July 5, 2012

Thursday Edition of the Wednesday Wrap: July 5, 2012

Since yesterday was a holiday (we hope you had a happy and safe Fourth of July, by the way), we waited until today to present the weekly Wednesday Wrap. Each Wednesday, The Wrap presents a compilation of recent noteworthy commercial real estate stories from a variety of publications. Below are five stories that caught our eyes in recent days.

• “Rents Increase as Vacancies Dry Up” by Dawn Wotapka of Wall Street Journal.

The nation’s multifamily sector continues to roll. Apartment rents recorded record highs and vacancy rates hit their lowest point in more than a decade during the second quarter, Wotapka reports.

Real estate data firm Reis recorded record average rents for 74 of the 82 markets it tracks. The rising rent prices were fueled by the national vacancy rate, which fell to 4.7 percent, the lowest since 2001.

In uncertain economic times, more and more people are attracted to renting over buying, due to tighter home lending standards and concerns over job security.

Although many are optimistic that apartment values will continue to rise, the apartment sector could weaken if another dip in the economy leads tenants to move into other households or leaves them resistant to rent increases. Other risks include an over-saturation of the market by eager developers and homebuilders marketing more affordable houses, Wotapka notes.

• “Green Building Industry Marching Forward, but Facing Some Uncertainty” by Randyl Drummer of CoStar.

The rising interest of the commercial real estate sector in sustainability doesn’t mean the green building industry isn’t facing some significant challenges. That was the take of the participants of CoStar’s recent “Current Trends in Green Real Estate” webinar.

For example, the U.S. Green Building Council recently postponed the vote on the newest version of LEED certification standards because of stakeholder concern about the changes, and adhering to the wide variety of local green building codes can prove time consuming for building owners and operators with facilities in multiple jurisdictions.

“You’re finding a lot of variation in adoption between jurisdictions,” said Peter Morris, director with Davis Langdon.

Additionally, the federal government’s interest in green building is clashing with fiscal realities, Drummer writes. The General Services Administration is cutting back on new construction and sustainable building alterations. For fiscal year 2012, Congress has even prohibited agencies from spending money to achieve LEED Gold or Platinum certification.

• “The Student Housing Opportunity” by David Lynn for National Real Estate Investor.

Rapid growth in university enrollment growth and state budget woes are presenting a great opportunity for private, off-campus student-housing developers, Lynn writes.

The demand for a college education is spreading, and college populations are expected to continue to grow about 1 percent annually through 2020. With state budget cuts, universities and colleges have had a hard time keeping pace with the influx of students needing housing, and outdated on-campus housing is boosting demand for new facilities with modern amenities.

Lynn notes that student housing has significant operating challenges, such as a shorter leasing period, higher maintenance and significant annual turnover.

• “Not Your Parents’ Student Housing” by Amy Wolff Sorter of GlobeSt.com.

Lynn’s article isn’t the only student-housing-related piece that caught our attention this week. This article from GlobeSt.com details the rising quality of amenities in such facilities. Simply put, student housing no longer means cinder-block walls with an uncomfortable bed and a tiny desk, Wolff Sorter writes.

At many student housing projects, luxury amenities are offered to beat out strong competition within the industry. Amenities like dog parks, clubhouses and tanning beds are being offered not only to satisfy trend-conscious students but also their parents.

Parents are “spending a lot of money on tuition today, and the feel that, if they’re going to spend the money, they want the kids to have it good,” Terrell Gates, founder and CEO of Virtus Real Estate Capital, told Wolff Sorter.

• “Developers Adapt Strategies to Fit Dynamics of Mature and Emerging Markets” by Beth Mattson-Teig for Retail Traffic

Shopping center developers are handling volatile but mature markets very differently than how they are tackling emerging markets, Mattson-Teig writes. While they’re playing it safe in mature markets such as the United States and Western Europe, they’re acting much more aggressively in markets such as China and India.

In the United States and Western Europe, given the economic woes in both regions, developers are avoiding new construction, instead working on the redevelopment or expansion of existing shopping centers located in top markets.

Meanwhile, development in emerging markets in some areas of the Middle East, Asia and Latin America is “very active,” according to Mattson-Teig. Still, developers in these areas aren’t “throwing caution to the wind.” Developers are focusing their efforts on Tier 1 cities like Jakarta in Indonesia, where the population explosion offers plenty of opportunities for expansion.

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