Multifamily Market Outlook

Transcription

1 Multifamily Market Outlook Kim Betancourt Multifamily Economics and Market Research Multifamily Mortgage Business NMHC Research Forum April

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3 Real Estate Fundamentals: Demographics Favorable Demographics are in Multifamily s favor over the long-term, especially in the younger aged cohort U.S. Renter Population: Age Cohort Millions Source: U.S. Census, Fannie Mae 3

4 Real Estate Fundamentals: Demographics Favorable and even though there are more 1-4 unit rentals than 5+ unit rentals... U.S. Renter Occupied Stock by Structure Distribution of Renter Occupied Stock (%) , detached 1, attached Other* Source: Census Bureau * Other includes manufactured/mobile homes, boats, RVs, vans etc. 4

5 Real Estate Fundamentals: Demographics Favorable renters aged prefer single family dwellings, and younger renters prefer multifamily dwellings. Share of Total Renters Share of Multifamily Renters 60% 40% 20% Age 65+ Age < 35 Age % 0% 20% 40% 60% 60% 50% 40% 30% 20% 10% 0% Age<35 Age Age 65+ Share of Single Family Renters (1-4 units) *Dot width is proportionate to number of renters represented by each age group Sources: 2012 American Community Survey 5

6 That s the gist of what I want to say. Now get me some statistics to base it on. 6

7 Real Estate Fundamentals: Employment Growth Positive The market has nearly recovered all of the jobs lost during the Great Recession 1,000 Change in Total Nonfarm Payrolls Since December ,000 (Thousands) -2,000-3,000-4,000-5,000-6,000-7,000-8,000-9,000-10,000 Source: BLS 7

8 Real Estate Fundamentals: Employment Growth Positive and many metros will keep seeing job growth, although at a slower pace over the next two years. Change in Employment: Average Annual Growth Select Metros Source: CBRE-EA, Q

9 Real Estate Fundamentals: Employment Growth Positive And thanks to all that steady, positive job growth Employment Change from Previous Month 11% 10% (000s) % 8% 7% 6% 5% 4% Unemployment Rate Source: U.S. Department of Labor, Bureau of Labor Statistics 9

10 Real Estate Fundamentals: Rental Demand Stable national estimated multifamily vacancy rates are at their trough $1,120 $1,070 Estimated National Rent Level and Vacancy Rate Rent Level Vacancy Rate $1, % 8.0% 7.0% $1, % $ % 5.0% 4.0% $ % Source: Fannie Mae Multifamily Economics and Market Research Estimates * Preliminary 10

11 Real Estate Fundamentals: Rental Demand Stable with vacancies down to below historic averages in many metros Vacancy Rate Relative to 15 Year Average Select Metros (bps) Source: CBRE-EA, Q

12 Real Estate Fundamentals: Rental Demand Stable keeping rent growth positive for nearly four years now 1, % New Jobs (500) (1,000) (1,500) Job Growth Rent Growth 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Quarterly Rent Growth (2,000) -2.0% Source: CBRE-EA Recessionary quarters shaded in yellow. 12

13 Real Estate Fundamentals: Rental Demand Stable for all property classes % Increase from Prior Year 4.0% 3.5% 3.0% 2.5% National Effective Rent Growth by Class A B C 2.0% Source: Axiometrics 13

14 Real Estate Fundamentals: Rental Demand Stable bringing concession rates to their all-time lows. National Concession Rate 8% 7% 6% 5% 4% 3% 2% Mar % 1% 0% Source: Axiometrics 14

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16 Real Estate Fundamentals: Rental Demand Stable Most renters still want to own a home -- at least someday Source: Fannie Mae National Housing Survey, June

17 Real Estate Fundamentals: Rental Demand Stable even renters aged seem to yearn for homeownership. Source: Fannie Mae National Housing Survey, June

18 Real Estate Fundamentals: Rental Demand Stable Nevertheless, it seems that many tenants plan to keep renting Source: Fannie Mae National Housing Survey, March

