CushWake’s David Bitner: Move Over NYC, Interest in Multi-Family from Global Equity Sources is Moving West

SAN FRANCISCO, CA — Hold tight, stay the course, and enjoy the ride, especially in the Bay Area. Those may have been the key takeaways from the thoroughly thought-provoking keynote address offered by David Bitner, Head of Americas Capital Markets Research at Cushman & Wakefield at CapRE’s Fourth Annual Northern California Apartment Summit, Analysis of Northern California Apartment Market Demand-Supply, Rental Rates, Absorption of New Product and Investment Sales Volume. In this installment of his remarks, he zooms out to talk about some broad, often global, factors that are driving interest in local markets.

First, he spoke about rent growth. “There’s hardly any movement at all. Overall there are very low rates,” he declared. “There might be a slight uptick as we take on a wave of deliveries in 2019. Which of course with all of the production [glitches] that could get evened out. That would be my guess. But really the picture is that we are going to have a bit of stabilization of rent growth throughout the Bay Area. And this is averaged out around the main markets – in that 4 or 4 and a half percent range.”

“That’s not like what we were seeing earlier in the cycle, which was an elysian field of 7, 8, 9 or 10% rent growth,” he contrasted. And according ot Bitner, that’s unlikely to recur — At least over his projection horizon. “But it’s still going to be very attractive on a national basis and it’s still going to be very attractive on an occupancy basis. And that’s true whether you’re looking at San Francisco or over to San Jose. And there are similar stories playing out with Class A, Class B and Class C properties.”

“One of the interesting things is that for so much of the cycle, Class C has meaningfully outperformed both on vacancy, which is normal, and on effective rent growth. But there seems to be a bit of a reversion to that,” Bitner mused. “And I think it’s a very open question about how the competitive dynamics change in the event that Prop 10 passes and then half of everything becomes rent controlled.” [This referendum did not pass].

David Bitner, Managing Director, Cushman & Wakefield

“So capital markets, the overall atmosphere is one of a slight uptick in liquidity compared to last year,” continued Bitner. “And this is really true for multi-family and in industrial. Within multi-family, we’ve seen continued strong garden-product sales, but also a really strong recovery in suburban and C, B, D mid-sized product. Taking a little bit longer of a view, we have seen investors shifting their portfolios meaningfully toward multi-family. And a way from office and retail.”

By Bitner’s estimation, this will not reverse anytime soon. “This is a very favorable liquidity environment and it has kind of doubled down in the sense that foreign investors, who traditionally have not been the most aggressive investors in multi-family, are now very bullish on this sector because of the qualities that they see in it, along with industrial,” he explained.

“And San Francisco is right there in their crosshairs. It’s one of the top global markets and certainly one of the top U.S. markets where investors are looking. I was on a call recently, where the feedback from our global capital desk was that Chinese and Asian guys are more focused on San Francisco than New York at the present time,” he concluded. “That’s an inversion of the usual relationship. So interest is coming west from these various-costs of capital buyers.”

David Bitner with colleagues at CapRE’s Northern California Apartment Summit

David Bitner is Head of Americas Capital Markets Research at Cushman & Wakefield. His research focuses on how macroeconomic trends, real estate fundamentals and dynamics in the broader capital markets interact to shape commercial real estate risks and opportunities for investors. David works closely with Cushman & Wakefield capital markets professionals and clients to further the firm’s goal of promoting thought leadership within the commercial real estate niche. David’s responsibilities include producing capital markets thought leadership content, and directing a program of market presentations, written analysis, surveys, forecasts, and data collection that will support the capital markets business and advance the strategic plan in Americas Research.