo.

Philadelphia

Besides cheesesteaks and cream cheese, Pennsylvania’s largest city might be best known for its deep history and involvement in the American Revolution. Philly is now a center of financial services, technology, advanced manufacturing and life sciences. Greater Philadelphia (6.2 million people) generates more than $450 billion per year in gross regional product. Many large corporations call Philadelphia home, including Comcast, DuPont, Aramark and Campbell Soup.

Trenton

New Jersey’s capital city sits on the border with Pennsylvania, along the Delaware River, and is home to nearly 90,000 people. Once famous for its rubber, ceramics, iron and steel industries, Trenton is now a center for government, logistics and manufacturing. Several projects are underway there, including a $73 million mixed-use redevelopment of the historic Van Sciver Building, which will bring 120 apartment units and 7,500 square feet of retail space.

Sources: Britannica.com, Brookings Institution, CBS Philadelphia, Cushman & Wakefield, Invest Buffalo Niagara, Mercer County (N.J.), Pittsburgh Magazine, Select Greater Philadelphia, Spectrum News 1, The New York Times, TrentonDaily

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