19 Real Estate Fundamentals: Rental Demand Stable even though they are anticipating rent increases higher than forecasted... Source: Fannie Mae National Housing Survey, March

20 Real Estate Fundamentals: Rental Demand Stable and expect rental prices to keep rising over the next 12 months. Source: Fannie Mae National Housing Survey, March

21 Real Estate Fundamentals: Rental Supply and Demand 21

22 Real Estate Fundamentals: Rental Supply and Demand All housing starts are on the rise 2,000 Housing Starts: Single Family and 2+ Unit Structures (000s) 1,800 1,600 1,400 1,200 1, Single Family (1 unit) Multifamily (2+ units) Forecast Source: Fannie Mae 22

23 Real Estate Fundamentals: Rental Supply and Demand with multifamily starts now slightly ahead of historically average levels. Multifamily (5+ units) Starts 1,200 (3 month moving average) 1, (000s) Average 0 Source: U.S. Department of Commerce, Bureau of the Census, per Haver Analytics DLX 23

24 Real Estate Fundamentals: Rental Supply and Demand Multifamily projects underway are rising quickly National Condo and Apartment Completions and Units Underway Thousands Apartments Condos Source: CBRE-EA/Dodge Pipeline, April 2014 * Anticipated completion date 24

25 Real Estate Fundamentals: Rental Supply and Demand but there are really only a few metros that have a significant number of completions coming online soon. Units (Thousands) Multifamily Apartment Units Underway Select Metros Expected Year of Completion Beyond Source: CBRE-EA/Dodge Pipeline, April 2014 Metros with 2,000 or more units underway 25

26 Real Estate Fundamentals: Rental Supply and Demand It s even more concentrated for new projects in the planning stage Units (Thousands) Multifamily Apartment Units by Planning Stage Select Metros Pre-Planning Planning Final Planning Bidding Source: CBRE-EA/Dodge Pipeline, April 2014 Metros with 5,000 or more units in planning stages 26

27 Real Estate Fundamentals: Rental Supply and Demand but only about 58% of multifamily projects in the planning stage usually make it to groundbreaking. National Multifamily Housing Units by Planning Stage Thousands Apts Condos Bidding Final Planning Planning Pre-Planning Source: CBRE-EA/Dodge Pipeline, April

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29 Real Estate Fundamentals: Multifamily Investment Cap rate spreads have stayed wide % 7.0% 6.0% 5.0% 4.0% Treasurys and Multifamily Cap Rates 3.0% 2.0% 1.0% 10-Year Treasury Cap Rate 0.0% Source: Real Capital Analytics, and Federal Reserve, Selected Interest Rates H.15, per Haver Analytics DLX 29

30 Real Estate Fundamentals: Multifamily Investment as investors have increasingly turned to buying existing apartment buildings. National Apartment Sales Volume and Cap Rates Billions $35 $30 Sales Cap Rate 7.5% 7.3% 7.1% $25 6.9% $20 $15 $18.7 B 6.7% 6.5% 6.3% $10 $5 $0 6.1% 6.1% 5.9% 5.7% 5.5% Source: Real Capital Analytics Note: Chart excludes $22 B Tishman-Speyer transaction in October

31 Current Multifamily Market Outlook: Steady The good news: Multifamily trends will slow down, but stay positive. Vacancy levels likely fell in 1Q2014, down to an estimated 5.0%, from 5.1% as of 4Q2013 and from a year ago at 5.25%. The expectation for 2014 is to see vacancies rise slightly, perhaps to 5.25%, due to more new supply coming online. Demand remained strong in 2013 and that trend continued into 1Q2014. Reis states that there was positive net absorption of about +41,570 units in 1Q2014 and with more than +160,000 units absorbed in all of In comparison, the total for 2012 was about +139,000 units, down from 2011 s estimated +173,000 units. Rents grew as forecasted, at an estimated +0.5% during 1Q2014, continuing last year s trend, resulting in a total of +3.0% for Expect rent increases to be similar in 2014, at about +2.5% to +3.0%, thanks to continued demand from ongoing job growth, new household formations, and higher home prices. Cap rates stayed the essentially the same at 6.1% in 1Q2014 compared to 4Q2013, and 6.3% in 3Q2013 and 2Q2013, according to Real Capital Analytics. Essentially, cap rates have not changed in over two years and are not expected to change all that much in Apartment sales totaled $18.7 billion in 1Q2014 and $105 billion for That s an increase of +19% from 2012 s $88 billion, according to data from Real Capital Analytics s volume level is very close to the sector s previous peak of $106 billion which occurred in

