U.S. MULTIFAMILY MARKETVIEW FIGURES · 2016-08-24 · Q1 2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008 Q1...
Transcript of U.S. MULTIFAMILY MARKETVIEW FIGURES · 2016-08-24 · Q1 2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008 Q1...
U.S. MULTIFAMILYMARKETVIEWFIGURES
Q1 2016
2 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
EXECUTIVE SUMMARYCONSTRUCTION DELIVERIES RISE, BUT FUNDAMENTALS STILL FAVORABLE
• While the U.S. multifamily market remains healthy, its performance gains have moderated from 2015.
• Net absorption in Q1 2016 reached 29,300 units—one of the highest Q1 levels on record—and the 204,800-unit total net absorption for the year ending Q1 2016 reflected very healthy demand, albeit down from the 2014 peak.
• With 41,200 new units delivered in Q1 2016, construction activity increased 38% over the year-earlier total. Deliveries should increase further through 2016 and then begin to moderate in 2017.
• At 4%, Q1 2016 year-over-year rent appreciation remained above the historical average, but has moderated from the peak increases seen in recent years.
• The national multifamily vacancy rate held firm at 4.7% in Q1 2016.
• CBRE Research’s Buyer Underwriting Survey of prime mid- and high-rise product revealed a transactional environment that remains very competitive, with unlevered target IRRs averaging 6.18% and initial cap rates at 4.28%. These rates essentially are unchanged from the prior quarter. However, the Q1 2016 survey found slightly more conservative rent growth underwriting.
• In contrast to other property sectors, multifamily investment activity increased in Q1. The $45 billion total through April reflected a 5.2% increase over a year earlier at this time. This heightened activity was partly due to robust portfolio sales.
• Los Angeles has one of the tightest apartment markets in the country, thanks to strong job growth and a very large pool of renters. Increased supply in L.A. should be quickly absorbed throughout 2016, keeping vacancy low.
3 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 1MULTIFAMILY NET ABSORPTION (ROLLING FOUR-QUARTER TOTALS)
• Demand for multifamily rental units remains strong.
• Net absorption totaled 29,300 units in Q1 2016, the highest Q1 total since 2005.
• For the year ending Q1 2016, net absorption reached 204,800 units nationally.
• The level is down slightly from the peak of 242,800 units for the year ending Q4 2014, but still represents very high demand.
Note: The term “multifamily” is used throughout to represent rental units/ properties.
300
250
150
50
-50
200
100
0
-100
Q1 20
08
Q1 20
15
Q1 20
10
Q1 20
14
Q1 20
09
Q1 20
06
Q1 20
13
Q1 20
12
Q1 20
11
Q1 20
07
Figure 1: Multifamily Net Absorption (Rolling Four-Quarter Totals)
Units (000s)
Source: CBRE Econometric Advisors, Q1 2016. Most recent data point is the four quarters ending Q1 2016 which is 204, 765 units. Note that for new product, net absorption is included in the statistics when the property has stabilized.
Q1 20
16
Source: CBRE Econometric Advisors, Q1 2016. Most recent data point is the four quarters ending Q1 2016 which is 204, 765 units. Note that for new product, net absorption is included in the statistics when the property has stabilized.
4 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 2LEADING METROS FOR MULTIFAMILY NET ABSORPTION
• New York came in a close second, followed by Seattle, Atlanta, Los Angeles County and Washington, D.C.
• The ratio of units absorbed relative to total existing inventory shows how dynamic multifamily demand is nationally or in metro areas.
• The U.S. ratio was 1.4% based on net absorption in the year ending Q1 2016. During the economic recovery years, 2014 marked the highest ratio (1.7%), but the current level is still healthy.
• Among all 62 metro markets tracked, Charlotte is the most dynamic based on its 5.6% ratio of apartment units absorbed relative to existing stock.
• Seven other markets had ratios of 4% or higher: San Antonio (4.6%), Austin, (4.3%), Kansas City (4.3%), Orlando (4%), Nashville (4%) and Salt Lake City (4%).
Figure 2: Leading Metros for Multifamily Net Absorption
Source: CBRE Econometric Advisors, Q1 2016. Note that for new product, net absorption is included in the statistics when the property has stabilized.
Rank Metro4 Quarters Ending Q1 2016 (Units)
Ratio to Total Inventory (%)
1 Dallas/Ft. Worth 13,633 2.12 New York 13,266 0.73 Seattle 9,723 3.04 Atlanta 8,980 2.45 Los Angeles 8,772 0.96 Washington, D.C. 8,645 1.77 Phoenix 8,432 2.78 Boston 8,237 1.99 Austin 7,531 4.310 Charlotte 7,062 5.611 Orlando 6,871 4.012 San Antonio 6,136 4.613 Houston 5,651 1.014 Denver 5,173 2.0
Source: CBRE Econometric Advisors, Q1 2016. Note that for new product, net absorption is included in the statistics when the property has stabilized.
• Dallas/Ft. Worth led the nation in annual net absorption totals with nearly 14,000 units absorbed for the year ending Q1 2016.
5 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 3STRUCTURAL FACTORS INFLUENCING MULTIFAMILY DEMAND
• Secular trends in American society likely will keep individuals and families in rental housing longer than in previous cycles and attract new renters.
• Lifestyle changes account for many of the factors.
• These include delayed life-stage transitions, such as the average age of first marriages (about 29 for men and 27 for women) and starting families (both transitions have traditionally stimulated home buying).
• The attraction of urban living remains a very strong force among young people and increasingly among empty nesters.
• In urban areas, homeownership rates currently average 49.2% vs. 71.2% in suburban areas.
Source: CBRE Research, Q1 2016.
Figure 3: Structural Factors Influencing Multifamily Demand
Source: CBRE Research, Q1 2016.
Positive
Strong preference for urban living by traditional renter-age households
Increasing interest in urban living by Baby Boomers
Delayed lifestyle stages, especially age of first marriages and having children
Continued high immigration levels
Financial burdens from student debt and/or lack of wage growth in recent years
Society considers renting as a more acceptable option than in the past
Advantage of mobility valued more than in the past
Mixed
Large Millennial population - young population, but moving into traditional home buying ages
Housing cost rising, more restrictive credit policies, but low cost of mortgage debt
Negative
Urban areas typically poor on providing good educational options
High cost of urban rentals
6 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 4U.S. HOMEOWNERSHIP RATES AND OCCUPIED RENTER HOUSING UNITS
• As of Q1 2016, the national homeownership rate was 63.6% (seasonally adjusted), essentially unchanged from Q1 2015’s 63.8%.
