Research & Forecast Report

RALEIGH-DURHAM |MULTIFAMILY Mid-Year 2018

Multifamily Remains a Smart Play; Triangle Demographics Sustain Demand

Ed Finley Research Analyst | Raleigh-Durham

Key Takeaways > Driven by a combination of demographic, economic and social factors, national demand for multifamily has produced a 48.4 percent rise in effective rents between Q1 2010 and Q2 2018, far more than any other property sectors. The Raleigh-Durham multifamily market is currently outperforming the CPPI National All-Property Index by more than 34%.

> Explosive growth continues to drive the entire Raleigh-Durham region. The Triangle produces highly educated young workers in fields such as technology, biotechnology, research and development and healthcare and remains extremely attractive to businesses seeking highly skilled workers.

> Multifamily permits in the Raleigh market totaled 4,504 units at the end of May 2018. The percentage of Raleigh's multifamily permits as a percentage of total residential permits reached 28.8% at the end of the second quarter.

> In the Durham-Chapel Hill market, multifamily permits reached 2,121 units as of May 2018, which is 38.9% of all residential permitting within that market.

> Average effective rents continue to increase across the Triangle market. Raleigh effective rents were reported at $1,099 per unit per month, providing a 1.9% growth rate per year and the average rate per square foot was $1.13 at the close of the second quarter. Annual effective rent growth is forecast to be 3.0% in year 2019.

> During the 12 months preceding May 2018, Raleigh added 18,700 jobs while Durham-Chapel Hill added another 4,400. The unemployment rate dropped from 4.1% to 3.9% at the end of May 2018 relative to the previous year. Raleigh has a projected population percentage growth of over 73% through year 2044, outpacing competitive markets such as Boston, Atlanta, Nashville, and San Francisco.

Summary Statistics Q2 2018

RaleighMarket

Durham- Chapel Hill Market

Total Inventory (Units) 71,948 31,799

Inventory Growth 3.9% 2.4%

Vacancy Rate 5.6% 6.0%

Total Occupancy Rate 94.4% 94.0%

Total Absorption (Units) 2,808 1,285

Total Units Under Construction (As of July 2017) 1,682 2,496

Total Units UC/Lease-Up (As of July 2017) 357 982

Total Units Delivered (Year-To-Date) 1,334 181

Effective Rents Per Unit Per Month

Average Per Unit $1,099 $1,089

Average Per SF $1.13 $1.16

Annual Rent Growth 1.8% 2.4%

Market IndicatorsRelative to prior period

Raleigh-Durham Q2 2017

Raleigh-Durham Q2 2018

VACANCY

TOTAL OCCUPANCY

CONSTRUCTION

RENTAL RATE

Raleigh Residential Permitting Summary

Durham-Chapel Hill Residential Permitting Summary

2 Raleigh-Durham Research Report | Mid-Year 2018 | Multifamily | Colliers International

Absorption & Leasing Activity > Overall occupancy rates in Raleigh were reported at 94.4%

and in Durham-Chapel Hill the overall occupancy rate was 94.0% at the close of the second quarter. Occupancy percentages in the Raleigh market have remained above 92.0% since the first quarter of 2010.

> The Class C multifamily market reported the highest occupancy rate in the Durham-Chapel Hill market at the close of Q2 at 95.7%. Comparatively, the Durham-Chapel Hill Class B sector reported an occupancy rate of 93.7% at the end of July 2018.

> The Class A market in Raleigh reported an occupancy rate of 96.4%, the highest of any class in both markets. The Durham-Chapel Hill Class A occupancy rate was reported at 91.8%. The occupancy rate in Raleigh’s Class B asset class held steady at 95.0% while the corresponding Class C rate sustained a slight increase to 94.9% during the second quarter.

Vacancy & Availability > Overall vacancy in the Raleigh multifamily market dropped

to 5.6% at the close of the second quarter. Vacancy in the Durham-Chapel Hill market remained at 6.0%.

> The submarkets reporting the lowest vacancy rates in the Triangle region include Chatham County, Johnston County and Franklin County. Franklin County's vacancy rate was the lowest of the quarter at 1.8%. This vacancy rate is a direct result of an unusually low inventory of units in comparison with other, larger Triangle submarkets.

> The Carrboro and West Durham submarkets closed the second quarter with vacancy rates of 7.7% and 7.6%, respectively, the highest rates in the Durham-Chapel Hill market as well as the overall Triangle market. The Central Raleigh submarket had the third highest vacancy rate of the quarter at 7.3%.