32 Long-Term Multifamily Market Outlook: Stable The bad news: Some submarkets will see an oversupply of new units. While vacancy levels and rental growth rates will vary by metro, on a national basis the multifamily sector should continue to see similar levels of positive rent growth this year. According to the Dodge Pipeline, which distinguishes between apartment and condo multifamily units, there are a whopping 388,000 apartment units underway, with about 282,000 expected to come online this year alone, many of which are in just a handful of metros. There will be a short-term oversupply of new class A apartment units in certain submarkets in a number of primary metros, including Washington, DC, Austin, Seattle, Boston, Denver, and Raleigh/Durham. The Take-Away: Multifamily demand should remain stable due to ongoing job growth, renter household formations, and demographic trends. Expect oversupply in some submarkets leading to a short-term pullback in occupancy levels and rent growth. 32

33 And remember: Thank You! Kim Betancourt, Director of Economics Multifamily Economics and Market Research 33

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35 I T I S G O O D T O B E I N T H E A PA R T M E N T I N D U S T R Y

36 A PA R T M E N T D E M A N D V S. O F F I C E D E M A N D Washington Metro Area U N I T S A B S O R B E D ( s ) A B S O R P T I O N ( M I L L I O N S S F ) C L A S S A A P A R T M E N T S O F F I C E S P A C E Source: Delta Associates Publications; April 2014.

37 D E M O G R A P H I C S H I F T S I M PA C T A PA R T M E N T S

38 P O P U L AT I O N C H A N G E B Y A G E G R O U P Washington Metro Area % A V E R A G E A N N U A L C H A N G E 5% 4% 3% 2% 1% 0% -1% ( M i l l e n n i a l s ) A G E R A N G E ( B a b y B o o m e r s ) Source : U.S. Census, GMU CRA, Delta Associates; April 2014.

39 P O P U L AT I O N C H A N G E B Y A G E G R O U P Washington Metro Area % A V E R A G E A N N U A L C H A N G E 5% 4% 3% 2% 1% 0% -1% ( M i l l e n n i a l s ) ( B a b y B o o m e r s ) A G E R A N G E Source : U.S. Census, GMU CRA, Delta Associates; April 2014.

40 O W N v s. R E N T R E S I D E N C E United States Own Rent 100% P E R C E N T O F G E N E R A T I O N 90% 80% 70% 60% 50% 40% 30% 20% 10% 54% 20% 0% Millennials Baby Boomer Source : 2013 ULI/BRS National Survey, Delta Associates; April 2014.

41 C H A N G I N G D E M A N D PAT T E R N S Percent Without Driver s License by Age Group United States P E R C E N T W I T H O U T D R I V E R S L I C E N S E S 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% A G E R A N G E Source: The Wall Street Journal, Michael Sivak and Brandon Schoettle, University of Michigan, Delta Associates; April 2014.

42 C H A N G I N G D E M A N D PAT T E R N S Percent Without Driver s License by Age Group United States P E R C E N T W I T H O U T D R I V E R S L I C E N S E S 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% A G E R A N G E Source: The Wall Street Journal, Michael Sivak and Brandon Schoettle, University of Michigan, Delta Associates; April 2014.

43 P O P U L AT I O N District of Columbia 660 P O P U L A T I O N I N T H O U S A N D S Source: U.S. Census, Delta Associates; April 2014.

44 C H A N G I N G D E M A N D PAT T E R N S Single Person Households For Major Cities *Manhattan: 47% Source: U.S. Census Bureau, Delta Associates, April 2014.