• From 2005 through 2014, homeownership rates had declined, but stabilized over the past year.
• CBRE Research believes that homeownership rates will remain at about their current level through 2016 and inch higher in 2017.
• Rates are not likely to decline further due to the aging of U.S. population and more Millennials reaching traditional homebuying ages.
• Yet the dynamics of homeownership and housing choice among American households remain somewhat fluid, especially with a rising number of Baby Boomers reentering the rental market, so the jury is still out on the near-term direction of homeownership.
Source: U.S. Census Bureau (CPS/HVS), Q1 2016.
70 46
4268
64 34
66 38
62 30
Q1 20
00
Q1 20
04
Q1 20
08
Q1 20
12
Q1 20
02
Q1 20
06
Q1 20
10
Q1 20
14
Q1 20
16
Figure 4: U.S. Homeownership Rates and Occupied Renter Housing Units
Homeownership Rate (%) Occupied Renter Households (Mil.)
Source: U.S. Census Bureau (CPS/HVS), Q1 2016.
Homeownership Rate (L) Occupied Renter Households (R)
43
63.6
• Homeownership rates in general represent a backdrop for both cyclical and secular trends in apartment demand.
7 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 5ANNUAL CHANGE IN OCCUPIED RENTER HOUSING UNITS
• The Census Bureau reports that there were 43 million occupied renter housing units as of Q1 2016. (Note that this data includes rentals of all types including single-family).
• The number of occupied rental units—or renter households—has increased over the past several years, parallel to the decline in homeownership rates and to the large Millennial generation forming their own households.
• These robust increases are beginning to fall off.
• Occupied rental units increased by only 300,000 in 2015, well below 2014’s 2.1 million total. For the year ending Q1 2016, the total gain is 363,000 units.
• Since these figures include renter households in all types of housing, it is not totally indicative of multifamily rental demand; however, the smaller increases in the past few quarters are of some concern.
Source: U.S. Census Bureau (CPS/HVS), Q1 2016. *Year ending Q1 2016.
Figure 5: Annual Change in Occupied Renter Housing Units
Source: U.S. Census Bureau (CPS/HVS), Q1 2016. *Year ending Q1 2016.
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
*
-0.5
2.5Millions
0.5
1.0
1.5
2.0
0.0
• Analysis of total renter households provides another way to interpret the landscape affecting multifamily market demand.
8 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 6HISTORICAL U.S. MULTIFAMILY COMPLETIONS
• More than 41,000 apartment units were added in the 62 markets tracked by CBRE EA in Q1 2016.
• This is the most completions in the first quarter of the year since 2001, and marks a 38% increase over Q1 2015.
• Completions totaled 213,000 units for the year ending Q1 2016, up 14.3% from the 187,000 units delivered in the previous year.
• For full-year 2016, new apartment supply is expected to total 293,000 units.
• As the year progresses some of these developments may be pushed into 2017. Nevertheless, 2016 should set the high-water mark for multifamily completions.
• Another 225,000 completions are expected in 2017, bringing the two-year total to roughly 518,000 units.
Source: CBRE Econometric Advisors, Q1 2016. Totals for 62 markets tracked by CBRE EA. *2016 represents forecasted totals for Q2, Q3 and Q4. Note that deliveries are counted in the quarter in which property is stabilized. Demolished properties not included in counts.
Units (000s)
Source: CBRE Econometric Advisors, Q1 2016. Totals for 62 markets tracked by CBRE EA. *2016 represents forecasted totals for Q2, Q3 and Q4. Note that deliveries are counted in the quarter in which property is stabilized. Demolished properties not included in counts.
Figure 6: Historical U.S. Multifamily Completions19
94
300
200
100
250
150
50
0
1996
1998
2002
2001
2006
2005
2010
2009
1995
1997
2000
1999
2004
2003
2008
2007
2012
2011
2014
2013
2016
*20
15
Q1 Q2 Q3 Q4
9 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 7HISTORICAL U.S. MULTIFAMILY PERMITS
• Multifamily building permit data indicate that the development cycle is near its peak and will taper off after the 2016 surge of new units, although 2017 completions should remain above the long-term average.
• Some 83,400 multifamily units received building permit approval in Q1 2016.
• This total fell markedly from the prior quarter. While it is normal for the non-seasonally-adjusted permit total to decline in the first
quarter of each year due to seasonal factors, this year’s decrease was pronounced—down 29.5%—compared to the 9.2% first-quarter average decline during the 2005-2015 period.
• Moreover, the year-over-year drop of 6.6% marked the first annual decline for any quarter since 2010.
• The total of 83,400 multifamily units permitted in Q1 2016 marked a significant reversion to the 2005-2016 quarterly mean of 75,900 units.
Source: CBRE Research, U.S. Census Bureau, Q1 2016. For 5+ units per building, including for-sale product. Line represents historical average for period displayed.
Figure 7: Historical U.S. Multifamily Permits
120
150
30
90
60
0
Units (000s)
Source: CBRE Research, U.S. Census Bureau, Q1 2016. For 5+ units per building, including for-sale product. Line represents historical average for period displayed.
Q1 20
06
Q1 20
05
Q1 20
08
Q1 20
07
Q1 20
09
Q1 20
10
Q1 20
11
Q1 20
12
Q1 20
13
Q1 20
16
Q1 20
14
Q1 20
15
10 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 8LEADING METROS FOR MULTIFAMILY COMPLETIONS
• New York, Dallas/Ft. Worth, Houston and Seattle led the nation in new supply delivered over the past year.
• Charlotte, San Antonio, Austin, Orlando and Denver had the highest new-supply-to-total-inventory ratios—all well above the national average of 1.5. Potential oversupply in these markets is a concern.
Source: CBRE Econometric Advisors, Q1 2016. Note that deliveries are counted in the quarter in which property is stabilized.
Figure 8: Leading Metros for Multifamily Completions
Source: CBRE Econometric Advisors, Q1 2016. Note that deliveries are counted in the quarter in which property is stabilized.
Rank Metro4 Quarters Ending Q1 2016 (Units)
Ratio to Total Inventory (%)
1 New York 15,136 0.82 Dallas/Ft. Worth 11,446 1.83 Houston 11,273 2.04 Seattle 9,744 2.95 Boston 9,189 2.06 Denver 8,671 3.17 Atlanta 8,653 2.18 Phoenix 8,094 2.59 Washington, D.C. 7,940 1.510 Austin 7,241 3.911 San Antonio 7,003 4.912 Charlotte 6,686 5.013 Orlando 6,276 3.514 Chicago 5,836 0.8
11 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 9CURRENT CONSTRUCTION VS. HISTORICAL
• New multifamily supply has increased significantly in Detroit, Philadelphia and Seattle, each where completions over the past year were more than two and a half times the 10-year average annual completions rate.
