Multifamily Research. Market Report Fourth Quarter South Florida Metros

Size: px

Start display at page:

Download "Multifamily Research. Market Report Fourth Quarter South Florida Metros"

Harry Benson
5 years ago
Views:

1 Multifamily Research Market Report Fourth Quarter 2018 South Florida s Investors Chase Yields, Rent Growth in South Florida s Emerging Submarkets Chronic shortage of entry-level housing keeps the renter pool full. With Hurricane Irma more than one year in the past, South Florida s economic fundamentals are shining a bright light on the apartment sector. More than 260 people are moving to the region every day, supporting the creation of more than 111,000 jobs over the past year. Strong hiring prospects are leading to the formation of at least 55,000 households this year, many of which will choose to rent as a lack of starter homes persists. As renter demand steadily rises and multifamily construction begins to pull back from the highs of a few years ago in some areas, vacancy rates are falling across the region once again, keeping rent growth on an upward trajectory. Deliveries remain above past five-year average in More than 50,000 apartments have been constructed in South Florida since 2011, with another 10,800 units on tap for Rental inventory grows by 4,800 units in Miami-Dade County, the highest amount in the region, headlined by Square Station at 710 doors in Downtown Miami. In Lauderdale Lakes, the Atlantic Cypress Creek will be Broward County s largest completion of the year with 420 units, contributing to the addition of 3,600 apartments in the market. Palm Beach County records the completion of 2,400 rentals this year, marking a substantive slowdown from 20. The largest project forecast to open this year is the 353-unit Atlantico at Alton in Palm Beach Gardens. Multifamily 2018 Forecast Miami 3.7% -10 $1, % Fort Lauderdale $1, % West Palm Beach Miami Vacancy Basis Point Effective Rent 5.5% -30 $1, % High pricing east of I-95 has investors seeking more affordable assets with greater potential upside in areas such as Hialeah and Miami Lakes, where prices average near $110,000 per unit. Buyer activity remained elevated in Little Havana and North Miami Beach, where recently traded properties recorded cap rates in the mid-5 percent to low-7 percent range. Rate 1 9% Local Apartment Yield Trends Apartment Cap Rate Year Treasury Rate * Cap rate trailing 12-month average through 3Q; Treasury rate as of Sept. 28 Includes sales $1 million and greater for Miami-Dade, Broward and Palm Beach counties. Sources: CoStar Group, Inc.; Real Capital Analytics Fort Lauderdale Investors boosted searches in areas such as Miramar and Hallandale Beach, where apartment complexes changed hands for $92,000 per unit recently. With the lowest average price on a per unit basis in the region and a large inventory of Class C assets, investors in search of remaining upside will continue to scour the county. West Palm Beach Out-of-state capital was most abundant in Palm Beach County, where investors deployed more than $1 billion over the past four quarters, on par with the prior yearlong period. Region-leading expansion of the traditional renter cohort has investors hurrying to acquire assets near employment hubs.

2 Miami-Dade 3Q18 12-MONTH PERIOD Employment Trends EMPLOYMENT: Year-over-Year 1% 4. increase in total employment Aided by robust post-hurricane hiring, 52,700 jobs were created over the year ended in September. One year earlier employment declined by 1.3 percent. The trade, transportation and utilities sector led hiring, increasing payrolls by 10,300 jobs, followed by education and health services hiring with 10,000 new jobs. The jobless rate fell 80 basis points to 3.9 percent in September. Completions and Absorption Completions Absorption CONSTRUCTION: 5,200 units completed Units (000s) So far this year, 3,800 units have been delivered, bringing the trailing 12-month total in line with the amount of apartments completed during the prior 12-month period. Square Station, located in the Entertainment District, was the largest delivery of the past year at 710 units, followed by Mila, a 684-door garden-style property in Miami Gardens. Vacancy Rate Trends VACANCY: 20 basis point decrease in vacancy Vacancy Rate Robust net absorption led to a declining vacancy rate, reaching 3.7 percent in the third quarter. One year earlier a 20-basis-point increase was posted. Class A vacancy remained unchanged year over year at 6 percent, while both Class B and Class C units recorded a 40-basis-point decline, falling to 3.4 percent and 1.6 percent, respectively. Monthly Rent Rent Trends Rent RENTS: 5.5% increase in effective rents Monthly Effective Rent $1,700 $1,425 $1,0 $875 $600 Year-over-Year The average effective rent rose to $1,586 per month in the third quarter, posting the strongest annualized rent increase since the end of 20. A 4.7 percent increase was registered one year ago. Class C complexes led the market with a 4.9 percent increase to $1,035 per month, followed by Class B units, which were up 4.5 percent to $1,549 per month. * Forecast

