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Demand for multifamily is up; desire for homeownership remains

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Despite the nationwide increase in demand for multifamily housing, the desire for homeownership has not declined, real estate professionals said.

Smart, mixed-use development will carry the day, said Asieh Mansour, head of Americas Research at CBRE.

The multifamily sector is doing better than other sectors, Mansour said Friday at the University of San Diego Burnham-Moores Center for Real Estate's 17th annual conference. Multifamily and most hotels are “back in equilibrium,” meaning landlords can start pushing rents, she said.

The housing bust changed the way we’re consuming housing, Mansour said. “Rental apartments are no longer an inferior good. … As an industry, it took the millennial generation for it to happen.”

Mansour said she expects multifamily housing to be “very positive” for the next five to seven years. In January, multifamily housing sales outweighed any other sector for the first time, she said.

Demographics drive the housing market, said Douglas Duncan, senior vice president and chief economist for the economics and strategic research group at Fannie Mae. A function of economic growth is the size of the work force, and the U.S. population is slowing because of less immigration, he said.

“And most of Southern California is projected to grow more slowly than the nation,” Duncan said.

The rate of homeownership has declined, but Duncan noted that people are staying in college longer and earning more degrees, which delays marriage, thus delaying childbirth -- which is the largest trigger to becoming a homeowner, he said. “The desire to become a homeowner has not been altered.”

There has been a dramatic shift in the United States and all California markets back to renting, whereas from 1995 to 2005 there were no new net renting households nationwide. The shift from owning to renting is rebalancing, he said.

“The aspiration to own a home is still very strong. The stigma related to renting has definitely been removed,” Duncan said.

California owes its higher rates of unemployment than the rest of the country to the construction industry, Duncan said. Because of overbuilding, there were 1 million more workers brought into the workplace than will be supported once it returns to normal, he said.

Mansour said the millennial generation is also demanding sustainable office, retail and industrial buildings. Buildings that have some character of sustainability have lower vacancy rates than those that don’t, she said.

Workplace redesign involves a movement away from structured offices and toward a space that adds to a creative knowledge base -- what Mansour referred to as the “Google-ization of space.”

“Understanding the type of workplaces needed and where we’re going in terms of workplace design is key,” Mansour said. A standard to have 250 square feet per employee has dropped to about 150 square feet and sometimes as low as 98 square feet, she said.

“There’s a change in where we want to work and live,” Mansour said, noting a nationwide move toward urbanization.

Offices in central business districts have performed well, Mansour said, but office suburbs are going to take a long time to come back because of the centralization of business.

Mansour said she expects the office market to be at equilibrium by the end of 2013.

“San Diego is at the cusp of a major recovery,” she said, referring to office fundamentals. Office markets across the country are showing rent growth accelerating and are moving away from tenant-driven and toward landlord-driven, she said.

Real estate is no longer a local business, Mansour said.

“What happens globally does impact real estate and your business,” Mansour said.

Low levels of supply are rapidly increasing home prices, Duncan said. In some of those markets, there’s a large number of people who owe more on their home than it’s worth, making now a bad time to sell.

“That’s what’s not normal on the supply side,” Duncan said. “In addition, there’s significant movement of bulk and individual investor purchases in some markets. It takes time to expand supply. If suddenly a large bulk of properties are removed and demand remains constant, prices rise rapidly. Bulk sales to investors have distorted some markets, underwater-ness has distorted some markets.”

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