• Detroit’s completions count was 4.6 times its 2005-2015 annual average, but this exceptionally large multiple reflects a very low level of construction between 2003 and 2014.
• Denver, Minneapolis and San Diego also recorded particularly high numbers of completions relative to their 10-year averages.
Source: CBRE Econometric Advisors, Q1 2016.
Figure 9: Current Construction vs. Historical
DetroitPhiladelphia
SeattleDenver
MinneapolisSan Diego
ChicagoBoston
PhoenixSan Francisco
MiamiAtlantaTampa
Sum of MarketsOrange County
AustinHouston
Washington, D.C.Dallas
Los AngelesNew York
Ratio of Units Completed in 4 Quarters Ending Q1 2016 to 2005-2015 Average
Source: CBRE Econometric Advisors, Q1 2016.2 41 3 50
12 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 10HISTORICAL U.S. VACANCY RATES AND CHANGE
• The national apartment vacancy rate remained flat in Q1 2016 at 4.7%, unchanged from both the previous quarter and the same quarter one year earlier.
• Declines in year-earlier vacancy rates were recorded in 40 of the 62 metro markets tracked by CBRE in Q1 2016, while 21 recorded increases and one was unchanged.
• Five of the 40 markets with annual declining vacancy rates were below 4%.
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016. Vacancy for 62 markets tracked by CBRE EA.
Figure 10: Historical U.S. Vacancy Rates and Change
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016. Vacancy for 62 markets tracked by CBRE EA.
250200150100
500
-50-100-150
Y-o-Y Vacancy Change (bps) Vacancy Rate (%)
Q1 20
00
Q1 20
04
Q1 20
08
Q1 20
12
Q1 20
02
Q1 20
06
Q1 20
10
Q1 20
16
Q1 20
14
8
10
3
5
2
4
67
Y-o-Y Vacancy Change (L) Vacancy Rate (R)
13 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 11VACANCY RATE CHANGE IN MAJOR MARKETS
• The tightest markets (those with vacancy rates of 4% or less) are the New York City metropolitan area (including Long Island and Newark, N.J.), Miami, Los Angeles, Oakland and Providence.
• Increased construction completions, as well as other factors, have contributed to vacancy rate increases in several markets.
• Honolulu, Denver, Hartford and Tulsa all experienced vacancy increases of 100 bps or more during the year ending Q1 2016.
• Vacancy in several other markets, including Houston, San Francisco and Chicago, increased by at least 50 bps.
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016.
Figure 11: Vacancy Rate Change in Major MarketsY-o-Y Change (bps)
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016.
DetroitTampaDallas
Los AngelesAustin
Washington, D.C.AtlantaPhoenixSeattle
PhiladelphiaOrange County
MiamiSum of Markets
MinneapolisBoston
New YorkSan Diego
ChicagoSan Francisco
HoustonDenver
-80 -60 -20 806040200-40 120100
14 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 12HISTORICAL U.S. RENTAL RATES AND CHANGE
• U.S. rent growth moderated in Q1 2016 from the 2015 peak. The weighted-average lease rate rose by 4% year-over-year, versus 4.5% in Q4 2015 and 5.8% in Q1 2015.
• Current annual rent growth is higher for garden communities than high-rise: 4.7% vs. 2.1%.
• The 4% overall growth rate remains well above the 2005-2015 average of 2.7%.
• Rent growth should ebb in response to the pipeline of new supply that will deliver over the next two years.
• Rents are expected to rise 2.1% nationally over the next year.
• Longer-term forecasts from CBRE EA call for a mild recession in 2018 and 2019, which should translate into essentially flat rents, after which growth should pick up again.
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016. Average for 62 markets tracked by CBRE EA.
Figure 12: Historical U.S. Rental Rates and Change
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016. Average for 62 markets tracked by CBRE EA.
9
6
3
0
-3
-6
-9
Y-o-Y Rent Change (%) Monthly Rent per Unit ($)
Q1 20
00
Q1 20
04
Q1 20
08
Q1 20
12
Q1 20
02
Q1 20
06
Q1 20
10
Q1 20
16
Q1 20
14
1,700
1,200
1,400
1,100
1,300
1,500
1,600
Y-o-Y Change (L) Rent per Unit (R)
15 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 13LEADING METROS FOR MULTIFAMILY RENT GROWTH
• In Denver, annual rent growth slowed to 4.9% in Q1 2016 from 11.9% in the previous year. San Jose, where vacancy increased 90 bps year-over-year, saw rent growth slow to 5.5% in the year ending Q1 2016 from 11.9% a year earlier.
• Many secondary markets maintained strong rental appreciation, and 10 markets posted year-over-year rent growth of 7% or more.
• The leading markets for rent inflation were Portland (10.6%), Sacramento (9.3%) and St. Louis (7.9%).
• The most-improved markets for growth rates were Tucson, Salt Lake City and Boston. In Tucson, rent growth accelerated from -0.2% for the year ending Q1 2015 to 6.1% for the year ending Q1 2016. Salt Lake City’s growth rate climbed from 3.5% to 7.6%. In Boston, the rate jumped from 3.1% to 6.8%.
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016.
Figure 13: Leading Metros for Multifamily Rent Growth
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016.
Rank MetroY-o-Y
Change (%)Average Monthly Rent, Q1 2016
1 Portland 10.6 1,2172 Sacramento 9.3 1,1723 St. Louis 7.9 8694 Nashville 7.8 1,0275 Oakland 7.7 2,1606 Salt Lake City 7.6 9287 Seattle 7.4 1,5078 Ft. Lauderdale 7.3 1,4339 Inland Empire 7.3 1,32710 Tampa 7.0 1,00611 Austin 6.9 1,10112 Boston 6.8 2,02913 Orlando 6.8 1,04014 Los Angeles 6.7 2,075
• Increasing vacancy is starting to drag on rent gains in some major markets. For example, year-over-year rent growth in San Francisco slowed to 5.1% in Q1 2016, versus 13.2% in Q1 2015.
