U.S. MULTIFAMILY MARKETVIEW FIGURES 2016-08-24¢  Q1 2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008...

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Transcript of U.S. MULTIFAMILY MARKETVIEW FIGURES 2016-08-24¢  Q1 2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008...

  • U.S. MULTIFAMILY MARKETVIEW FIGURES

    Q1 2016

  • 2 U.S. MULTIFAMILY MARKETVIEW | Q1 2016 FIGURESCBRE RESEARCH

    EXECUTIVE SUMMARY CONSTRUCTION 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 1 MULTIFAMILY 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.

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    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.

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    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 2 LEADING 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 Metro 4 Quarters Ending Q1 2016 (Units)

    Ratio to Total Inventory (%)

    1 Dallas/Ft. Worth 13,633 2.1 2 New York 13,266 0.7 3 Seattle 9,723 3.0 4 Atlanta 8,980 2.4 5 Los Angeles 8,772 0.9 6 Washington, D.C. 8,645 1.7 7 Phoenix 8,432 2.7 8 Boston 8,237 1.9 9 Austin 7,531 4.3 10 Charlotte 7,062 5.6 11 Orlando 6,871 4.0 12 San Antonio 6,136 4.6 13 Houston 5,651 1.0 14 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 3 STRUCTURAL 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 4 U.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.

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    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 5 ANNUAL 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 multifa