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MEREDA's 2023 Real Estate Forecast Conference offered a mixed look at the real estate market for the year.
Coming off two red-hot years, the real estate forecast becomes a bit more nuanced going into this year.
Construction companies and brokers are busy, projects are underway, deals are still being made, but higher interest rates, tight inventory across the real estate spectrum, fluctuating construction costs and uncertainty in the economy all bring a measure of caution this year.
This year's conference, held at the Cross Insurance Center in Portland, had a crowd of 750-plus attendees, who were there for the showcase and more than a dozen presentations.
Here is an overview of the presentations.
‘There's just a buzz in the air’
From Maine’s housing crunch to commercial and residential development and the bigger economic picture, the Maine Real Estate and Development Association’s annual forecast conference and member showcase covered a lot of ground. Portland’s Cross Insurance Arena was a beehive of activity all day Thursday, with around 750 people attending in person, according to an estimate by MEREDA.
“I love seeing you all here,” MEREDA President Craig Young, a partner and broker at the Boulos Co., said in his opening remarks. “There’s just a buzz in the air.”
Young also credited the annual gathering as the inspiration behind the "MEREDA Matters" podcast that the organization recently launched, with Kevin Landry of Landry/French Construction as the first guest.
“If you think you know Kevin, you don’t,” Young said, “you’ve got to listen to this podcast.” Noting that he learns something new at every MEREDA forecast conference, he said, “that’s the kind of energy we want to capture in the podcast.”
Reflecting on how the forecast conference has evolved over the years, TD Bank Maine Market President Larry Wold noted that housing “was not something that was on everybody’s radar 10, 12 years ago.”
The topic is now front and center at the annual gathering, covered by keynote speakers two years in a row.
— Renee Cordes
After two crazy years characterized by bidding wars and escalating home prices, the housing boom has already peaked and this year is expected to continue to level off.
Dava Davin, principal at Portside Real Estate and presenter of the sector analysis for the single-family home market, said Maine’s median home price peaked in June 2022, at $360,825, driven by the pandemic-related buying frenzy. Just five years ago, the median home price was $200,000.
She said her office started to see showings taper off by August, and with interest rates spiking above 7% by late year the market cooled noticeably.
What didn’t cool off were prices. Sellers, she said, are still seeking top dollar.
Going into the year, she expects strong demand in towns that have seen buying action — much of it in southern Maine, where the median home price is $475,000 — and much of it will be centered around “cream puff listings” that are move-in ready.
By contrast, with houses that need work or are less desirable, brokers are seeing listings expire.
“If it’s going to sell, it’s going to sell fast,” she said. “Other places are sitting.”
For this year, she expects to see prices level off. Demand will be steady because there’s too little inventory to satisfy the need for housing. She expects fewer transactions than the past two years. She also said there’s positive signs that interest rates may head back down into the 5% territory.
About 1 in 3 buyers are from out of state. Massachusetts buyers lead the charge, accounting for 8% of the overall market.
With the higher home prices, she said “many Mainers couldn’t afford the home they live in,” which means there are fewer people making lateral moves to other homes.
Where people used to move every seven years, that’s now every 10 years, she said.
— Peter Van Allen
A call to action on housing
Greg Payne, a senior advisor on housing in the Governor’s Office of Policy Innovation and the Future and former development director Avesta Housing, built on what then-Maine House Speaker Ryan Fecteau touched on last year.
Payne noted that there’s still a large gap between the supply of housing units in Maine and demand, and that prices for rented and owned homes “are really, really high.”
But he also pointed to progress in some areas, including state legislation, to address emergency housing and homelessness; checks that are currently being processed for federal emergency rental assistance; and investment by the state to develop permanent affordable housing.
“The administration will remain focused on increasing supply,” he said.
Payne also said the administration would like to see more towns, organizations and companies get involved in efforts to boost the state’s housing supply, and that MaineHousing has created a technical assistance program via the Genesis Community Loan Fund to assist in that regard.
Elsewhere on the legislative front, Payne said a zoning reform law set to take effect this summer will give all Maine homeowners the right to add an accessory dwelling unit to their property and allow four units to be developed on residentially zoned land rather than just one.
“The administration is absolutely committed to making sure that LD 2003 is operationalized and put into effect,” he said.
Wrapping up with a call to action, Payne said, “Let us recommit to working together and acknowledge that a decent home is essential, and we will build it.”
— Renee Cordes
Offering a wider policy perspective, Elizabeth Frazier, MEREDA’s public policy counsel and an attorney with Portland-based law firm Pierce Atwood, said the public policy and local issues committees strive to “achieve meaningful change to state and local policy.”