16 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 14BUYER VALUATION UNDERWRITING SURVEY FOR PRIME CLASS A MULTIFAMILY ASSETS: RANKED BY IRR TARGET AND CAP RATE
(SEE BULLET POINTS ON NEXT SLIDE)
Source: CBRE Research, Q1 2016. The “prime” statistics displayed above are estimates of current buyer underwriting assumptions for the highest quality asset in the best location of a particular market. The quoted prime rents reflect the level at which top-tier relevant transactions are being completed. Estimates are based on the expert opinion of CBRE brokers that handle deals in these particular markets.
Market SubmarketMultifamily Subtype
Asking Rent ($/SF/PM)
Average Annual Rent Growth Underwriting
First 3 Years (%)Unlevered IRR
Target (%)Going-in
Cap Rate (%)Exit
Cap Rate (%)Holding Period
(Years)San Francisco South of Market Mid Rise 5.50 3.0 5.50 3.50 4.50 10Boston Downtown High Rise 4.75 3.0 5.75 4.00 4.75 7 - 10Los Angeles West Los Angeles Mid Rise 4.53 5.0 6.00 4.00 4.75 5 - 7Seattle Downtown Mid Rise 3.75 4.0 6.00 4.25 5.00 10Dallas Intown Dallas High Rise 3.00 3.5 6.00 - 6.25 4.00 - 4.50 4.75 - 5.25 5 - 7Miami Downtown/Brickell High Rise 3.00 3.0 6.00 - 6.25 4.00 - 4.50 5.00 - 5.25 7 - 10Chicago River North High Rise 3.60 3.0 6.00 - 6.25 4.25 - 4.50 5.00 - 5.25 10Austin Downtown High Rise 3.40 3.5 6.00 - 6.25 4.50 5.00 - 5.25 10Washington, D.C. West End High Rise 4.50 3.0 6.25 4.25 4.50 - 4.75 5 - 7Atlanta Midtown High Rise 2.50 4.0 6.25 4.25 5.00 7New York Manhattan High Rise 5.80 3.7 6.50 4.00 4.50 10Denver Downtown High Rise 2.80 3.0 6.50 4.50 5.25 7 - 10Phoenix South Scottsdale Mid Rise 2.30 4.0 6.50 4.75 5.50 10Houston Inner Loop W/Greenway Plaza High Rise 2.88 2.5 6.25 - 7.25 4.75 - 5.25 5.25 - 5.75 7 - 10Average 3.74 3.4 6.18 4.28 4.98 8.5
Figure 14: Buyer Valuation Underwriting Survey for Prime Class A Multifamily Assets: Ranked by IRR Target and Cap Rate
Source: CBRE Research, Q1 2016. The “prime” statistics displayed above are estimates of current buyer underwriting assumptions for the highest quality asset in the best location of a particular market. The quoted prime rents reflect the level at which top-tier relevant transactions are being completed. Estimates are based on the expert opinion of CBRE brokers that handle deals in these particular markets.
17 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 14 (BULLET POINTS)BUYER VALUATION UNDERWRITING SURVEY FOR PRIME CLASS A MULTIFAMILY ASSETS: RANKED BY IRR TARGET AND CAP RATE
• CBRE Research’s quarterly Buyer Underwriting Survey, which is based on CBRE buyers’ underwriting of high-end multifamily transactions, showed cap rates averaging a still-very-low 4.28%, although up slightly (eight bps) from the prior quarter.
• Unlevered target IRRs averaged only 6.18%, essentially unchanged from the Q4 2015 survey.
• More conservative underwriting was evident in the average annual rent growth rates used in underwriting. The Q1 2016 average was 5.3% lower than the prior quarter.
• San Francisco’s IRR target of 5.5% and going-in cap rate of 3.5% remained the lowest among U.S. markets.
18 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 15U.S. MULTIFAMILY ACQUISITIONS VOLUME
• Multifamily investment remained very active in Q1 2016. Acquisitions totaled $39 billion, up 14% year-over-year.
• The sector’s increase stood in contrast to the other property types, all of which recorded year-over-year declines.
• Year-to-date through April, acquisitions totaled $45 billion for a more modest year-over-year gain of 5.2%.
• Multifamily’s increase was primarily due to robust portfolio sales in the quarter and year-to-date. The largest of these were:- Starwood Capital Group’s $5.4 billion
acquisition of a 23,262-unit portfolio from Equity Residential
- Starwood’s $1.4 billion acquisition of Landmark ATA (71 communities)
- Harrison Street Real Estate Capital’s $1.9 billion purchase of Campus Crest, a 65-property student housing REIT.
Source: CBRE Research, Real Capital Analytics, April 2016.
Figure 15: U.S. Multifamily Acquisitions Volume
Source: CBRE Research, Real Capital Analytics, April 2016.
Total ($ billions) Change (%)Current Quarter Q1 2015 Q1 2016Individual Assets 24.9 24.2 -2.6Portfolios 6.5 11.9 82.9Entity-Level 3.0 3.2 6.5Total 34.4 39.3 14.4Year-to-Date - April 2015 2016Individual Assets 31.5 28.2 -10.3Portfolios 8.3 13.6 63.9Entity-Level 3.0 3.2 6.5Total 42.7 45.0 5.2
19 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 16U.S. MULTIFAMILY INVESTMENT SALES VOLUME AND CAP RATES
• Individual property sales—the best measure of investment momentum—slipped slightly by 2.6% over the same quarter a year ago.
• Investment in garden (and mostly suburban) product rose faster than mid- or high-rise investment in Q1 2016 compared to the prior year.
• Garden product garnered 69% of the capital invested in multifamily assets in Q1—up from 65.3% in Q1 2015.
• Investment in garden communities in Q1 2016 increased 18% year-over-year, while the acquisitions volume of mid- and high-rise communities was on par with the prior year.
Source: CBRE Research, Real Capital Analytics, Q1 2016.
Figure 16: U.S. Multifamily Investment Sales Volume and Cap Rates
40
50
60
7.0
7.5
5.0
6.0
6.5
5.5
4.5
30
10
20
0
Transaction Volume ($ Billions) Cap Rate (%)Individual Asset Sales (L) Portfolios (L) Entity-Level (L) Cap Rates (R)
Source: CBRE Research, Real Capital Analytics, Q1 2016.
Q1 20
06
Q1 20
08
Q1 20
07
Q1 20
09
Q1 20
10
Q1 20
11
Q1 20
12
Q1 20
13
Q1 20
16
Q1 20
15
Q1 20
14
20 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 17LEADING METROS FOR MULTIFAMILY INVESTMENT, Q1 2016
• The New York City metropolitan area attracted the most multifamily investment in Q1 2016.