Rental Rates > In the second quarter of 2018, the average effective rental

rate per unit per month was $1,099 in the Raleigh market or $1.13 per square foot. In the Raleigh market, the average asking rent per unit per month was $1,103 at the close of the quarter. Effective rents in the Raleigh market have experienced a 1.9% year-over-year growth rate.

> The Central Raleigh submarket posted the highest effective rents per unit per month in the second quarter. Effective rents in this submarket were reported at $1.49 per square foot and $1,275 per unit.

> Average Class A effective rents in Raleigh were $1,221 per unit and were reported at $1,256 per unit in the Durham-Chapel Hill market. In Durham-Chapel Hill, concession values as a percentage of asking rents more than doubled those in Raleigh. The average concession value among both markets was 0.60% at the close of the quarter.

RALEIGH MARKET: ASSET CLASS SUMMARY

EFFECTIVE RENT PER UNIT

EFFECTIVE RENT PER SF

OCCUPANCY (%)

CLASS A $1,221 $1.09 96.4%

CLASS B $1,008 $1.05 95.0%

CLASS C $853 $0.99 94.9%

DURHAM-CHAPEL HILL: ASSET CLASS SUMMARY

EFFECTIVE RENT PER UNIT

EFFECTIVE RENT PER SF

OCCUPANCY (%)

CLASS A $1,256 $1.12 91.8%

CLASS B $1,015 $1.08 93.7%

CLASS C $848 $1.02 95.7%

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Total Residential Permits Single Family 5+ Units (MF)

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Total Residential Permits Single Family 5+ Units (MF)

3 Raleigh-Durham Research Report | Mid-Year 2018 | Multifamily | Colliers International

SUBMARKET COMPARISONS | Q2 2018

PROPERTY COUNT

EXISTING INVENTORY

(UNITS)

AVG. PER UNIT SIZE (SF)

ASKING RENT PER UNIT

($)

EFFECTIVE RENT PER UNIT

($)

EFFECTIVE RENT GROWTH

(%)

CURRENT OCCUPANCY

(%)

CONCESSION VALUE (% OF

ASKING RENT)

RALEIGH MARKET Cary 70 18,846 1,005 $1,129 $1,125 3.02% 95.0% 0.40%

Central Raleigh 29 6,574 855 $1,283 $1,275 2.32% 92.7% 0.62%

Franklin County 1 75 1,063 $1,059 $1,059 2.39% 98.2% 0.00%

Garner 9 1,867 1,003 $1,059 $1,056 3.41% 95.9% 0.23%

Hillsborough 32 8,675 989 $1,102 $1,096 3.12% 93.5% 0.56%

Johnston County 5 958 1,092 $1,092 $1,080 0.41% 95.3% 1.10%

North Central Raleigh 48 11,327 945 $1,075 $1,071 4.78% 94.4% 0.34%

Northeast Raleigh 34 7,694 976 $998 $993 1.95% 94.2% 0.45%

Northwest Raleigh 55 15,932 984 $1,077 $1,073 3.03% 94.8% 0.34%

Market Total 283 71,948 973 $1,103 $1,099 3.10% 94.4% 0.43%DURHAM-CHAPEL HILL MARKETCarrboro 14 2,878 924 $1,155 $1,135 0.35% 92.3% 1.75%

Chapel Hill 17 3,240 950 $1,124 $1,110 1.28% 95.5% 1.23%

Chatham County 1 242 1,046 $1,168 $1,168 11.59% 96.7% 0.00%

North Durham 15 3,010 913 $914 $905 0.55% 94.9% 0.99%

Orange County/Other 4 741 1,046 $971 $966 5.43% 94.0% 0.58%

South Durham 64 15,990 962 $1,095 $1,088 3.12% 94.5% 0.55%

West Durham 23 5,698 866 $1,188 $1,168 1.59% 92.4% 1.73%

Market Total 138 31,799 938 $1,100 $1,089 2.27% 94.0% 1.00%

NOTABLE SALES TRANSACTIONS | MID YEAR 2018

PROPERTY SUBMARKET

PROPERTY TYPE

SALES PRICE (MIL.)

