This is a brief synopsis of the years activity in real estate during the unprecedented pandemic that hopefully will end in 2021. An unusual result of the pandemic is the extraordinary demand for residential real estate in the East Bay, notably at all price levels and generally in all locations. This demand is driven by several factors, but principally by the exodus of apartment and condo residents from San Francisco and the west bay who are seeking less costly housing, more living space and more outdoor space. A second driver is the continuing extremely low mortgage interest rates that are predicated to continue through 2021.
The statistics are enlightening.
Residential home prices and values have increased by 8% in Berkeley through October and will likely go to 10% by year end. In Piedmont, the increase is 15% through October, while in Albany,the increase has been 5%. The corresponding supply and price statistics through November:
Berkeley, average price $1,505,000 for 448 sales
Piedmont, average price $2,805,000 for 91 sale
sAlbany, average price $1,236,000 for 71 sales
A recent study by Norada, a real estate investment research firm published data that indicates a region wide price increase of 18.9% year over year. It’s a seller’s market for sure. Zillow predicts another Bay Area wide increase in 2021 of 7.2%, and likely higher in key demand locations like Berkeley, Piedmont and Albany. Similar statistics are not available for other communities such as El Cerrito, Hayward, San Leandro, and Alameda, but the strong demand and low interest rates have raised prices for residences by at least 5%.
The commercial market (CRE) has not faired so well. In fact, across all types of investment property, with the exception of industrial property, values have declined a minimum of 5% to as much as 20%. Industrial property, in contrast, has increased in all sub-types from 5% to as much as15%, especially strong for warehouse and distribution center type properties.The CRE categories that have declined include retail commercial, minimum 5%, more typically15%. Those properties with restaurants, taverns, brewpubs, and entertainment venues (movies,stage theaters, bowling alleys) have declines in value from 10% to 20%. The worst hit is the hotel and hospitality market, especially in central city locations such as San Francisco where occupancy levels of 85% in 2019 fell to zero in the first months of the pandemic and currently average under30% as of late 2020. Values for hotels have declined as much as 30% in some markets and not until people start traveling again for business or pleasure, will the hospitality market slowly recover.There is a surprising exception to this prediction. Lodging and resorts within “driveable distances”have experienced very strong demand as people are desperate to get away from confined home conditions.
A final note about the investment market. We customarily value revenue from investment property by capitalizing stabilized net income. Capitalization rates, pre-pandemic remained low in all CRE categories, from 4% to rarely over 6%. Now with perceived higher risk, that tenants cannot pay rent and vacancies may increase, we are noting cap rates increasing by 500 to 1000 basis points, meaning cap rates are creeping up to the 6% to 8% range. The impact on resulting capitalized values is a decline of from 10% to 15%. Little change is anticipated during 2021.
Prepared by Yovino-Young, Incorporated 12/2020