• Acquisitions exceeded $2 billion in another four metros—Miami/South Florida, Denver, Los Angeles/Southern California and Dallas/Ft. Worth—in part due to sale of the Equity Residential portfolio.
• Cross-border capital continues to play a notable role in multifamily investment, accounting for $2.2 billion of the $38.6 billion in total acquisitions in Q1 2016, representing a 5.7% market share.
• However, cross-border investment in all types of real estate fell considerably in Q1 2016, due in part to much fewer portfolio and entity-level acquisitions.
• The lead country sources of capital for Q1 2016 purchases were Canada, Singapore and United Arab Emirates.
Source: Real Capital Analytics, CBRE Research, Q1 2016. Totals include entity-level acquisitions.
Figure 17: Leading Metros for Multifamily Investment, Q1 2016
Source: Real Capital Analytics, CBRE Research, Q1 2016. Total include entity-level acquisitions.
Rank MetroAcquisitions($ billions)
Market Share (%)Metro Cumulative
1 New York City 5.1 4.6 4.62 Miami/South Florida 3.3 3.0 7.63 Denver 2.7 2.4 10.04 Los Angeles/Southern California 2.4 2.1 12.25 Dallas/Ft. Worth 2.1 1.9 14.16 Washington 1.6 1.5 15.57 Atlanta 1.5 1.3 16.98 Seattle 1.3 1.1 18.09 San Francisco Bay Area 1.3 1.1 19.110 Houston 1.1 1.0 20.211 Austin 1.0 0.9 21.1
21 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 18U.S. MULTIFAMILY SALES PRICE INDEX
• The index for all types of commercial property sales rose 6.4% for the same period.
• RCA reports the sales price per unit for Q1 2016 acquisitions averaged $145,310, marking a 6.4% gain from the prior year.
• This data set indicates that the pricing strength appears to be weighted more towards garden product vs. mid- and high-rise—the two principal categories used by RCA.
• The average sales price of mid- and high-rise properties slipped 6.4% year-over-year, while garden product increased 13.7%. The latter is certainly influenced by the still very active value-add investment market.
• Cap rate averages from RCA suggest more pricing power on mid- and high-rise product. From Q4 2015 to Q1 2016, mid- and high-rise cap rates compressed by 28 bps while garden product cap rates dropped 18 bps. The average decline for all multifamily sales was 24 bps.
Source: Real Capital Analytics, Moody’s Investors Services, CBRE Research, Q1 2016. Index = December 2000.
300
250
200
150
50
100
0
Mar-0
6
Jun-0
8
Mar-1
0
Mar-1
2
Mar-0
7
Mar-0
9
Mar-1
1
Mar-1
3
Mar-1
6
Mar-1
5
Mar-1
4
Figure 18: U.S. Multifamily Sales Price Index
Source: Real Capital Analytics, Moody’s Investors Services, CBRE Research, Q1 2016. Index = December 2000.
Multifamily All Property
• One measurement of multifamily property pricing is repeat property sales, which is the basis of Moody’s/RCA CPPI Index.
• The index reached a new record high of 254 in March 2016, up 10.7% over March 2015.
22 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 19INSTITUTIONAL MULTIFAMILY RETURNS FOR MAJOR MARKETS
• Investment performance by institutionally-owned multifamily properties remains healthy, albeit more modest than in 2015, according to NCREIF return data.
• The annual return in Q1 2016 was 10.9% (income 4.7%, appreciation 6.0%), more than a percentage point higher than the 20-year average of 9.8%.
• Performance moderation was evident in the first
quarter return of 1.9%, the lowest since Q1 2010. • Returns for the different multifamily asset types
vary significantly; garden communities enjoyed the strongest return at 13.9%.
• At the market level, Orlando (18.6%), Denver (18.1%), Portland (18%) and the Inland Empire (17.3%) achieved the highest returns.
Source: CBRE Research, NCREIF, Q1 2016. All returns are reported on an unlevered basis.
Figure 19: Institutional Multifamily Returns for Major MarketsYear Ending Q1 2016 ( %) Income Appreciation Total
Source: CBRE Research, NCREIF, Q1 2016. All returns are reported on an unlevered basis.
-5
20
5
10
15
0
Orlan
do
Denv
er
Portla
nd
Inlan
d Emp
ire
W. Pa
lm Be
ach
Seatt
le
San D
iego
Ft. La
uderd
ale
Atlan
ta
Tampa
Phoe
nix
Los An
geles
Austi
n
New
York
Chica
go
Dalla
s
Bosto
n-Cam
bridg
e
Minn
eapo
lis
Washi
ngton
, D.C.
Baltim
ore
Houst
on
U.S.
- Gard
en
U.S.
- Low
-Rise U.S.
U.S.
- High
-Rise
23 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 20MULTIFAMILY MORTGAGE PRODUCTION
• Production caps for Fannie Mae and Freddie Mac each were increased from $30 billion in 2015 to $35 billion this year. The agencies also expect to increase affordable housing mortgage activity (not capped), thereby raising anticipated overall production from $90 billion in 2015 to $100+ billion this year.
• CMBS multifamily lending totaled $2.9 billion in Q1 2016 or 15% of all CMBS issuance in the quarter (a market share which is up from 11% in the prior year).
• The volume reflected a year-over-year decrease of 3.2%, but this decline was far shallower than the 30.9% decline for all real estate.
Source: CBRE Research, Fannie Mae, Freddie Mac, Commercial Mortgage Alert. Data for other lending sources not available.
Figure 20: Multifamily Mortgage Production
Source: CBRE Research, Fannie Mae, Freddie Mac, Commercial Mortgage Alert. Data for other lending sources not available.
LendingSource Period
Total ($ Billions) Change(%)2015 2016
Current QuarterCMBS Q1 2016 3.0 2.9 -3.2Fannie Mae Q1 2016 10.4 12.6 21.2Freddie Mac Q1 2016 10.0 17.5 75.0Total 23.4 33.0 41.1Year-to-DateCMBS Q1 2016 3.0 2.9 -3.2Fannie Mae YTD through April 16.1 15.3 -5.0Freddie Mac YTD through April 14.3 20.7 44.8Total 33.4 38.9 16.5
• Fannie Mae and Freddie Mac recorded high levels of new mortgage production in Q1 2016, partly as a carryover from 2015. Their combined total was $30.1 billion, up 47.5% from Q1 2015. Through April, the combined total was $36 billion.