“The things that we do, often behind the scenes, make a significant difference in the day-to-day lives of MEREDA members,” she said. She also said that out of 2,300 bills submitted to Maine’s 131st Legislature, a “significant slew” was on the housing front.
Over the next couple of years, Frazier predicts a number of “balancing acts” statewide and locally in policy around affordable housing; mandates versus incentives on housing creation; and inclusionary zoning, which she said poses challenges to small and mid-sized developers.
“Those are three big areas where a lot of balancing is going to occur,” she said, “which also means a lot of room for negotiation and room for advocacy.”
Frazier also said that as the housing debate continues to grow over the next couple of years, the hope is that MEREDA’s advocacy role will continue to grow as well.
— Renee Cordes
Portland has had a strong multifamily market in recent years, and last year noteworthy sales included a 3-unit property at 56 Congress St. that sold for $1.128 million and an 8-unit property at 100 Park St., which sold for $2.2 million.
Brit Vitalius, owner of Vitalius Real Estate Group and the presenter of the multifamily home analysis, said the outlook for Portland itself is somewhat murky.
Rents in Portland at the high end are $3,300 to $3,500 a month. but that market is slowing. The middle and lower market, from $1,200 to $3,000, is still tight.
But, on the development side, Vitalius said investors are still cautious after the passage of the Green New Deal, which makes it harder for new projects to be profitable.
He cited two major Portland projects that are underway that were both approved before the Green New Deal went into effect: Maine’s tallest building, 201 Federal St., a Redfern development that will have 263 rental units, and a Port Property apartment building in West Bayside, with 171 units.
Outlying markets have been the beneficiary, he said.
Saco-Biddeford saw the 2022 completion of the Lincoln, with 147 loft apartments going for $1,350 to $2,700 a month. Also in Saco-Biddeford, the Levee is expected to open this year, with 96 lofts renting for $1,835 to $2,800 a month.
He characterized the commercial real estate market in Saco-Biddeford as “screaming hot.”
Likewise, Lewiston and Auburn have seen an increase in interest.
Last year, on the sale side, Vitalius said there were just 16 active listings, compared to 200 listings in 2008.
“Bad housing policies in Portland are driving people to other cities,” he said.
Overall, investors in multifamily housing “will be watching interest rates and watching for signs of recession, but there’s not a lot of inventory,” Vitalius said.
— Peter Van Allen
In his presentation on retail in Greater Portland, Peter Harrington, a partner with Malone Commercial Brokers, offered a bullish industry outlook.
Dismissing concerns over the last year or two about retail being dead, Harington said, “I’m here to tell you … that’s simply not true.”
Out of 6.6 million square feet of retail space in Greater Portland tracked by his firm, close to 280,000 square feet, or 4.23%, is vacant.
Vacancy rates range from zero in Cape Elizabeth (albeit with only 34,735 square feet) to 16.3% in Westbrook, which Harrington attributed to the closure of a Shaw’s Supermarket across from Market Basket, “a tough competitor.”
But he said Westbrook remains strong for retail both downtown and at Rock Row, noting that “it’s all going very well out there.”
Harrington was also upbeat on the Maine Mall, which he said is “morphing into a new retail showcase” in South Portland amid several upcoming openings, including a Lululemon store.
“It’s not Apple,” Harrington said of the athletic apparel retailer, “but it’s almost as good a draw.”
On a more general note, Harrington predicted another strong year for retail but pointed to rising interest rates and consumer sentiment as risk factors.
— Renee Cordes
The headline for the southern Maine industrial market is that it’s healthy, competitive and strong, said Justin Lamontagne of the Dunham Group.
But there's limited supply, with the vacancy rate under 3%. That affects tenants, buyers and landlords.
“Demand is there,” said Lamontagne.
Multiple showings and offers arise when there are vacancies.
The type of industrial demand varies. With ongoing supply chain issues, there's a trend in storage and warehousing as businesses store supplies just in case they need them, instead of ordering supplies "just in time."
Both value and volume percentages increased over the past year, although not at the same trajectory as in the past.
It’s unclear whether the market has peaked, Lamontagne said.
“I’m not ready to go there yet. But we’re at least having the conversation,” he said.
There’s downward pressure on pricing. With each sale there’s more pushback from buyers, who are seeing higher interest rates and prices getting closer to replacement costs.
The cannabis space is seeing near-continual activity, he said.
Lamontagne said he’s seeing turnkey medicinal market cultivation spaces coming back onto the market. That leads to the question of what to do with industrial facilities that have been specifically built for cannabis, short of another cannabis business replacing previous users.