3 Year-over-Year Growth Multifamily Research Market Report DEMOGRAPHIC HIGHLIGHTS 3Q18 MEDIAN HOUSEHOLD INCOME $50,193 U.S. Median $61,789 3Q18 AFFORDABILITY GAP Renting is $867 Per Month Lower Average Effective Rent vs. Mortgage Payment* MULTIFAMILY (5+ Units) PERMITS 11,852 1H 2018 g Q18 MEDIAN HOME PRICE $354,583 U.S. Median $260,0 FIVE-YEAR HOUSEHOLD GROWTH** 84,000 or 1. Annual Growth U.S. 1. Annual Growth SINGLE-FAMILY PERMITS 2,601 1H g *Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 9 LTV, taxes, insurance and PMI. ** Annualized Rate SUBMARKET TRENDS Lowest Vacancy Rates 3Q18 Submarket North Central Miami 0.9% -100 $1, Hialeah/Miami Lakes $1, % Homestead/South Dade County $1, % Miami Gardens $1, West Miami/Doral 3.7% -200 $1, % Westchester/Kendall 3.9% -30 $1, Coral Gables/South Miami $1, Downtown Miami/South Beach Vacancy Rate Basis Point Effective Rents % $2, % Northeast Miami 5.9% 40 $1, % Overall 3.7% -20 $1, % SALES TRENDS Suburban Miami Assets Highlight Deal Flow; Prices Decline Transaction velocity over the 12 months through September rose percent in comparison with the prior period, carried higher by a sizable increase to sales activity in North Miami Beach. The average price declined 5 percent from the prior 12-month period, reaching $9,200 per unit, while the average cap rate climbed 10 basis points to the upper-5 percent territory. Outlook: Increased investment in some of Miami s smaller submarkets will help to boost property metrics and push rents higher, boosting investor demand. Average Price per Unit (000s) $180 $0 $0 $120 $100 Sales Sales Trends Price Growth 2 % - * Trailing 12 months through 3Q18 Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

4 Fort Lauderdale Employment Trends 3Q18 12-MONTH PERIOD EMPLOYMENT: Year-over-Year 1% 4. increase in total employment Boosted by employment gains immediately following Hurricane Irma, 36,100 jobs were created over the trailing 12 months through September. One year ago, employment declined by 0.3 percent. Professional and business services payrolls grew by 8,000 jobs, the biggest gain among all sectors, supporting a 3.4 percent jobless rate in September. Completions and Absorption Completions Absorption CONSTRUCTION: 3,200 units completed Units (000s) So far this year, 2,400 rentals have been completed, bringing the year-over-year total below the 3,600 units built during the prior period. Deliveries were greatest in Hollywood, where 745 apartments came online, followed by Fort Lauderdale proper with a 12-month total of 664 units. Pembroke Pines/Miramar came in third with 540 new units. Vacancy Rate Trends VACANCY: 80 basis point decrease in vacancy Vacancy Rate 5% Net absorption of more than 4,200 units pushed the vacancy rate down to 4.6 percent in the third quarter, erasing the 70-basis-point increase posted one year ago. Class C vacancy fell 60 basis points to 3.4 percent in the third quarter, while a 100-basis-point fall for the Class B segment was posted, reaching 4.6 percent. A 50-basis-point decline to 5.9 percent occurred at Class A rentals. Monthly Rent Rent Trends Rent RENTS: 3.9% increase in effective rents Monthly Effective Rent $1,600 $1,350 $1,100 $850 $600 Year-over-Year Rent growth accelerated from the 1.2 percent increase registered in September of 20, climbing to $1,551 per month in the third quarter. Class A complexes led the market with a 5.8 percent in crease to $1,978 per month, followed by a 4.2 percent bump to $1,548 monthly for Class B apartments. Class C rent rose 2.0 percent to $1,1 per month. * Forecast

