End Of The Year Market Update
Happy Holiday Greetings and wishing everyone a happy start to the New Year!
Earlier this month, SDC and Fairbrook hosted our first investor day. We had a great day of discussion and touring the construction sites at Stonebrook, Pinebrook, and Westbrook along with visiting the future Montego Bay, Flamingo Bay, and Crystal Cove development sites. As we drove through the area, the number of new 1 million square foot industrial buildings that have popped up over the past year was quite impressive. It was very clear to see the growth in this market expanding for the logistics demands of the nation and local housing needs for all the employees.
The real estate market in the Inland Empire has seen another historic year of rent increase and property valuation increases. As reported by the media at the beginning of the year, the Inland Empire began 2021 with the Nation’s highest rent increases and according to the Multi-Housing News source, will finish the year with an 18.5% rent increase, besting the national average of 13.7%. It’s not surprising that the media has labeled this market as the hottest apartment market in the U.S for the second year in a row. The source for the increase in demand in housing is directly related to the strong growth in logistics to satisfy America’s consumer-driven economy. The Wall Street Journal reported a 24% increase in transportation and warehouse jobs in 2021 for the region – a growth trend that has been going on for the past 10 years in the Inland Empire. Logistics companies were expanding rapidly before the pandemic to handle the 40% of the nation’s containerized imports that annually come through the Los Angeles and Long Beach Ports. Surprisingly, through the pandemic, port traffic has increased and we have seen record volumes of containers unloaded; up 21% from pre-pandemic levels – a trend that is expected to continue as the market anticipates online buying is here to stay.
The inflation that the nation is feeling is not surprising either. Rent growth and inflation are hitting hard for some and forcing companies to compensate and step up employee salaries and other benefits to attract and keep employees. Inflation recently hit its highest level in 30 years according to the NAA Inflation Tracker report. However, as a real estate investor, inflation provides us with a Triple Crown benefit as described in Forbes this month. The three crowns are asset price inflation, debt debasement, and cash flow enhancement. With a large percent of the apartment properties being leveraged with long-term debt, the value proposition of inflation is something most investors miss. The inflation benefits of real estate ownership is one reason why owning passive income-producing real estate has made more ordinary people wealthy than any other investing strategy.
It is hard to predict how long this inflationary period will continue, however, indications are that inflation will continue at least for another year until the Federal Reserve and the market begin to correct itself. In the meantime, by owning real estate, you are covered both ways. People have to live somewhere and, in California where housing is significantly under-supplied, renters don’t want to leave their units for fear of not being able to find another one. Stable income streams and asset appreciation; bodes well for owning apartment properties!
If you are interested in learning more or becoming an investor, please contact us so we can discuss your options. See you in 2022!