45 C L A S S A H I G H - R I S E A PA R T M E N T S AV E R A G E U N I T S I Z E District of Columbia A V E R A G E U N I T S I Z E ( S Q U A R E F E E T ) Source: Delta Associates, April 2014.

46 A PA R T M E N T S Changing Nature of Space

47 A PA R T M E N T S Changing Nature of Space

48 A PA R T M E N T S Changing Nature of Space

49 R E N T E R P R E F E R E N C E Year-Over-Year Change in Owner- & Renter-Occupied Housing Units United States 2,500 Change in Owner-occupied Units Change in Renter-occupied Units 2,000 T H O U S A N D S O F U N I T S 1,500 1, * -1,000 Source: MBA, U.S. Census Bureau, Haver Analytics, Delta Associates, April *2013 estimated.

50 R E N T E R P R E F E R E N C E Renter Households Washington Metro vs. United States R E N T E R S A S A P E R C E N T A G E O F T O T A L H O U S E H O L D S 37% 36% 35% 34% 33% 32% 31% 30% 29% 28% U.S. WASHINGTON METRO Y E A R Source: U.S. Census Bureau, Delta Associates, April 2014.

51 P E N T U P D E M A N D U.S Year Olds Living with their Parents 15.0% 14.5% Percent Millions 6.0 P E R C E N T O F P E O P L E 14.0% 13.5% 13.0% 12.5% 12.0% 11.5% 11.0% 10.5% M I L L I O N S O F P E O P L E 10.0% Source: U.S. Census Bureau, John Burns Real Estate Consulting, WSJ, Delta Associates, April 2014.

52 WA S H I N G T O N M E T R O A PA R T M E N T M A R K E T

53 L O N G T E R M A N N U A L A PA R T M E N T A B S O R P T I O N National Market Leaders L O N G T E R M A N N U A L A B S O R P T I O N O F A L L C L A S S E S O F U N I T S 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,070 DFW Hou Atl Was LA Phx Balt Phil Chi Pgh Source: REIS Services, LLC, Delta Associates; April Note: Excludes NY metro to conserve scale

54 L O N G T E R M A N N U A L A PA R T M E N T A B S O R P T I O N National Market Leaders 10,000 L O N G T E R M A N N U A L A B S O R P T I O N O F A L L C L A S S E S O F U N I T S 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 5,070 Past 12 Months 7,720 0 DFW Hou Atl Was LA Phx Balt Phil Chi Pgh Source: REIS Services, LLC, Delta Associates; April Note: Excludes NY metro to conserve scale

55 L O N G T E R M A N N U A L A PA R T M E N T A B S O R P T I O N National Market Leaders L O N G T E R M A N N U A L A B S O R P T I O N O F A L L C L A S S E S O F U N I T S 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 5,070 Class A Only Past 12 Months: 9,166 0 DFW Hou Atl Was LA Phx Balt Phil Chi Pgh Source: REIS Services, LLC, Delta Associates; April Note: Excludes NY metro to conserve scale

56 C L A S S A A PA R T M E N T A B S O R P T I O N Washington Metro Area Average Since 2008 = 6,746 C L A S S A A P A R M E N T U N I T S 10,000 8,000 6,000 4,000 2,000 Long-Term Average = 5, * Source: Delta Associates; April *12-months trailing March 2014.

57 C L A S S A A PA R T M E N T A B S O R P T I O N Washington Metro Area Annual Average = 8,500 Average Since 2008 = 6,746 C L A S S A A P A R M E N T U N I T S 10,000 8,000 6,000 4,000 2,000 Long-Term Average = 5, * Source: Delta Associates; April *12-months trailing March 2014.

58 A B S O R P T I O N PA C E P E R P R O J E C T P E R M O N T H For Projects in Initial Lease-Up Washington Metro Area M O N T H LY A B S O R P T I O N P A C E P E R P R O J E C T S I N C E M A R K E T I N G B E G A N /07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 Source: Delta Associates; April 2014.

