Blackstone: Slowdown of New Construction to Keep Lifting Rents
Investment giant
says demand will keep outpacing supply in residential, industrial sectors.
By Jack Rogers | July 25, 2022 at 08:33 AM
Blackstone
expects demand to continue to outpace supply and support rent growth in the two
asset classes that make up the lion’s share of Blackstone’s $320 billion real
estate portfolio—rental housing and industrial.
“Despite
a lot of headwinds, these are two of the best sectors in the entire global
economy,” Blackstone Group President and COO Jon Gray said, in a Q2 earnings
call this week.
Gray
said Blackstone expects record-low vacancies in industrial warehouses and tight
supply in the housing sector to continue, noting that inflation and the rising
cost of debt are rapidly slowing down new construction, which also has been
stymied by shortages of labor and building materials.
“On
the residential side, we’re seeing a rapid slowing of new construction. New
home starts were down 20% in the last couple of months,” he said.
A shortage
of new inventory, record-high prices for single-family homes and high mortgage
rates will continue to push would-be home buyers into rental units, Gray said.
“People still
have to live somewhere,” he said.
Gray
said the growth of e-commerce has increased the value of owning last-mile
logistics properties. Supply chain disruptions also have increased demand in
the industrial sector, he said, by increasing the desire of companies to
embrace “redundancies” and hold more inventory closer to home.
“We
estimate rental growth in our US and Canadian logistics markets exceeded 40%
year-over-year in the second quarter,” Gray said.
With SFR and multifamily rents exceeding the standard metric of
affordability—monthly housing payments should not exceed 30% of monthly income—in
most of the markets in the US, Gray was asked by an analyst whether rents can
continue to grow at the torrid pace of the past 12 months, which has seen YoY
increases of up to 40% in the hottest residential markets.
“Obviously,
at some point, the very high rates of rental growth will come down. But the
backdrop [now] is incredibly constructive,” Gray said.
“We
already have a very big structural shortage and that’s pushing more people into
the rental market, so that provides a lot of support [for rent growth],” he
said.
When inflation spiraled into
double-digits 40 years ago, Gray noted, apartment rents grew as new
construction plunged by 50%. “I think investors haven’t fully appreciated the
value of hard assets in this kind of climate,” he said.
According
to the Blackstone REIT website, rental housing makes up 52% of the BRIET
portfolio, with industrial assets accounting for about 25%. The balance of the
portfolio is split between net lease (8%), and data centers, self storage,
retail, hospitality and office properties, which each account for 3%.
In
its Q2 earnings statement, Blackstone Group reported $88B in inflows during the
quarter, driven by 45% growth in fee-related earnings and record realizations.
The
company said it has increased its AUM by 38% in the past 12 months and it has
accumulated $170B in dry powder.