U.S. MULTIFAMILY MARKETVIEW FIGURES - … RESEARCH 2 U.S. MULTIFAMILY MARKETVIEW | Q3 2016 FIGURES...

U.S. MULTIFAMILY MARKETVIEW FIGURES

Q3 2016

2 U.S. MULTIFAMILY MARKETVIEW | Q3 2016 FIGURES CBRE RESEARCH

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FIGURE 1 MULTIFAMILY NET ABSORPTION (ROLLING FOUR-QUARTER TOTALS)

•  Multifamily demand remains favorable. Net absorption totaled 191,800 units for the year ending Q3 2016, one of the higher levels during the economic cycle.

•  CBRE EA forecasts some cooling in demand over the next few quarters due to three factors: a slower pace of employment growth, older millennials now moving into homeownership, and possible affordability issues across the multifamily product spectrum (rising rents putting financial pressure on households).

Source: CBRE Research, CBRE Econometric Advisors, Q3 2016. Most recent data point represents the four quarters ending Q3 2016 (191,812 units). Note that for new product, net absorption is included in the statistics when the property has stabilized.


Rank Metro4 Quarters Ending Q2 2016 (Units)

Ratio to Total Inventory (%)

1 New York 24,400 1.32 Washington, D.C. 10,000 1.83 Austin 8,900 4.64 Dallas/Ft. Worth 8,800 1.45 Atlanta 8,300 2.06 Phoenix 8,000 2.47 Seattle 7,700 2.28 Charlotte 6,000 4.29 San Antonio 6,000 4.010 Denver 5,900 2.0

FIGURE 2 LEADING METROS FOR MULTIFAMILY NET ABSORPTION

•  The metro with the highest total net absorption for the year ending Q3 2016 was New York City with 24,400 units. A recent surge in deliveries contributed significantly to New York’s absorption total; traditionally high demand has not been met by available supply.

•  Washington, D.C. moved into second place in the ranking, and Austin took third place.

•  Other leading metros for net absorption were Dallas/Ft. Worth, Atlanta and Phoenix—all with more than 8,000 units absorbed in the past year.

Source: CBRE Research, CBRE Econometric Advisors, Q3 2016. Note that for new product, net absorption is included in the statistics when the property has stabilized. Totals are rounded to nearest 100.


FIGURE 3 U.S. HOMEOWNERSHIP RATES AND RENTER HOUSEHOLDS

•  As of Q3, the national homeownership rate was 63.4% (seasonally adjusted), up 0.3 percentage points from Q2 2016 and down 0.3 points from Q3 2015.

•  The recent figure likely indicates that the 12-year decline in homeownership rates has stabilized, although it is highly unlikely for any notable upward movement to occur in the near term.

•  Home buying activity is rising, and the National Association of Realtors (NAR) attributes the higher velocity of existing home purchases to first-time homebuyers. NAR reports that 2016 existing home sales rose 5.9% in October from a year ago, with first-timers representing 33% of all purchasers—up from 31% in October 2015.

Source: U.S. Census Bureau (CPS/HVS), Q3 2016. Homeownership rates are seasonally adjusted. Renter households is based on data for occupied renter housing units.

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Homeownership Rate (%) Renter Households (Mil.)

Homeownership Rate (L) Occupied Renter Households (R)


FIGURE 4 ANNUAL CHANGE IN OCCUPIED RENTER HOUSING UNITS

•  The totals for renter households (based on occupied rental units of all types of housing, including single-family) are still rising.

•  The U.S. Census Bureau reports a total of 43.3 million rental housing units in the U.S. as of Q3, up 647,000 from the prior year. The level of growth moderated in 2015 and 2016, but these statistics still provide a sense of how large the demand is for rental housing in the U.S.

•  While the multifamily market has pockets of oversupply that will impact it in the near term, the industry likely is not building enough housing for renter households over the longer term.

Source: U.S. Census Bureau (CPS/HVS), Q3 2016. *Year ending Q3 2016.

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FIGURE 5 HISTORICAL U.S. MULTIFAMILY COMPLETIONS

Source: CBRE Research, CBRE Econometric Advisors, Q3 2016. *In 2016, Q4 is a forecast. Note that deliveries are counted in the quarter in which property is stabilized.

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Q1 Q2 Q3 Q4 •  The most prominent near-term challenge for the multifamily market is supply. For the first time since the recession, multifamily completions outpaced demand in 2016, and the outlook for 2017 is the same.