TOTAL UNITS

PRICE PER UNIT ($)

EFFECTIVE RENT PER UNIT

($)

CURRENT OCCUPANCY

(%)

CAP RATE (%)

RALEIGH MARKET The Mark NW Raleigh Garden $46.7 312 $149,519 $1,037 94.9% 4.80%

Lynn Lake Apartments N. Central Raleigh Garden $12.6 101 $124,752 $897 92.0% N/A

Lake Ridge Apartments Cary Garden $9.3 94 $98,936 $969 94.6% N/A

Forest Edge Townhomes Garner Garden $13.2 134 $98,134 $877 97.0% N/A

Millbrook Apartments N. Central Raleigh Garden $10.6 117 $90,598 $934 97.4% N/A

DURHAM-CHAPEL HILL MARKETBullHouse South Durham Mid-High $76.3 305 $250,000 $1,647 43.3% N/A

Garrett West West Durham Garden $53.5 308 $173,701 $1,252 93.5% 5.45%

200 East South Durham Mid-High $52.1 330 $157,879 $1,053 96.0% 5.00%

Alvista Durham South Durham Garden $37.2 345 $107,826 $937 97.6% N/A

Emerald Forest South Durham Garden $33.8 320 $105,469 $830 97.8% 5.85%

Chesterfield Apartments West Durham Garden $4.3 48 $90,208 $818 91.7% 6.20%

4 Raleigh-Durham Research Report | Mid-Year 2018 | Multifamily | Colliers International

Construction & Investment Activity > The Raleigh-Durham region continues to be a very active market for multifamily construction. At the end of the second quarter, the total

number of units scheduled to deliver reached 1,682 and 2,496 units in the Raleigh and Durham-Chapel Hill markets, respectively. Units delivered by quarter totaled 1,334 in the Raleigh market and 181 units in the Durham-Chapel Hill market. In the Durham-Chapel Hill market, of the properties that have delivered within the last twelve months, effective rents have averaged $1,474 or $1.52 per square foot. Properties that have delivered in the Raleigh market within the last twelve months have reached effective rents of $1,393 or $1.40 per square foot.

> The Chapel Hill submarket led the region in development activity for the second quarter as interest in suburban multifamily product continues to escalate. There are 1,389 units expected to deliver in the Chapel Hill submarket over the course of the next 8 quarters. The Hillsborough submarket reported a total of 1,019 units that are expected to deliver.

> The apartment sector in the Raleigh-Durham region remains the most attractive property type among investors, with sales volume exceeding $350M in the second quarter. Prior twelve-month sales through the end of mid-year 2018 topped $2.1B with an average price per unit of $138,010. The most notable transaction of the quarter was the sale of BullHouse Apartments, a 305-unit mid-highrise development in the South Durham submarket. This Durham property sold for $76.3 million and $250,000 per unit. Other notable multifamily sales include the Garrett West property in West Durham and The Mark in Northwest Raleigh. These assets sold for $53.5 million and $46.7 million, respectively.

Quarterly Investment Volume by CRE Sector

Triangle Investment Volume > The Raleigh-Durham apartment market remains the most attractive property type among Triangle investors. In Raleigh-Durham, sales volume reached $2.1 billion over the past twelve months.

> The average multifamily cap rate in the Triangle is 5.13% for transactions over that time period.

> At the conclusion of second quarter 2018, the ratio of international to domestic investment in the Raleigh-Durham multifamily market stands at 11.0%; likewise, the ratio for investment in all property types is 13.8%.

Historical Job Growth vs. MF Permits Ratio: RALEIGH Historical Job Growth vs. MF Permits Ratio: DURHAM-CH

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Q2 2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018

Office Multifamily Industrial Retail

5 Raleigh-Durham Research Report | Mid-Year 2018 | Multifamily | Colliers International

TRIANGLE SUBMARKET MAP

SOURCES/METHODOLOGY

METHODOLOGYThe Raleigh-Durham Multifamily reports calculate apartment statistics using AXIOmetrics database of existing and under construction properties at market and submarket levels. Included in our pool of data are Class A, B, and C apartment properties with all unit mixes (studio-4 bedrooms) containing 25+ units that report “market rents” only. (it does not include affordable rent types or market/affordable rent types).

ASKING RENTS Asking rents are the monthly costs of occupancy for a particular space quoted on a per unit basis. The asking rent for each unit excludes any concessions or rent specials.

EFFECTIVE RENTSEffective rent is the asking rent adjusted downward for concessions or rent specials.

VACANCYVacancy is reported as space that is not currently physically occupied by a tenant Available units do not include employee units and model apartments. Vacancy percentage is a measurement conveyed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations.

Copyright © 2015 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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MULTIFAMILY SERVICES | CONTACT:Steven PedenSenior Vice President | Raleigh+1 919 582 3122Steven.Peden@colliers.com

John Manning Vice President | Raleigh+1 919 582 3154John.Manning@colliers.com

Ed FinleySenior Financial Analyst, CPRC | Raleigh+1 (984)239-6632Ed.Finley@colliers.com

REGIONAL AUTHOR:Ed FinleySenior Financial Analyst, CPRC | Raleigh+1 (984)239-6632Ed.Finley@colliers.com