24 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 21U.S. MULTIFAMILY OUTLOOK
• CBRE EA forecasts multifamily market demand will decline moderately in 2016 to 152,000 units and new supply deliveries will rise to about 293,000 units.
• As a consequence, vacancy likely will rise after nearly seven years of contraction.
• The projected Q4 2016 vacancy rate of 5.5%
reflects an 80 bp increase from the current 4.7% level.
• Rents should continue to rise in 2016, but at a more moderate pace than in recent years.
• Rent increases should average 2.4% this year, down from the current 4% and the 5.8% peak for the year ending Q1 2015.
Source: CBRE Econometric Advisors, Q1 2016.
Forecast
Figure 21: U.S. Multifamily Outlook
200
300250
400350
65
87
1
34
2
0
150
50100
0
Units (000s) (%)Completions (L) Net Absorption (L) Vacancy (R)
Source: CBRE Econometric Advisors, Q1 2016.
2005
2006
2008
2007
2009
2010
2011
2012
2013
2016
2015
2014
25 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 22U.S. ANNUAL COMPLETIONS VS. NET ABSORPTION (UNITS)
• These include urban location preferences for households of all ages, including empty nesters, the Millennial generation moving into homebuying later than preceding generations, and the still large numbers of younger Millennials coming into the apartment marketplace for the first time.
• While an active development pipeline remains a modest near-term risk to the market’s health, as does the possibility of an economic recession in the not-so-distant future, secular trends in the U.S. point to a long-term favorable outlook to the multifamily sector.
Source: CBRE Econometric Advisors, Q1 2016. *Forecast.
Figure 22: U.S. Annual Completions vs. Net Absorption (Units)
Source: CBRE Econometric Advisors, Q1 2016. *Forecast.
2012 2013 2014 2015 2016*
Completions 76,155 131,003 192,756 201,818 292,552
Net Absorption 126,836 121,461 242,843 192,121 152,112
• A slightly lower level of completions in 2017 should allow for positive market demand to absorb most of the new deliveries and slow vacancy rate increases.
• Rental growth likely will remain subdued but positive.
• The long-term demand outlook is favorable due to many lifestyle changes in American society that favor rental living vs. homeownership.
26 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 23MULTIFAMILY FUNDAMENTALS FOR THE 50 LARGEST U.S. MARKETS, Q1 2016
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016. Markets ranked by inventory size. *U.S. figures represent the sum of 62 markets.
InventoryRank Market
New Supply Previous 4 Quarters (Units)
Net Absorption Previous 4 Quarters
(Units)
Vacancy Rental Rate
Rate (%) Y-o-Y (bps)Average Mo. Rent
($ Per Unit)Y-o-Y
Change (%)1 New York 15,136 13,266 3.4 10 2,953 1.12 Los Angeles 5,369 8,772 3.7 -30 2,214 6.73 Chicago 5,836 2,389 5.3 50 1,503 5.94 Houston 11,273 5,651 6.5 80 1,070 1.35 Washington, D.C. 7,940 8,645 5.0 -20 1,646 2.66 Dallas 9,190 11,163 4.5 -50 1,086 6.27 Boston 9,189 8,237 4.5 10 2,167 6.88 Atlanta 8,653 8,980 5.8 -20 1,055 6.69 Seattle 9,744 9,723 4.3 -10 1,619 7.410 Phoenix 8,094 8,432 4.9 -20 927 6.711 Philadelphia 3,725 3,944 4.9 -10 1,313 1.212 San Diego 2,585 1,850 4.3 20 1,849 6.613 Denver 8,671 5,173 5.4 110 1,341 4.914 Miami 3,861 4,038 3.2 -10 1,664 3.315 Minneapolis 4,644 4,088 4.1 10 1,289 -0.416 Detroit 1,603 3,383 4.2 -70 938 2.317 Orange County 2,876 3,034 4.2 -10 1,981 4.718 Tampa 3,538 4,422 4.4 -50 1,077 7.019 San Francisco 2,493 692 4.5 80 3,253 5.120 Cleveland 1,558 2,564 4.7 -50 897 1.721 Cincinnati 2,093 3,756 5.2 -90 902 4.722 Oakland 638 -617 4.0 60 2,327 7.723 Baltimore 1,513 1,643 5.1 -10 1,277 2.024 Austin 7,241 7,531 5.0 -40 1,177 6.925 Orlando 6,276 6,871 4.2 -50 1,111 6.826 Ft. Lauderdale 3,317 3,436 4.2 -10 1,537 7.327 Portland 3,820 2,476 4.5 70 1,346 10.628 Las Vegas 572 399 6.4 10 883 6.529 Newark 1,343 1,470 3.5 -10 1,775 5.930 Ft. Worth 2,256 2,470 4.8 -20 975 6.731 Inland Empire 961 919 4.5 0 1,424 7.332 San Jose 1,880 469 4.6 90 2,753 5.533 San Antonio 7,003 6,136 6.7 30 899 2.734 Columbus 3,945 3,988 4.7 -20 849 4.435 Charlotte 6,686 7,062 4.7 -50 995 6.636 Indianapolis 2,419 2,369 7.0 -10 801 2.937 St. Louis 1,157 1,371 6.8 -20 938 7.938 Sacramento 340 434 4.1 -10 1,281 9.339 Kansas City 4,119 4,974 4.9 -90 905 3.940 Raleigh 3,366 3,128 5.4 0 988 5.141 Nashville 4,362 4,399 4.2 -20 1,108 7.842 Norfolk 973 1,584 6.6 -60 1,020 1.643 West Palm Beach 1,217 338 4.8 80 1,510 6.744 Pittsburgh 2,115 1,350 7.2 60 1,264 -0.145 Providence 282 1,189 3.0 -90 1,406 5.646 Jacksonville 1,454 1,692 5.9 -40 951 5.247 Salt Lake City 2,658 3,169 4.4 -70 999 7.648 Memphis 1,113 1,313 7.1 -30 808 2.849 Hartford 1,183 297 5.2 100 1,280 1.150 Honolulu 735 -925 8.1 200 1,983 0.5
U.S.* 213,211 204,765 4.7 0 1,629 4.0
Figure 23: Multifamily Fundamentals for the 50 Largest U.S. Markets, Q1 2016
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016. Markets ranked by inventory size. *U.S. figures represent the sum of 62 markets.
(continued to next slide)
27 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 23MULTIFAMILY FUNDAMENTALS FOR THE 50 LARGEST U.S. MARKETS, Q1 2016
(continued from previous slide)
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016. Markets ranked by inventory size. *U.S. figures represent the sum of 62 markets.