59 A B S O R P T I O N PA C E P E R P R O J E C T P E R M O N T H For Projects in Initial Lease-Up Washington Metro Area M O N T H LY A B S O R P T I O N P A C E P E R P R O J E C T S I N C E M A R K E T I N G B E G A N 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/ N U M B E R O F P R O J E C T S I N A C T I V E L E A S E U P Source: Delta Associates; April 2014.

60 A PA R T M E N T VA C A N C Y R AT E S Major Apartment Markets First Quarter % National Rate: 4.1% V A C A N C Y R A T E ( A L L C L A S S E S ) 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 4.8% NY LA Chi Wash DFW Phx Phi Atl Hou Balt Source: REIS Services, LLC, Delta Associates; April 2014.

61 A N N U A L C L A S S A A PA R T M E N T E F F E C T I V E R E N T G R O W T H Washington Metro Area 10% E F F E C T I V E R E N T G R O W T H 8% 6% 4% 2% 0% -2% Long Term Average Rent Growth = 4.2% -0.4% 2.8% -4% * 2013 W A S H I N G T O N M E T R O U. S. Source: Delta Associates; April *12-months ending First Quarter 2014.

62 3 6 M O N T H A PA R T M E N T D E V E L O P M E N T P I P E L I N E Washington Metro Area 45,000 M A R K E T R A T E U N I T S P L A N N E D A N D U N D E R C O N S T R U C T I O N 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, * Source: Delta Associates; April * At First Quarter 2014.

63 C L A S S A A PA R T M E N T U N I T S TA R T S Washington Metro Area 7,000 District Sub MD No VA N U M B E R O F C L A S S A M A R K E T R A T E U N I T S 6,000 5,000 4,000 3,000 2,000 Projected Class A Quarterly Absorption = 2,125 1,000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Source: Delta Associates; April 2014.

64 P R O J E C T E D D E L I V E R I E S P R O J E C T S C U R R E N T LY U N D E R C O N S T R U C T I O N Washington Metro Area 9,000 District Sub MD No VA N U M B E R O F C L A S S A M A R K E T R A T E U N I T S 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Projected Class A Quarterly Absorption = 2,125 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Source: Delta Associates; April 2014.

65 C L A S S A A PA R T M E N T D E M A N D A N D D E L I V E R Y P R O J E C T I O N S Three Years Ending March 2017 M A R K E T R A T E U N I T S I N T H O U S A N D S Demand Net Absorption: 8,500/Year = 25,500 Deliveries Planned and may deliver by 9/16: 6,397 units Under construction: 33,723 units 0 The District Suburban Maryland Northern Virginia 5.0% 4.7% 4.3% Projected Stabilized Vacancy % at March % Metro-Wide Total = 40,120 units Source: Delta Associates; April 2014.

66 C L A S S A A PA R T M E N T R E N T G R O W T H Washington Metro Area P E R C E N T E F F E C T I V E R E N T G R O W T H 10% 8% 6% 4% 2% 0% -2% -4% -6% Long-Term Average = 4.2% * Source: Delta Associates; April *Annual rent growth at First Quarter 2014 is -0.4%

67 F O C U S O N D E L I V E R I E S I N T H E S U B M A R K E T S

68 P R O J E C T E D D E L I V E R I E S P R O J E C T S C U R R E N T LY U N D E R C O N S T R U C T I O N Select Northern Virginia Jurisdictions 4,500 N U M B E R O F C L A S S A M A R K E T R A T E U N I T S 4,000 3,500 3,000 2,500 2,000 1,500 1, E. Loudoun Arlington Fairfax Alexandria Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Source: Delta Associates; April 2014.

69 P R O J E C T E D D E L I V E R I E S P R O J E C T S C U R R E N T LY U N D E R C O N S T R U C T I O N Select Northern Virginia Jurisdictions N U M B E R O F C L A S S A M A R K E T R A T E U N I T S 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, W. Prince William E. Prince William E. Loudoun Arlington Fairfax Alexandria 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Source: Delta Associates; April 2014.

