SoCal Multifamily Sales Pulse - February 27, 2022 - March 5, 2022
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Here's What's Happening In The Market, Here’s What This Means For You
Cap Rates and the ‘Big Squeeze’
An examination of real estate cap rates over the 2001-2021 period, and more specifically for the 2010-2021 period, reveals that for virtually all major property types tracked by Real Capital Analytics, the fourth quarter of 2021 marked the lowest point for cap rates since the turn of the millennium. Apartments registered an average cap rate of 4.7 percent at the end of 2021. Industrial assets were priced at a 5.7 percent cap rate. Even the troubled retail sector was at a historical low of 6.4 percent, as were suburban offices. Only office buildings and hotels were above their historically lowest cap rates—and even these were so, only slightly.
We are seeing, in other words, a dramatic squeeze on the risk premium available in commercial property investment. To be sure, investors are buoyed by the rising prices that are the consequence of cap rate decline. Transaction volume reported by RCA was up 88 percent in 2021 compared with 2020, reaching an all-time high of $808.7 billion, and prices rose 23 percent. Investor appetite has been robust. In this sense, commercial property is sharing in a capital-fueled asset pricing boom, which has also seen the stock market and single-family home prices increase simultaneously. The first question that comes to mind is: Can it continue? And then the second question is: Are investors being adequately compensated for risk?
Since the COVID impact has subsided, the stunning rebound in property transactions and pricing should be taken with restrained enthusiasm. Risk cannot be avoided but needs to be managed. It needs to be priced also, and that’s a nagging worry in early 2022.
The Pulse of the Market
Expired listings have trickled down to nearly zero in most areas. This means, if you put your property on the market it will most likely sell. If not, it’s probably overpriced. Orange County, Long Beach, and LA County are seeing strong weeks of closed transactions. The number of active listings has either held steady or seen a very small increase in most areas. We’re still seeing a lot of transactions sell at the asking price or above which means investors still need to be aggressive in their offers if they hope to beat out other investors for an attractive property.
What to Expect:
The anticipated increase of interest rates, inflation and the war in Ukraine hasn’t had much of an effect on the market so far. But with gas prices headed upward, it will definitely affect the market and economy as everything gets more expensive. How soon is anyone’s guess? I think the anticipated interest rate increase is fueling investor demand right now. Maybe we will see a little bit of a slowdown in activity once the first and second anticipated increases in interest rates become reality.
Orange County
Orange County multifamily sales had a good week last week with 17 Closed Sales. All Closed Sales Last Week consisted of 2-4 units. The Closed Sales Average Days on Market was extremely low at just 17 days. There were 11 of the 17 Closed Sales Last Week that were Transactions Sold At or Above Asking Price and 7 of the 17 Closed Sales Last Week were All Cash Transactions. The monthly Absorption Rate was down from 1.86 months previously to 1.7 months currently. The monthly Average Cap Rate went down to 4.42% from 4.35% previously.
Looking at the monthly charts the Days to Sell Average was up slightly to 35 days but still well within the norm over the last 9 months. The Number of Active Listings dropped to a new low at 155 active listings but was almost unchanged from the previous month. The monthly Number of New Listings was down slightly from the previous month. The monthly Number of Sales was also down slightly from the previous month.
Orange County multifamily had 14 New Listings Last Week. The weekly Total Number of Active Listings is unchanged from the previous week at 87 total active listings. The Months of Inventory is also unchanged at 3 months.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
Long Beach
Long Beach multifamily had 12 Closed Sales Last Week. This is identical to the previous week’s closed sales. The Closed Sales - Average Days on Market was at 44 days. This stat continues to fluctuate between 30-45 days each week. Of the 12 Closed Sales Last Week there were 7 Transactions That Sold At or Above the Asking Price. There was just 1 All Cash Transaction Last Week. The monthly Absorption Rate increased from 1.84 months previously to 2 months currently.
Looking at the monthly charts the Days to Sell Average dropped to its lowest point in almost 4 years to just 27 days. The Active Listings Number was back down to 120 total active listings, matching the previous low in December of last year. The Number of New Listings was down slightly from the previous month but twice as many as there were 2 months ago when there were only 20 new listings in the month of December 2021. The Average Price Per Sq. Ft. dropped but was still in the range it’s been in over the last 6-9 months. The Number of Sales dropped to just 28 total sales. This is just 1 closed sale higher than the previous low of 27 closed sales in February last year.