InventoryRank Market
New Supply Previous 4 Quarters (Units)
Net Absorption Previous 4 Quarters
(Units)
Vacancy Rental Rate
Rate (%) Y-o-Y (bps)Average Mo. Rent
($ Per Unit)Y-o-Y
Change (%)1 New York 15,136 13,266 3.4 10 2,953 1.12 Los Angeles 5,369 8,772 3.7 -30 2,214 6.73 Chicago 5,836 2,389 5.3 50 1,503 5.94 Houston 11,273 5,651 6.5 80 1,070 1.35 Washington, D.C. 7,940 8,645 5.0 -20 1,646 2.66 Dallas 9,190 11,163 4.5 -50 1,086 6.27 Boston 9,189 8,237 4.5 10 2,167 6.88 Atlanta 8,653 8,980 5.8 -20 1,055 6.69 Seattle 9,744 9,723 4.3 -10 1,619 7.410 Phoenix 8,094 8,432 4.9 -20 927 6.711 Philadelphia 3,725 3,944 4.9 -10 1,313 1.212 San Diego 2,585 1,850 4.3 20 1,849 6.613 Denver 8,671 5,173 5.4 110 1,341 4.914 Miami 3,861 4,038 3.2 -10 1,664 3.315 Minneapolis 4,644 4,088 4.1 10 1,289 -0.416 Detroit 1,603 3,383 4.2 -70 938 2.317 Orange County 2,876 3,034 4.2 -10 1,981 4.718 Tampa 3,538 4,422 4.4 -50 1,077 7.019 San Francisco 2,493 692 4.5 80 3,253 5.120 Cleveland 1,558 2,564 4.7 -50 897 1.721 Cincinnati 2,093 3,756 5.2 -90 902 4.722 Oakland 638 -617 4.0 60 2,327 7.723 Baltimore 1,513 1,643 5.1 -10 1,277 2.024 Austin 7,241 7,531 5.0 -40 1,177 6.925 Orlando 6,276 6,871 4.2 -50 1,111 6.826 Ft. Lauderdale 3,317 3,436 4.2 -10 1,537 7.327 Portland 3,820 2,476 4.5 70 1,346 10.628 Las Vegas 572 399 6.4 10 883 6.529 Newark 1,343 1,470 3.5 -10 1,775 5.930 Ft. Worth 2,256 2,470 4.8 -20 975 6.731 Inland Empire 961 919 4.5 0 1,424 7.332 San Jose 1,880 469 4.6 90 2,753 5.533 San Antonio 7,003 6,136 6.7 30 899 2.734 Columbus 3,945 3,988 4.7 -20 849 4.435 Charlotte 6,686 7,062 4.7 -50 995 6.636 Indianapolis 2,419 2,369 7.0 -10 801 2.937 St. Louis 1,157 1,371 6.8 -20 938 7.938 Sacramento 340 434 4.1 -10 1,281 9.339 Kansas City 4,119 4,974 4.9 -90 905 3.940 Raleigh 3,366 3,128 5.4 0 988 5.141 Nashville 4,362 4,399 4.2 -20 1,108 7.842 Norfolk 973 1,584 6.6 -60 1,020 1.643 West Palm Beach 1,217 338 4.8 80 1,510 6.744 Pittsburgh 2,115 1,350 7.2 60 1,264 -0.145 Providence 282 1,189 3.0 -90 1,406 5.646 Jacksonville 1,454 1,692 5.9 -40 951 5.247 Salt Lake City 2,658 3,169 4.4 -70 999 7.648 Memphis 1,113 1,313 7.1 -30 808 2.849 Hartford 1,183 297 5.2 100 1,280 1.150 Honolulu 735 -925 8.1 200 1,983 0.5
U.S.* 213,211 204,765 4.7 0 1,629 4.0
Figure 23: Multifamily Fundamentals for the 50 Largest U.S. Markets, Q1 2016
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016. Markets ranked by inventory size. *U.S. figures represent the sum of 62 markets.
InventoryRank Market
New Supply Previous 4 Quarters (Units)
Net Absorption Previous 4 Quarters
(Units)
Vacancy Rental Rate
Rate (%) Y-o-Y (bps)Average Mo. Rent
($ Per Unit)Y-o-Y
Change (%)1 New York 15,136 13,266 3.4 10 2,953 1.12 Los Angeles 5,369 8,772 3.7 -30 2,214 6.73 Chicago 5,836 2,389 5.3 50 1,503 5.94 Houston 11,273 5,651 6.5 80 1,070 1.35 Washington, D.C. 7,940 8,645 5.0 -20 1,646 2.66 Dallas 9,190 11,163 4.5 -50 1,086 6.27 Boston 9,189 8,237 4.5 10 2,167 6.88 Atlanta 8,653 8,980 5.8 -20 1,055 6.69 Seattle 9,744 9,723 4.3 -10 1,619 7.410 Phoenix 8,094 8,432 4.9 -20 927 6.711 Philadelphia 3,725 3,944 4.9 -10 1,313 1.212 San Diego 2,585 1,850 4.3 20 1,849 6.613 Denver 8,671 5,173 5.4 110 1,341 4.914 Miami 3,861 4,038 3.2 -10 1,664 3.315 Minneapolis 4,644 4,088 4.1 10 1,289 -0.416 Detroit 1,603 3,383 4.2 -70 938 2.317 Orange County 2,876 3,034 4.2 -10 1,981 4.718 Tampa 3,538 4,422 4.4 -50 1,077 7.019 San Francisco 2,493 692 4.5 80 3,253 5.120 Cleveland 1,558 2,564 4.7 -50 897 1.721 Cincinnati 2,093 3,756 5.2 -90 902 4.722 Oakland 638 -617 4.0 60 2,327 7.723 Baltimore 1,513 1,643 5.1 -10 1,277 2.024 Austin 7,241 7,531 5.0 -40 1,177 6.925 Orlando 6,276 6,871 4.2 -50 1,111 6.826 Ft. Lauderdale 3,317 3,436 4.2 -10 1,537 7.327 Portland 3,820 2,476 4.5 70 1,346 10.628 Las Vegas 572 399 6.4 10 883 6.529 Newark 1,343 1,470 3.5 -10 1,775 5.930 Ft. Worth 2,256 2,470 4.8 -20 975 6.731 Inland Empire 961 919 4.5 0 1,424 7.332 San Jose 1,880 469 4.6 90 2,753 5.533 San Antonio 7,003 6,136 6.7 30 899 2.734 Columbus 3,945 3,988 4.7 -20 849 4.435 Charlotte 6,686 7,062 4.7 -50 995 6.636 Indianapolis 2,419 2,369 7.0 -10 801 2.937 St. Louis 1,157 1,371 6.8 -20 938 7.938 Sacramento 340 434 4.1 -10 1,281 9.339 Kansas City 4,119 4,974 4.9 -90 905 3.940 Raleigh 3,366 3,128 5.4 0 988 5.141 Nashville 4,362 4,399 4.2 -20 1,108 7.842 Norfolk 973 1,584 6.6 -60 1,020 1.643 West Palm Beach 1,217 338 4.8 80 1,510 6.744 Pittsburgh 2,115 1,350 7.2 60 1,264 -0.145 Providence 282 1,189 3.0 -90 1,406 5.646 Jacksonville 1,454 1,692 5.9 -40 951 5.247 Salt Lake City 2,658 3,169 4.4 -70 999 7.648 Memphis 1,113 1,313 7.1 -30 808 2.849 Hartford 1,183 297 5.2 100 1,280 1.150 Honolulu 735 -925 8.1 200 1,983 0.5
U.S.* 213,211 204,765 4.7 0 1,629 4.0
Figure 23: Multifamily Fundamentals for the 50 Largest U.S. Markets, Q1 2016
Source: CBRE Econometric Advisors, Axiometrics Inc., Q1 2016. Markets ranked by inventory size. *U.S. figures represent the sum of 62 markets.