5 Year-over-Year Growth Multifamily Research Market Report DEMOGRAPHIC HIGHLIGHTS 3Q18 MEDIAN HOUSEHOLD INCOME $58,9 U.S. Median $61,789 3Q18 AFFORDABILITY GAP Renting is $770 Per Month Lower Average Effective Rent vs. Mortgage Payment* MULTIFAMILY (5+ Units) PERMITS 2,431 1H 2018 h % Q18 MEDIAN HOME PRICE $334,711 U.S. Median $260,0 FIVE-YEAR HOUSEHOLD GROWTH** 84,000 or 2. Annual Growth U.S. 1. Annual Growth SINGLE-FAMILY PERMITS 1,374 1H 2018 h *Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 9 LTV, taxes, insurance and PMI. ** Annualized Rate Lowest Vacancy Rates 3Q18 Deal Flow Rises as Price Growth Slows; Buyers Focus on Class C Properties Submarket Vacancy Rate Basis Point Effective Rents % Deal flow climbed 18 percent over the past 12 months, lifted by a substantive rise in sales activity in the city of Fort Lauderdale south to Hallandale Beach. SUBMARKET TRENDS Hollywood $1, Pompano Beach/Deerfield Beach 3.7% -130 $1, Fort Lauderdale $1, % Pembroke Pines/Miramar 4.5% -90 $1, Coral Springs 4.7% -0 $1, % Margate/Coconut Creek/ North Lauderdale 4.7% -80 $1, Plantation/Davie/Weston 5.1% -80 $1, % Sunrise/Lauderhill 5.5% 10 $1, Overall $1, % SALES TRENDS A 3 percent increase to the average price was recorded, climbing to $0,200 per unit. The average cap rate increased 10 basis points during the trailing 12-month period to the lower-6 percent area. Outlook: Investors seeking higher yields will look to acquire assets in Coral Springs and Fort Lauderdale proper, where cap rates can be 50 basis points above the metro average. Average Price per Unit (000s) $0 $120 $80 $40 $0 Sales Sales Trends Price Growth % 1 * Trailing 12 months through 3Q18 Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

6 West Palm Beach 3Q18 12-MONTH PERIOD Employment Trends EMPLOYMENT: % increase in total employment Year-over-Year 4.5% % So far this year, 11,300 jobs have been created, bringing the one-year total to 22,700. One year ago employment fell by 0.5 percent due to Hurricane Irma. Job growth was led by the leisure and hospitality sector during the past 12 months. It added 7,550 workers to payrolls. The unemployment rate fell 30 basis points to 3.5 percent in September. Completions and Absorption CONSTRUCTION: Completions Absorption 2,500 units completed Units (000s) During the first three quarters of the year, 1,560 units were completed, keeping the 12-month total below the 3,200 rentals built during the prior yearlong period. Deliveries over the trailing 12 months through September were greatest in the Boynton Beach/Delray Beach submarket with 968 new apartments, followed by West Palm Beach where inventory increased by 591 rentals. Vacancy Rate Trends VACANCY: 7% 40 basis point decrease in vacancy Vacancy Rate 5% Net absorption of 2,700 units over the past year brought the vacancy rate down to 5.6 percent in the third quarter, adding to a 30-basis-point drop posted one year ago. Class A vacancy declined 0 basis points over the past year to 5.9 percent in the third quarter, while a 100-basispoint drop to 2.8 percent was posted at Class C units. Class B vacancy rose 20 basis points to 6.5 percent. Rent Trends RENTS: Monthly Rent Rent 3. increase in effective rents Monthly Effective Rent $1,600 $1,425 $1,250 $1,075 $ % Year-over-Year Building on a 3.4 percent increase one year ago, the average effective rent reached $1,540 per month in the third quarter of Class A rent rose 5.3 percent to $1,941 per month, followed by a 2.6 percent increase to $1,526 monthly for Class B rentals. A 1.1 percent increase was posted in the Class C segment, reaching $1,088 per month. * Forecast

7 Year-over-Year Growth Multifamily Research Market Report DEMOGRAPHIC HIGHLIGHTS 3Q18 MEDIAN HOUSEHOLD INCOME $63,453 U.S. Median $61,789 3Q18 AFFORDABILITY GAP Renting is $894 Per Month Lower Average Effective Rent vs. Mortgage Payment* MULTIFAMILY (5+ Units) PERMITS 1,554 1H 2018 h Q18 MEDIAN HOME PRICE $351,731 U.S. Median $260,0 FIVE-YEAR HOUSEHOLD GROWTH** 102,000 or 3. Annual Growth U.S. 1. Annual Growth SINGLE-FAMILY PERMITS 3,022 1H 2018 % g *Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 9 LTV, taxes, insurance and PMI. ** Annualized Rate Lowest Vacancy Rates 3Q18 Investor Activity in Emerging Submarkets Rises as Buyers Focus on Yields Submarket Vacancy Rate Basis Point Effective Rents % A robust increase to sales activity in Boynton Beach and Greenacres was recorded, holding overall deal flow for Palm Beach County in line with the prior period. SUBMARKET TRENDS Lake Worth/Greenacres/ Wellington $1, West Palm Beach $1, % Boca Raton 6.1% -10 $1, North Palm Beach County 6.1% 60 $1, Boynton Beach/Delray Beach $1, Overall $1, SALES TRENDS The average price held relatively stable at $7,900 per unit, while a 20-basis-point increase to the average cap rate was posted, rising to the low-6 percent territory. Outlook: Buyers looking for returns above the metro average are drawn to outlying suburbs, where low- to mid-7 percent cap rates are obtainable. Average Price per Unit (000s) $200 $5 $0 $125 $100 Sales Sales Trends Price Growth 1 - * Trailing 12 months through 3Q18 Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