Back to the weekly stats - Long Beach multifamily had 8 New Listings Last Week. This brings the Total Number of Active Listings to 58 total listings. This is up from 53 total listings in the previous week. Months of Inventory was unchanged at 4 months.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
Los Angeles County
Los Angeles County multifamily had a strong week in Closed Sales with 94 Closed Sales Last Week. The Closed Sales - Average Days on Market was high at 52 days. Of the 94 Closed Sales Last Week there were 45 Transactions Sold At or Above Asking Price. The monthly Absorption Rate increased from 3.58 months previously to 3.82 months currently.
Looking at the monthly charts we can see that the Days to Sell Average has been increasing each month over the last 5 months and is now at 58 days. The Number of Active Listings is up slightly but still, at one of the lowest point it’s been in the last 2 years. The Number of New Listings has seen an upward trend over the last couple of months and is back in the range of where this stat was prior to November of last year. The Number of Sales last month was down from the previous month at 347 total sales. This is two consecutive months of fewer closed sales.
Looking at the listing inventory for LA County there were 120 New Listings Last Week. There were 157 new listings in the previous week. Even with the high number of new listings in the previous week, there was an overall decrease in the Total Number of Active Listings from week to week from 1,348 listings in the previous week to 1,326 total listings last week. There was still good sales activity with 50 listings moving from active status to Active Under Contract Last Week and 63 Pending Listings Last Week.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
San Diego County
San Diego County multifamily had 10 Closed Sales Last Week. This is fewer weekly sales than we typically saw last year in San Diego County. The Closed Sales - Average Days on Market is still at the lower point of most other areas of Southern California at just 25 days. Of the 10 Closed Sales Last Week there were 8 Transactions That Sold At or Above the Asking Price. There was just 1 All Cash Transaction Last Week. The monthly Absorption Rate went from 1.09 months previously to 1.74 months currently.
Looking at the monthly charts – the Days to Sell Average was the second-lowest it’s been in the last 4 years at just 17 days. The Number of Active Listings was unchanged from the previous month. The Number of New Listings was down slightly from the previous month with 96 new listings and still sits at a low point from where it was in July of last year when there were 170 new listings. The Average Price Per Sq. Ft. jumped to the second-highest rate it’s been in the last 2 years and was at the 3rd highest it’s been in the last 4 years. The Number of Sales was down for the third consecutive month with 58 closed sales last month.
For the listing and activity stats for San Diego County, there were 28 New Listings Last Week. This brings the Total Number of Active Listings up from 78 total listings in the prior week to 99 total listings last week. The Months of Inventory jumped from 5 months in the previous week to 15 months last week.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
Riverside County
Riverside County multifamily had an average week for closed sales with 6 Closed Sales Last Week. The Closed Sales Average Days on Market was about normal at 30 days. There were 5 of the 6 Closed Sales Last Week that were Transactions That Sold At or Above Asking Price. And 4 of the 6 Closed Sales Last Week were All Cash Transactions. The monthly Absorption Rate went from 2.77 months previously to 1.86 months currently.
Looking at the monthly charts for Riverside County, the Days to Sell Average was down to just 31 days. This is the 2nd lowest this stat has been in the last 4 years. The Number of Active Listings was up slightly but still quite low in comparison to the last 2 years. The Number of New Listings was down but still in the range of where it’s been over the last 2-3 years. The Number of Sales rebounded last month and is up from 23 in the previous month to 38 closed sales last month.
The weekly inventory stats for Riverside County show there were just 2 New Listings Last Week. The Total Number of Active Listings went from 78 listings in the prior week to 73 listings last week. Months of Inventory went from 13 months in the previous week to 8 months last week.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
San Bernardino County
San Bernardino County had 11 Closed Sales Last Week. That’s a strong week of sales activity for San Bernardino County. The Closed Sales - Average Days on Market was in the range considered average at 43 days. Of the 11 Closed Sales Last Week there were 8 Transactions That Sold At or Above Asking Price. The monthly Absorption Rate jumped from 1.81 months previously to 2.47 months currently.
San Bernardino County’s monthly charts for the Days to Sell Average was at 50 days. This is a little bit higher than the previous month but still right around the norm for the last 12-24 months. The Number of Active Listings was up slightly but is still near the low for the last 4 years. The Number of New Listings was up sharply with 75 new listings last month. The Average Price per Sq. Ft. hit a new high at $347 per sq. ft. The Number of Sales dropped last month to just 36 total sales. This is the lowest number of monthly sales we’ve seen since COVID hit back in April and May of 2020.
The weekly inventory stats for San Bernardino County show 15 New Listings Last Week. This increases the Total Number of Active Listings from 81 listings in the prior week to 89 total listings last week. The Months of Inventory went from 10 months in the previous week to 13 months last week.
Live MLS and Sale of the Week Link expires in 30 days after published View Live MLS Data View PDF Version
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