Even as the U.S. economy has been largely crippled by the COVID-19 pandemic, the housing market is booming and likely the strongest component of the economy. Housing was surging prior to the pandemic too. Ivy Zelman of Zelman & Associates, featured on page 48 of the month’s edition, points to mortgage purchase origination data that shows half of those purchases are being made by people age 35 or younger. That’s right, millennials and Gen Z. This trend has been playing out for the past five years, she says, and the starter-home market is where the demand is strongest. Many of those young people are headed to the exurbs that ring metropolitan areas. In a reversal of fortune, there is a de-urbanization trend under way.
The single-family rental market will likely be undersupplied over the next 10 years, based on current trends, despite the increased attention the segment is currently receiving. Currently, about 6 percent of new single-family homes are purpose-built for rent, which would result in around 700,000 new units over the next 10 years. Given demographic trends, much greater demand is expected than the current pace of production, which could result in a significant supply shortfall, suggesting the sector presents a strong market opportunity for investors during the coming decade. (RCLCO)
Apartment construction has dropped by 12 percent this year compared with 2019, with a projected 283,000 units expected to hit market this year, bringing the supply of new apartments to a five-year low in 2020. For the third consecutive year, the Dallas–Fort Worth area will lead the nation in new apartment construction, as developers in the region are scheduled to complete 19,300 new units by the end of 2020. At the city level, Austin is the nation’s apartment construction leader, with 3,800 units coming online during the first half of this year, followed by San Antonio, Denver and Charlotte. Brooklyn rounds out the top five, having delivered around 2,100 units. (RENTCafe)
Purpose-built student housing has grown into a $16 billion-a-year global investment market, with the United States holding roughly a 60 percent share of that market, and international students playing a significant role in the country’s sector dominance. That is why investors panicked when President Trump touted a plan that would have revoked visas for foreign students enrolled at universities that shift to remote learning. Trump quickly dropped that plan after its ramifications became clear. Those foreign students number 1.1 million and account for 5.5 percent of the total U.S. student body, and one-third of enrollment at institutions such as New York University and the University of Southern California. Most flock to the same top-tier universities that are hotbeds for private equity investment. For now, the United States continues to dominate the student housing market, with investment volume reaching an all-time high of $10.8 billion in 2018. By contrast, volumes in the U.K. and Western Europe were down in 2018 as fewer major portfolios came to market, dropping 33 percent and 38 percent, respectively. That will likely change if foreign student enrollment continues to move out of the United States. (Knight Frank, PERE, Savills)
Sustainable investment funds have surpassed $1 trillion for the first time on record. It comes after net inflows of $71.1 billion between April and June this year, driven by growing investor interest in sustainable investment funds in the wake of the coronavirus pandemic. Researchers have cited three factors contributing to record second-quarter inflows to ESG funds: The disruption caused by the COVID-19 outbreak has highlighted the importance of building sustainable and resilient business models; the continued growth in the number of products making up the sustainable fund universe, with an increasing number of funds using the ESG criteria as a key part of their selection process; and asset managers are said to be “greening” their offerings by having converted 40 traditional funds into sustainable funds over the three-month period through to the end of June. It turns out that ESG portfolios have logged superior performance (by 5 to 10 percentage points) over non-ESG portfolios during the coronavirus economic slump. (Bank of America, CNBC, Morningstar, UBS)
Hedge funds have emerged as the top pick among asset allocators heading into second half 2020, beating other products such as real estate, commodities and private equity. About 32 percent of surveyed investors say they intend to increase their allocations to hedge funds. By comparison, 27 percent of investors intend to grow their equity long-only active categories, and 20 percent of allocators are increasing their private equity/venture capital investments, followed by real estate (14 percent), infrastructure (11 percent), and commodities (6 percent). (Credit Suisse)
Mike Consol (email@example.com) is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.