Looking at the Booming Condo Market
March 13th, 2014 by Alisa Sava
After a long period of economic recession, the housing market in California is making a steady recovery. In 2014, this trend will be driven by a combination of: new home supply, increase in available rental properties and availability of credits.
Continuous growth of the overall U.S. population as well as the low vacancy and bursting rental growth has created perfect conditions for multifamily condo development. Multistorey buildings and other types of condos have emerged to facilitate the housing problem as well as to save free public space. Creditor interest and low borrowing rates stimulate financing and give developers a positive spread.
Home buyers in California are favoring condos not only because of their affordability, but because of their location in prime urban areas close to city centers, shopping malls and entertainment facilities. For both first-time buyers and professionals looking for expanding of their properties, condos become an attractive investment option.
Millenial Generation Drives Demand for Condo Development
The age composition of the U.S. population reflects a high percentage of Millenials – young working-age individuals from ages 18 to 34. Millennials are growing up, becoming a powerful consumer force. The majority of them are mobile and do not want to be stuck in the mortgages. They want to have affordable houses, live close to the city centers and cultural amenities. Trying to meet the demand of the Y-generation, condo and multifamily developers have begun building new apartment and condominium units close to entertainment hubs, restaurants and coffee shops.
“Everyone’s focusing on baby boomers because they’re the biggest cohort, but I tell you, Millenials are actually larger than baby boomers,” notes Don Campbell, senior analyst in the Real Estate Investment Network.
According to Jones Lang LaSalle’s repot, Millennials comprise about 80 million U.S. residents and spend about $600 billion each year. By 2020, Y-generation is expected to have spent $1.4 trillion every year – which is approximately 30% of overall retail sales. With the extensive use of technologies, Millenials are very mobile and price sensitive. They prefer cheap dollar shops and outlets to expensive stores, comfortable city apartments to traditional country houses. Thus, focusing on urban areas, sustainability and affordable pricing policy will define real estate development in the coming years.
Oakland Is Expected to See More Condo Buildings
The New York Times calls Oakland the fifth most desirable travel destination, while Forbes ranked its Uptown District ninth among the top hipster neighborhoods. With impacted San Francisco market, condo builders started looking for new opportunities in Oakland. Named as “the most exciting city in America,” Oakland’s homes sales continue to thrive because many young professionals come there in search of jobs. With huge demand, job growth and wage growth – all these factors stimulate Oakland’s real estate market.
“Oakland is the hot market and we see a large number of people moving from the Oakland Hills and San Francisco into Downtown Oakland to take advantage of all the cultural diversity and excitement that’s going on here,” comments Paul Zeger, president of the Polaris Pacific Real Estate Company.
Difficulties related to the land purchase procedure in San Francisco are another reason why developers have shifted their plans in favor of Oakland. In Oakland it is possible to buy entitled land and start construction in six to eight months. Moreover, housing prices in Oakland are more moderate compared to San Francisco. In San Fransisco, a new condo has a price $1,000 per square foot, while in Oakland the average condo price is $300-600 per square foot.
“You are going to see more people buying in Oakland and winning on price appreciation. Developers are taking advantage of it,” notes Chris Foley, a principal with Polaris Pacific.
Broadway Grand and the Bond are among the most selling condo projects in Oakland. Mural project will offer 90 units of affordable family housing and is expected to be completed until spring 2015. Developers also place a bet on Uptown Oakland area.
More Luxury Condos Are Popping Up in Los Angeles
Los Angeles is a place where many well-to-do people are living. With the reducing vacant rates, there is a growing demand for ultra-luxurious condo apartments in Los Angeles. New condos provide ritzy amenities and large space for prosperous people who prefer renting to owning. The majority of tenants in L.A. most expensive apartments are young wealthy people and famous movie stars. Empty-nesters, who no longer want to take care of their own houses, comprise the second largest category of tenants.
“Empty-nesters might be going through a change in life such as a divorce; making money or losing money, but they want to rent something really nice,” says Mauricio Umansky, L.A. real estate broker.
The condos’ owners tend to upgrade their units into more luxurious and expensive ones. Today, more apartments start looking like five-star resorts. They have hardwood flooring, high-end appliances, and interior designs for any taste, full-time security, huge parking lots and access to spa, gym, restaurants and other facilities. For example, a landlord AIMCO has spent $15.7 million to transform 115 units of its Palazzo apartment complex into the Penthouses at Plazzo.
Shopping center magnate Rick Caruso and CIM Group, one of the largest retail and residential owners, are also making bet on luxury condos’ development. Although, there are limited number of people who can afford living in ultra-luxurious apartments, the demand for this property type is growing. When Rick Caruso opened his 8500 Burton Way tower, he was planning to charge $3.50 a square foot per month. But, a huge demand from people in the waiting list made him raise the rent up to $9 a square foot. Elated with success, Caruso is planning to develop other condo buildings in Los Angeles.
“For the most part, people are looking for affordability when they rent, but there are some people who are interested in experiencing that type of living without a long-term commitment,” believes Shaul Kuba, a principal at CIM Group.
Furthermore, CIM Group is going to increase the amount of luxury condos in Hollywood. West Hollywood and Downtown Los Angeles are the most attractive areas, as they have a plenty of shopping centers, dining and entertaining spots.
Condos have become especially popular in places with high property values and low vacancy rates. Tourist hot spots and urban areas are those places where you can expect to find them on the market. Buying a single-family home can be expensive in places where additional building space is limited. In California, Oakland is expected to show a rapid pace of condo development this year, whereas Los Angeles will focus on the luxury condo market.
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