Hello!
Uncertainty persists this month. There are policy, macroeconomic, and demographic trends that are forcing property owners to re-evaluate their holdings on a timeline that is not of their choosing.
Continue reading for insight into these trends along with local news that impact you as an owner and investor in the Inland Northwest.
Note: This email features an unusually high number of external links. There are trends and insights that I could not fully unpack in one email. A conversation is often the best way to interpret this information, so give me a call to discuss – 509.221.9354
Overall Market
- Demographic: U.S. population growth has been decreasing since a peak in 1992 at 1.39%. Estimates show that the population grew only 0.35% the first half of 2020. In 25 states, more people died than were born, up from 5 states in 2019. Flat to negative population growth has wide-reaching implications for all sectors of the economy. For multifamily owners who have benefited from population growth outpacing housing, a sustained period of flat growth could tip the scales back to a more competitive housing market at a national level. The difficulty in tracking this impact locally is that migration trends cloud the data. If you’re not in a market that is attracting migration from other cities/states, population growth declines could pose a threat to property operations.
- Macroeconomic: The June 2021 inflation rate of 5.4% has created concerns of continued inflation, which has investors seeking yield in assets that provide an inflation hedge. Those assets involve real estate built around short lease-terms (multifamily, single-family rentals, self-storage, hospitality) compared to assets built around long-term leases (office, retail, industrial).
- Policy: Elimination of the 1031 exchange, increased capital gains taxes, and the removal of the step-up in basis are all on the table for changes in the coming year. The impact will be far and wide if any of the legislation is passed.
- Other: There is a displaced labor market, uncertainty in material costs, and institutional capital flowing into new sectors like single-family rentals and single-family build-to-rent, which could impact multifamily owners.
- For long-term-hold property owners this uncertainty is likely forcing you to re-evaluate your current operations, retirement plans, and ownership goals on a timeline that isn’t of your choosing.
- My goal is to help you address these uncertainties in a way gives you the confidence and clarity you need to be well positioned in this uncertain market. Call or email me to start an exploration conversation.
Local News
- Pasco, WA announced three major employers are launching new manufacturing facilities in the coming years: 1) Darigold is under contract to buy land for a $500M protein and butter plant; 2) Reser’s broke ground on a 250,000SF plant that will produce potato salad and other side dishes; 3) Local Bounti is building a greenhouse complex in Pasco targeting an April 2022 opening date.
- The Tri-Cities has historically grown employment from expanding current employer footprints and small business launches, but this wave of new manufacturing locations will provide another boost to the local economy!
- Billings, MT and Coeur d’Alene, ID topped the Wall Street Journal/Realtor.com Emerging Housing Markets Index for July 2021, continuing the trend of migration and growth to the Inland Northwest. While Spokane and Tri-Cities did not make the list this quarter, they experienced continued growth following their ranking in the previous versions of this index.
Multifamily
- Rent growth has increased heading into summer, especially in Inland Northwest markets. Affordable mid-size markets continue to grow with Boise, ID (+39%) and Spokane, WA (+32%) topping the Apartment List National Rent Report. Note that Tri-Cities rent was +16.4% year-over-year.
- One regional property manager informed me they are preparing for over 2,000 notices of rent increases as soon as the state allows it. The letters are printed and ready to be sent to tenants, which will push rent growth even higher through the summer.
- The single-family rental market is undergoing significant changes in capital allocation and rent growth. Tenants are flocking to single-family rentals because of the extra space they offer, especially those who are working from home.
Development
- The work-from-home impact can also be seen in multifamily tenant preferences, as 35% of renters are looking for larger units. Whether this is a trend that will last for years to come is unknown, but many developers are keeping a close eye on this trend to determine if they should consider adjusting unit mix or floorplans moving forward.
- Remember how national population trends can vary at a local level? Well in 2020, the Tri-Cities continued to outpace state population growth, and Franklin County ranked #1 for growth among all Washington State counties. This was primarily driven by retirees and is one of the reasons developers continue to push forward with 945 units under construction today and another 900+ units in the planning phase.
With so much information to share this month, I had a difficult time packing it in one email. As I mentioned at the beginning, I find that a conversation is often the best way to understand the direct impact of this information, so give me a call – 509.221.9354 – and I look forward to a conversation about how these trends will impact your business moving forward.
Best,
Mason Fiascone
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