“We need to think creatively about the true usefulness of these spaces,” he said.
Construction costs are hampering deals. But it's not just the overall costs, he said. There have also been major delays in deliveries of supplies — basic components like fixtures and ductwork as well as materials. As a result, transaction activity was hampered by supply chain issues.
Concerning signals for the industrial sector include higher interest rates, inflation, labor issues and the possibility of a recession, he said. Inflation in particular raises negotiations with regard to setting lease renewals and rate increases.
Former office space could be a new entry in the industrial market, he said. Some are primed for industrial conversion — similar to big-box retail conversions. Office spaces on the ground level, with interior HVAC, plenty of parking, and even loading areas translate to low-impact light industrial.
For 2023, he projected, property owners will need to be cognizant of competition for significant vacancies. Demand will continue. Vacancies could rise slightly.
“I think we’ll be busy this year,” he said. “There are plenty of deals to be had, but maybe smaller and shorter term, and maybe the value of those deals will plateau.”
— Laurie Schreiber
In Greater Bangor, industrial vacancy is tight, making it extremely difficult to find new spaces for tenants, said David Hughes of Epstein Commercial Real Estate.
Still, the area saw some industrial construction in 2022 and expects more in 2023.
Downtown Bangor is bolstered by a strong office market, more and more apartments and a strong group of restaurants and retail, he said.
Housing developments in downtown Bangor have been a “game changer,” he said.
The last couple of years have brought more and more people living in the downtown and downtown residential conversions of older buildings have picked up considerably, with 76 units under development or completed in the last year. Units have been leasing before they’re even completed, he said.
“People enjoy living and working downtown,” he said.
The coming year is expected to be challenging due to a relatively static inventory in industrial and office space, continued low vacancies, higher interest rates and construction costs, he said.
— Laurie Schreiber
The big story in Lewiston for 2022 was the multi-family market, said Frank Carr of Maine Realty Advisors.
Office sales and leasing leveled off.
Carr projects there will be more movement in the office sector in central Maine going forward.
Residential units will be absorbed over the next couple of years and, although rising rapidly now, prices per unit will level off, he predicted.
Opportunities in 2023 in Lewiston and Auburn will continue to be in the multifamily market.
Lewiston has a “yes in my backyard” approach, with quick planning board approvals and TIFs available.
Combined with the $30 million in grants awarded by HUD's Choice Neighborhoods Initiative, a lot of development is expected to continue, Carr said.
Augusta is also seeing opportunities in the multi-family market, with various properties available for redevelopment, he said.
And the big story in Waterville is also the multi-family market.
— Laurie Schreiber
Labor shortage continues to be an issue for Maine's hospitality industry, according to Matthew Arrants, a hotel investor, developer and advisor with Arrants Co.
In his presentation on Maine’s vacation and hospitality forecast, Arrants said: “Labor, Labor, Labor."
“This has been the biggest issue," he said. "The availability of labor of any kind is a huge issue here. It is all chalked up to housing and the lack of workforce housing, and labor costs are going up.”
In the past year, Maine's hospitality industry grappled with plenty of visitors, but couldn't always meet the demand.
This year he expects international travel could make a comeback. More travelers will be going back overseas instead of coming here. He also expects that "revenge travel" after pandemic lockdowns will come to an end.
The good news is that Maine has been discovered, and people will be back this year or in 2024. Business travel and group and corporate travel are back, and the state will continue to see people coming here for work travel.
“Hotel demand will continue to grow in 2023 despite an expected recession,” said Arrants. "Maine is at levels it hasn’t seen before. Why? Because Maine was the first market to recover from the pandemic.”
Arrants said during his presentation that Maine is a drive-to destination, focused on the outdoors, and has fit well with COVID-19 restrictions.
“Strong demand led to rate and growth. Operators could charge whatever they wanted. People wanted to be here,” he said.
— Alexis Wells
Nate Stevens, a partner and designated broker with the Boulos Co., said this year's predictions aren't that different from last year.
According to Stevens, “we still haven’t seen this post-pandemic world.”
Downtown Portland rates have been increasing in demand. The city saw nine significant transactions downtown, eight to nine of them being subleases and downsizes. A few of these significant transactions in the downtown include 100 Middle St., 25 Pearl St., Two Portland Square and 120 Exchange St.
“Demand will stay low but steady, a clearer market outlook, more time to look at the post-pandemic market, downtown vacancy rates will increase in class B, suburban vacancy rates hold steady, and more opportunities for tenants to absorb some sublease spaces,” said Stevens.
— Alexis Wells