8 Multifamily Research Market Report Percent of Dollar Volume Private, % 5 25% 3Q18 Apartment Acquisitions By Buyer Type Apartment Mortgage Originations By Lender Other, 1% Cross-Border, 9% * Through 2Q Include sales $2.5 million and greater Sources: CoStar Group, Inc.; Real Capital Analytics National Multi Housing Group Visit Equity Fund & Institutions, 2 Listed/REITs, Gov't Agency Financial/Insurance Reg'l/Local Bank Nat'l Bank/Int'l Bank CMBS Pvt/Other CAPITAL MARKETS By DAVID G. SHILLINGTON, President, Marcus & Millichap Capital Corporation Fed pushes overnight lending rate higher, cites economic strength in case for additional increases. The Federal Reserve increased the federal funds rate by 25 basis points in late September, lifting the Fed funds rate to 2 percent. Remarks from the Fed highlight a robust economy, spurred by accommodative fi scal stimulus, while infl ation remains broadly in line with expectations. Provided the economy continues to perform as expected, the Fed is likely to increase rates in December, as well as up to three times next year. Benchmark interest rates, lending costs push higher post- Fed meeting. After the Federal Reserve lifted overnight rates and maintained a positive economic outlook, long-term interest rates have pushed higher. The 10-Year Treasury yield has quickly traded toward the 3.25 percent range, which is prompting lenders to pass on the increased cost to borrowers. However, fi erce competition for loans is also leading to some cost absorption among lenders. While greater borrowing costs may prompt buyers to seek higher cap rates, strong economic performance should enable rent growth above infl ation. As a result, sellers remain committed to higher asking prices, which is widening an expectation gap as property performance and demand trends remain positive. The capital markets environment continues to be highly competitive. Government agencies remain the largest source of funds, commanding slightly over 50 percent market share. National and regional banks control approximately a quarter of the market. Pricing resides in the high-4 percent realm with maximum leverage of 75 percent. Portfolio lenders will typically require loan-to-value ratios closer to 70 percent with interest rates in the low-5 percent range. The passage of tax reform and rising fi scal stimulus will keep the U.S. economy growing, underpinning strong rental demand and supporting a national apartment vacancy rate of 4.6 percent at the end of John Sebree First Vice President, National Director National Multi Housing Group Tel: (312) john.sebree@marcusmillichap.com Prepared and edited by Michael Murphy Research Analyst Research Services For information on national apartment trends, contact: John Chang Senior Vice President, National Director Research Services Tel: (602) john.chang@marcusmillichap.com Price: $750 Marcus & Millichap Miami Office: Scott Lunine Vice President/Regional Manager 5201 Blue Lagoon Drive, Suite 100 Miami, FL (786) scott.lunine@marcusmillichap.com Fort Lauderdale Office: Ryan Nee Vice President/Regional Manager 5900 N. Andrews Avenue, Suite 100 Fort Lauderdale, FL (954) ryan.nee@marcusmillichap.com The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: -level employment growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association of Realtors; Moody s Analytics; Real Capital Analytics; RealPage, Inc.; TWR/Dodge Pipeline; U.S. Census Bureau

Multifamily Research. Market Report Fourth Quarter 2017 South Florida Metros. Robust Rental Demand Keeps Market Strong In the Face of Rising Headwinds

Multifamily Research. Market Report Fourth Quarter 2017 South Florida Metros. Robust Rental Demand Keeps Market Strong In the Face of Rising Headwinds Multifamily Research Market Report Fourth Quarter 2017 South Florida s Robust Rental Demand Keeps Market Strong In the Face of Rising Headwinds Positive in-migration trends and sturdy single-family home