Still More Rentals Needed

We are starting to see the effect of slightly rising interest rates and rapidly rising home prices on the Greater New Haven real estate market.  First-time homebuyers, many of whom have burdensome student debt, are beginning to be priced out of the tight sellers' market we are currently in.  More houses are going under contract and then returning to active status. Many homes now sell without contingencies, but those go to buyers who know that they will have the cash, or the easy availability of mortgage funds, to close.  

Houses going back onto the market are often ones where the buyers need to sell, or be qualified, before they can lock themselves into a contract.  Sometimes they don't qualify for the lowest rates, or those rates have risen.  Sometimes they don't calculate fees, insurance, and other costs.  Sometimes they just get cold feet.  When that happens, what will they do?

They will continue to rent.  As we have discussed before, there seems to be a bottomless demand for rental housing in our market.  Some is caused by one of the scenarios above.  Some is caused by COVID, because student housing cannot be as dense as it used to be.  Some is demographically driven.  Whatever the reasons, people are still filling up what's out there.

That's an opportunity for investors and developers.  Buy a home, convert a building, or build from scratch.  It's a good time to go into the rental market as an owner, and make a living from the proceeds.  We're here to help!

The Amazon Ripple Effect

Now that Amazon's new warehouse is about to open in North Haven, we should focus on the broader effects of its presence.  Although politicians tend to focus on employment, we should also consider the other businesses brought here by Amazon.  We have had two large deals recently, where the buyer chose the location because it was a supplier to Amazon, or provided a service that it would purchase. Investors, developers, and builders, please take note.

Since all of those other organizations employ people as well, plus they pay taxes and buy goods and services, this is very good news for our region. Warehouse space is becoming more desirable, and other companies will build from scratch.  The multiplier effect will be in full force!  Employees will also buy houses, cars, and durable goods, plus eat out, give to charities, and pay taxes.  And that will be good for all of us.

Finally, Some New Development in New Haven

For too many years now, there has been little to no commercial development in New Haven.  Development goes in cycles everywhere, because, when there is a downturn in the market, there is no financing (or even appetite) for new projects.  In addition, there is often leftover space from buildings that have already been constructed or converted.  New Haven, as in all Connecticut cities, also has almost no clean land on which to build. 

All these factors mean that we haven't seen much that's new--outside of residential rental--in quite some time.  Just now, there are several things in the approval, preconstruction, or construction phase.  The biggest is a new proposed mixed-use project on the old Coliseum site, which replaces the prior proposal, scuttled when the market turned down.  Route 34 has more than one medical or biotech building in the works, and there is a big office building going up on College Street.

Other firms from out of the area are looking here as well, because of our housing, entertainment, and educational opportunities, particularly for younger workers, who choose city living more often than not. New Haven is more affordable than Fairfield County, New York, or Boston, but can be easily reached by train.  More residential projects are in the planning phase also, since there is a theory that we could provide housing for commuters.  For example, 360 State Street, which filled up faster than anyone predicted, sends 85% of its residents to work by foot, bicycle, or train.  Since that's a trend of the future--easy commutability--it's not a bad bet to think it will continue.  Those who flock here for dining, nightlife, and the arts may increasingly choose to live here, especially as young professionals or empty nesters.

This is all good news for New Haven, and for the real estate industry, and it's about time.  We're ready!

Incubator Space

New Haven, with its entertainment, restaurants, college scene, and new rental properties, has become a haven for start-up companies.  Often such companies look for cheap space (compare us to NYC!), cheap labor (all those recent college graduates!), an educated workforce, a fun place to live, and access to universities and their research facilities.  New Haven scores highly on all those variables.

It makes sense that entrepreneurship would be booming now, because it's hard to get a job working for someone else, especially in Connecticut, which is last in the country for jobs recovered from the recent recession (now at 48%).  More often than you might think, a poor job market leads people to start their own businesses.  Those businesses are almost always short of cash, and therefore can't pay premium rents.  Of course, they also fail more often than established enterprises.

On the other hand, they can grow rapidly, and end up expanding into additional space.  They may also migrate from one property to another, belonging to the same developer or investor.  Also, they usually don't require the kind of fit-up that bigger companies do, and may even find unfinished space funkier.  Layouts in start-ups can be freer, with open work areas without private offices common.  So, even if a landlord is taking one kind of risk, he or she could be saving in another expense category.

Think of it the way you might think of buying penny stocks.  You might lose a little money, but the upside potential is almost unlimited!

Where Housing Grows, Retail Follows

I blogged last time about the low vacancy rate for apartments in New Haven, and I'd like to expand on why that matters to the commercial market.  When people move into an area, they want the services they use to be convenient.  So, once residential appears, developers, franchisors, and service providers follow.  Companies use demographic information to determine where they should expand.  They know that renters eat out, go to bars, and seek out entertainment, preferably without getting into a car.  After all, that's why they rented in a center city to begin with. Recently, 360 State Street opened in the Ninth Square in New Haven and is already up to 80% occupancy.  I noticed that a new Irish pub just opened on the corner of the open space behind 360 State.  Would we need another Irish pub (there are six between that one and the center of Hamden) if not for all those renters?  This is especially true with renters, who may have more disposable income than new buyers. Also, the vast majority of the 360 State renters bike, walk, or take the train to work, making close by services more enticing. Since 360 State Street is so far ahead of projected occupancy rates, it has already had an impact on the area around it, and that will continue.  Soon we will see the food co-op opening, and I expect that dry cleaners, convenience stores, and pharmacies to follow.  Already, the chain deli around the corner is one of the best-performing franchisees anywhere.  Why?  Location, location, location.

Downtown New Haven has retail opportunities that should excite both investors and business owners.  And that means that the time to act is now.