In the first half of 2024 (H1 2024), LightBox zoning assessment business (PZR) which provides the industry flagship PZR Report™, recorded a notable 27% YoY increase in zoning assessment volumes compared to the volumes seen in H1 2023, driven primarily by projects in growing sectors like self-storage, hospitality, and industrial. Shifts in the volume of zoning assessments can be a valuable early indicator of broader transition points in commercial real estate (CRE) development and investment, or the market’s response to regulatory changes that may trigger zoning activity.
“The uptick in the first half of 2024 suggests that the real estate market is continuing to adapt with a number of folks refinancing and exiting their existing positions,” said Michael Fraser, SVP of Risk and Due Diligence at LightBox.
PZR Activity by Asset Type
Significant Increase in Self-Storage Zoning Assessments
Self-storage experienced the largest jump in zoning assessments compared to a year ago with a remarkable 161% growth. Industrial and hospitality sectors followed, with 47% and 43% increases, respectively. The self-storage industry experienced significant growth during the COVID-19 pandemic, hitting its peak in 2022, as people sought additional space for remote work, relocation, and other life changes. However, 2023 saw a deceleration as the initial rush tapered off and market dynamics adjusted. “The spike in self-storage in the first half of 2024 is likely due to the relatively small share of PZR volume overall in H1 2023 as well as the sector bouncing back after its low in 2023,” Fraser noted.
Multifamily Sector Dominates Zoning Report Volume
The volume of PZR reports coming from the multifamily sector in H1 2024 represents more than 30% of all activity in the market. This dominance is not surprising given the strong drivers in multifamily, including the housing shortage, growing population hubs (especially in the Sunbelt region) and the early trend of converting obsolete office space into multifamily or mixed-use redevelopment.
Challenges and Opportunities in the Retail Sector
Retail was the only sector to experience a decline in zoning assessment volume, with a modest 2% YoY drop. This follows the retail sector’s lull, with Q1 retail transaction volume down 27% compared to one year ago, most likely due to the low availability of space in prime locations. Retail construction is operating at rates 27.4% lower than the first quarter of 2019 with supply at near record lows. Strong spending and limited new supply drove vacancy rates to 20-year lows. For the first time since 2016, store openings outpaced closures, and any stores vacated by retailers are quickly filled by others looking to expand. Given the high interest in retail and strong fundamentals, Fraser observed that retail will be an interesting space to watch. “It remains to be seen whether the dip in retail zoning reports will continue another quarter or if there will be a rebound.”
What to Watch For…
- Development Activity: More zoning reports suggest an uptick in new development projects or expansions, indicating that developers and investors are confident in the market’s growth prospects.
- Market Demand: An increase in zoning reports can reflect growing demand for commercial space, whether for retail, office, industrial, or mixed-use purposes. This demand often drives the need to rezone or adjust zoning regulations to accommodate new uses.
- Regulatory Changes: Movements in volume could also signal changes in local or regional planning policies aimed at promoting growth or adapting to changing economic conditions. Municipalities might be more active in updating zoning laws to attract investment and development.
- Investment Opportunities: For investors, a rise in zoning reports can highlight areas of potential growth and investment opportunities. It can point to neighborhoods or regions poised for development and increased property values.
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