28 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 24LOS ANGELES MULTIFAMILY COMPLETIONS AND NET ABSORPTION
• With a vacancy rate of 3.7%, Los Angeles County has one of the nation’s tightest apartment markets.
• Quarterly net absorption has outpaced completions in three out of the past four quarters, as the rate of deliveries has trended lower.
• The roughly 900 apartment units delivered in Q1 2016 amounted to only a third of the units delivered in Q1 2015.
• Vacancy is expected to tighten further through mid- 2016. However, with completions picking up significantly—rising well above 2,000 units per quarter through 2016—vacancy should rise slightly and stabilize around 4% by the end of the year.
Source: CBRE Econometric Advisors, Axiometrics, Q1 2016.
Forecast
Figure 24: Los Angeles Multifamily Completions and Net Absorption
Source: CBRE Econometric Advisors, Axiometrics, Q1 2016.
Units (000s)
Q1 20
10
Q1 20
11
Q1 20
12
Q1 20
13
Q1 20
14
Q1 20
15
Q1 20
16
Q1 20
17Completions Net Absorption (trailing 4-Qtr. Avg.)
0
4
2
3
1
29 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 25LOS ANGELES MULTIFAMILY RENT GROWTH AND VACANCY RATE
• Los Angeles has one of the country’s highest rent growth rates.
• Average rents increased 6.7% for the year ending Q1 2016 compared with the 5.9% increase registered a year earlier.
• Rent increases should somewhat moderate through the end of 2016, however, given the expected higher number of apartment deliveries.
Source: CBRE Econometric Advisors, Axiometrics, Q1 2016.
Forecast
Figure 25: Los Angeles Multifamily Rent Growth and Vacancy Rate
Source: CBRE Econometric Advisors, Axiometrics, Q1 2016.
Y-oY Rent Change (%) Vacancy Rate (%)
Y-oY Rent Change (L) Vacancy Rate (R)
6 78 8
-4 2
-8 0
-2 3
-6 1
0 42 54 6
Q1 20
10
Q1 20
12
Q1 20
14
Q1 20
16
Q1 20
11
Q1 20
13
Q1 20
15
Q1 20
17
30 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH
FIGURE 26LOS ANGELES MULTIFAMILY ACQUISITIONS VOLUME
• Strong job creation is a key driver of apartment demand in Los Angeles. Overall, Los Angeles has a 2.3% job growth rate (April 2016), above the 1.9% national average.
• In particular, growth in the tech industry in Hollywood and in the “Silicon Beach” region—including Playa Vista, Playa Del Ray, Westchester, Venice and Santa Monica—has contributed to the creation of many high-paying jobs.
• High home prices have also driven apartment demand. Los Angeles is one of the world’s 10 most expensive cities in which to buy a home, with a median home price 8.1 times its median income, according to the 2016 DemographiaInternational Affordability Study.
• Therefore it is not surprising that Los Angeles County’s rentership rate of 51% is the highest of any major metropolitan area in the U.S., according to the Census Bureau
Source: Real Capital Analytics, Q1 2016.
12
10
6
2
8
4
0
Q1 20
15
Q1 20
10
Q1 20
14
Q1 20
13
Q1 20
12
Q1 20
11
Figure 26: Los Angeles Multifamily Acquisitions Volume
$ Billions Rolling Four-Quarter Total Quarterly Volume
Source: Real Capital Analytics, Q1 2016.Q1
2016
• Development has been concentrated in downtown L.A. and Hollywood, as well as suburban submarkets with dense office and retail uses and strong demographics (i.e., high educational attainment and high incomes).
• These include the Tri-Cities area (Pasadena, Glendale, Burbank) and the Woodland Hills neighborhood in the San Fernando Valley.
FOR MORE INFORMATION, PLEASE CONTACT:
CAPITAL MARKETS
Brian McAuliffePresidentCapital Markets, Institutional Properties+1 312 935 [email protected]
Jeff MajewskiExecutive Managing DirectorHead of Production, AmericasCapital Markets+1 713 787 [email protected]
CAPITAL MARKETS - MULTIFAMILY
Christine AkinsSenior Managing DirectorCapital Markets, Multifamily Investment Sales+1 321 861 [email protected]
Peter DonovanExecutive Managing DirectorCapital Markets, Multifamily+1 617 217 [email protected]
Colleen Pentland LallyDirector, Capital Markets OperationsCapital Markets, Multifamily+1 617 217 [email protected]
Spencer G. LevyAmericas Head of Research+1 617 912 [email protected] Spencer on Twitter: @SpencerGLevyFollow Spencer on LinkedIn
Jeanette I. Rice, CREAmericas Head of Investment Research+1 214 979 [email protected] Jeanette on Twitter: @RiceJeanette
Quinn EddinsDirector, Research and Analysis+1 305 428 [email protected]
Jeffrey HavsyAmericas Chief Economist+1 617 912 [email protected]
Matt VanceEconomist+1 617 912 [email protected]
Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.