70 P R O J E C T E D D E L I V E R I E S District of Columbia Source: ESRI, Delta Associates; April 2014.

71 P R O J E C T E D D E L I V E R I E S District of Columbia Source: ESRI, Delta Associates; April 2014.

72 P R O J E C T E D D E L I V E R I E S District of Columbia Source: ESRI, Delta Associates; April 2014.

73 P R O J E C T E D D E L I V E R I E S P R O J E C T S C U R R E N T LY U N D E R C O N S T R U C T I O N Select Suburban Maryland Submarkets* 3,000 2,500 N U M B E R O F C L A S S A M A R K E T R A T E U N I T S 2,000 1,500 1, MoCo: Mid County MoCo: Down County 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Source: Delta Associates; April *Down County: Bethesda, Silver Spring. Mid County: Wheaton, N. Rockville, Rockville, N. Bethesda, Potomac, Twinbrook. Up County: Boyds, Gaithersburg, Clarksburg, Germantown.

74 P R O J E C T E D D E L I V E R I E S P R O J E C T S C U R R E N T LY U N D E R C O N S T R U C T I O N Select Suburban Maryland Submarkets* N U M B E R O F C L A S S A M A R K E T R A T E U N I T S 3,000 2,500 2,000 1,500 1, MoCo: Up County Anne Arundel County Howard County Prince George's County MoCo: Mid County MoCo: Down County 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Source: Delta Associates; April *Down County: Bethesda, Silver Spring. Mid County: Wheaton, N. Rockville, Rockville, N. Bethesda, Potomac, Twinbrook. Up County: Boyds, Gaithersburg, Clarksburg, Germantown.

75 WA S H I N G T O N M E T R O A R E A O P P O R T U N I T I E S

76 I D E N T I F Y I N G O P P O R T U N I T I E S D U R I N G T H I S C Y C L E Washington Metro Area 1. S E L E C T I V E LY A C C U M U L AT E A S S E T S 2. R E F I N A N C E A S S E T S 3. R E N O VAT E C L A S S B A N D C P R O P E R T I E S 4. S E L E C T I V E D E V E L O P M E N T I N T H I S C Y C L E 5. P O S I T I O N F O R D E V E L O P M E N T I N T H E N E X T C Y C L E Source: Delta Associates; April 2014.

77 F L I G H T T O Q U A L I T Y: A PA R T M E N T A B S O R P T I O N B Y C L A S S O F U N I T Washington Metro Area Annual Average ,000 5,000 4,000 3,000 U N I T S 2,000 1, ,000 Class A Class B -2,000-3,000 Source: Delta Associates; April 2014.

78 A PA R T M E N T P R O P E R T I E S U N D E R G O I N G R E N O VAT I O N Washington Metro Area A V E R A G E R E N O V A T I O N B U D G E T P E R U N I T $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 Avg. renovation budget # of units 35,000 30,000 25,000 20,000 15,000 10,000 5,000 # O F U N I T S $0 0 Source: Delta Associates; April * At First Quarter 2014.

79 I M P L I C AT I O N S F O R T Y P E O F D E V E L O P M E N T SMALLER UNIT SIZES BUILDING TYPE AVERAGE SIZE IN 2010 (SF) CHANGE IN SIZE SINCE 2000 D.C. High-rise % N. VA Low-rise % Source: U.S. Census Bureau, Delta Associates; April 2014.

80 T H E WA S H I N G T O N A R E A A PA R T M E N T M A R K E T O P P O T U N I T I E S S U P E R I O R L O C AT I O N B E S T - IN- C L A S S M A N A G E M E N T A N D M A R K E T I N G I N N O VAT I V E D E S I G N Pet-centric amenities Interactive and state-of-the-art media Flexible furniture Transportation infrastructure Outdoor living Source: U.S. Census Bureau, Delta Associates; April 2014.

81 R E C O M M E N D E D D E V E L O P M E N T T I M I N G Washington Metro Area A PA R T M E N T S = Site Assembly = Construction = Delivery Source: Delta Associates; April 2014.

82