Are Rural and Suburban Development Here to Stay? Will Renters and Home Buyers Continue Their Western and Southern Migration?
This report was put together by Mega Supply Pro Procurement Experts, and is intended to provide insight into the near future of the multi-housing/multi-family construction sector trends, primarily focusing on the East Coast. Methodology: we’ve designed and conducted our own surveys, collected statistics, analyzed internal and third party reports and articles regarding the recoverability of the Covid-19 pandemic, and its effects on the real estate and development markets.
These are the current trends that have been the focus of most development research. The hardest questions to answer are how much and for how long. We hope to offer you a little bit of insight with our following update based on surveys and results from our year over year study. We have attempted to maintain our focus on multi-housing development, but also to analyze the overall impact that has been sustained in other industrial segments.
Mega Supply Pro sourced and delivered building materials and finishes for the Piazza Terminal, a massive multifamily mixed-use project developed in Philadelphia during the Covid-19 pandemic by Post Brothers.
WORKFORCE
WFH – Who could have predicted that this would become an acronym that needs no further explanation? While this trend had continually grown at 173% from 2005-2013, it had still only comprised 3.6% of the workforce in 2018. By July of 2020, this figure had grown to an astounding 42%! While that number has since been reduced to 18%, it seems likely to remain a standard workforce practice as employers report a savings of $11,000/yr. for each employee that works remotely on a half-time basis. The corporate level response to this trend has been the creation of a new role: Head of Remote Work. With 59% of businesses expecting some shrinkage in their footprint, and only 20% anticipating no change, these effects on office vacancies, shared spaces, home building/remodeling and industrial to office conversions will be felt for at least the next 4 years. In Manhattan, pre-Covid occupancy rates are expected to return during 2023. However, national survey results are much more optimistic, with a 6% net-effective rents growth rate in the multi-housing sector forecast for 2021.
Layoffs and Salary Reductions – As the Fair Labor and Standards Act had redefined and separated the workforce into exempt and non-exempt employees, reductions in salary were segmented and had an average range of 20% in both categories. This had, however, some negative impact on anticipated savings in payroll as business ramped up and companies found themselves paying overtime wages to much of their remaining workforce. Many have reported short-term results of this reflecting a lack of skilled workers, supply chain shortages and increased costs in raw materials and production.
CONSUMER BEHAVIOR
eCommerce – Want to change people’s buying habits? Tell them it’s not safe to leave home. According to Forbes, by May the increase in online purchasing accelerated at a rate of 4-6 years to $82.5 billion (up 77% over 5/19) highlighted by a Memorial Day splurge of $3.5 billion. Despite a continued reduction ($73b in June, $66b in July), Q2 internet sales were at 20.8% vs. 14.7% over the same quarter in 2019. This practice is not going away, as evidenced by the $142.5 billion spent in November and December (a 13% y/y increase) and the recent announcement by Scentre Group, the parent company of Westfield Malls, to vacate the US shopping mall industry by this year’s end.
Housing– Virtual walk-throughs, zoom visits with realtors and emailed documentations have displaced the on-site salesperson in today’s world. Nesting continues as the preferred living option and prospective buyers are requiring home offices and gyms as new standards. Most responses to our survey indicate that new construction and renovations are being modified to meet this buyer criteria.
MARKETING/ADVERTISING
I know we are starting to sound like a broken record – In efforts to augment their existing marketing campaigns, brands have turned to Social Media at a rate that has nearly tripled in the past 5 years to $49b, with 19% further growth predicted for 2022. With a clear divide among age groups, demographics play a major factor in the chosen balance of media spending. Among social platforms today there are 3.5b active users, the most engaged being Millennials at 90.4%. Gen-Xers are 77.5% on social media and, while not as reliant on this as the younger age groups, even 48.2% Baby Boomers are active social media users. In order to access this growing segment, brands often turn to influencers to promote their sites and products. Marketing survey results show 63% higher trust levels and 58% more likely to purchase from a company that connects with them through an outside party.
Here’s a simple formula for calculating ROI for social advertising. First, determine the Customer Lifetime Value (or CLV) equation: calculate average purchase value, and then multiply that number by the average purchase frequency rate to determine customer value. Then, once you calculate average customer lifespan, you can multiply that by customer value to determine customer lifetime value.
Once you have the CLV, ROI = (CLV – marketing investment per acquisition) / marketing investment per acquisition.
DEVELOPMENT
Many changes are expected in this segment, but not as broadly as economic indicators in other markets.
For the past 6 years, national rental rates have grown at an annual average of 5-6%. While this figure will not be reached for the next few years, it’s not unreasonable to see a growth of 3-5%. As industrial conversion to office space is in the rearview mirror, the same need for space and geographic relevance to urban populations will be required for distribution centers to fulfill the abundance of last mile deliveries of consumer goods purchased through ecommerce.
It will be interesting to keep an eye on rental and occupancy rates in New York. Once quarantine restrictions and social distancing protocols have been lifted how long will it be before we see residents return to the city? Reduced rental rates, free months and upgraded amenities may all be necessary to lure people back from newly created Zoom towns, such as Bozeman, Montana and Cary, North Carolina. As a Mid-Atlantic based operation, we are well familiar with the gravitational pull that brings many back to their big city roots. Expect this same factor to contribute to the return of many of these emigrations after 1-3 years.
Regardless of any pandemic related exodus, the Sunbelt movement will continue. Based on number of completions, the top 6 markets are in Dallas/Ft. Worth, Miami, Washington D.C., Houston, Los Angeles and Atlanta. However, Boston (11), New York (13), Philadelphia (18) and North Jersey (23) all continue to build and draw young professionals, recent graduates and retirees who want to remain close to family and experience the art and culture that is offered in East Coast cities. To support this movement, Class B apartments seem to offer better performance indicators.
OVERALL ECONOMIC OUTLOOK
An anticipated 4% drop in GDP is expected to rebound in 2021 to 4.5% growth. This level of resiliency will be greatly determined by government stimulus and an effective vaccination effort.
Segments - Using web trafficking as a metric, all industries have outperformed last January with IT/Software and the Financial Services industries showing the greatest improvement over the 2020 benchmark (51% and 59% respectively). Sales email response rate, which had shown poorer performance every month since January 2020 had rebounded in January 2021 with its best numbers since March 2020. This likely indicates more interest in doing business and an openness to working with new resources. Lastly, click through and contact growth rates were up by 4% over last January, particularly for companies with 201+ employees (23% gain) and companies with 1-25 employees (up 14%).
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Mega Supply Pro is a manufacturer-direct wholesaler of construction materials and finishes, acting as your one-stop-shop for direct procurement and timely delivery of building supplies, appliances, fixtures, etc. Let us handle sourcing, scheduling, and deliveries of construction materials, at no extra cost. We’ll review your specs, conduct a scope of work analysis, and provide a competitive pricing schedule, if desired, with alternatives and value-engineered options. Contact us to discuss your project or to get a quote.