•  National completions totaled 59,000 units in Q3, up 7% year-over-year. Approximately 233,000 units were completed during the year ending Q3, marking a 24% increase year-over-year and the highest four-quarter completions rate since 2001.

•  The urban infill neighborhoods are where most of the oversupply is occurring, causing effective rental growth to slow more than the metro averages.


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FIGURE 6 HISTORICAL U.S. MULTIFAMILY PERMITS

Source: CBRE Research, U.S. Census Bureau, Q3 2016. For buildings with 5+ units including for-sale product. Line represents historical average for period displayed (73,900).

•  There was a small uptick in multifamily units permitted in Q3 from the prior quarters. The Q3 total increased modestly to 106,500, up by 3.6% from Q3 2015’s level.

•  The more general trend over the past year and a half, however, is a moderation in permitting activity. Construction starts have also begun to drop.


FIGURE 7 LEADING METROS FOR MULTIFAMILY COMPLETIONS

Source: CBRE Research, CBRE Econometric Advisors, Q3 2016. Note that deliveries are counted in the quarter in which property reaches stabilization.

Rank Metro4 Quarters Ending Q3 2016 (Units)

Ratio to Total Inventory (%)

1 New York 27,000 1.42 Houston 12,400 2.13 Washington, D.C. 10,700 1.94 Dallas/Ft. Worth 10,200 1.65 Austin 10,200 5.36 Miami/South Florida 9,400 1.77 Denver 8,900 3.18 Phoenix 8,800 2.69 Atlanta 8,600 2.110 Seattle 8,400 2.411 Los Angeles 7,200 0.712 Boston 6,900 1.513 San Antonio 6,600 4.414 Charlotte 6,200 4.415 Orlando 5,900 3.1

•  New York, Houston and Washington, D.C. led U.S. metro areas in apartment deliveries for the year ending Q3 2016.

•  Austin, San Antonio and Charlotte had the highest new-supply-to-total-inventory ratios—each above 4% and well in excess of the national average of 1.6%. Oversupply in these markets is a concern, although demand has been very strong.


FIGURE 8 CURRENT CONSTRUCTION VS. HISTORICAL

Source: CBRE Research, CBRE Econometric Advisors, Q3 2016. For 19 largest markets and Austin. Note: Austin’s average annual completions total for the 2005-2015 period was 3,921 units. For the year ending Q3 2016, completions totaled 10,175 units, 2.6 times the historical average.

Ratio of Units Completed in 4 Quarters Ending Q3 2016 to 2005-2015 Average %

2 41 3 65 8 970

Detroit Philadelphia

Austin Denver

San Francisco Phoenix Chicago

Miami/South Florida Minneapolis

Seattle Washington, D.C.

Atlanta Tampa

Sum of Markets New York

Los Angeles San Diego

Houston Boston

Orange County Dallas/Ft. Worth

•  Another approach to understanding supply is to compare current deliveries with the longer-term average. For example, Austin's average annual completions total for the 2005-2015 period was 3,921 units. For the year ending Q3 2016, completions totaled 10,175 units, 2.6 times the historical average.

•  At the high end of the scale is Detroit and Philadelphia. New multifamily supply has increased significantly in these markets, where completions in the past year were more than three times their 2005-2015 average annual completions rates. However, oversupply is not a concern in these markets.

•  Other markets where the current level of completions is more than two times the historical average are Denver, San Francisco, Phoenix, Chicago, Miami/South Florida, Minneapolis, Seattle and Washington, D.C.


FIGURE 9 HISTORICAL U.S. VACANCY RATES AND CHANGE

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Source: CBRE Research, CBRE Econometric Advisors, Axiometrics Inc., Q3 2016.

•  While property fundamentals remain very healthy, a surge in unit deliveries this year has impacted markets across the country, reversing the downward trend in vacancy experienced for the past six years.

•  The Q3 2016 overall vacancy rate was 4.5%, 20 basis points (bps) higher than the rate a year earlier.

•  Vacancy for the urban core submarkets averaged 5.1% in Q3, 30 bps higher than the prior year. Suburban (non-urban core) vacancy was lower at 4.7% (+10 bps year-over-year).


FIGURE 10 VACANCY RATE CHANGE IN MAJOR MARKETS

Source: CBRE Research, CBRE Econometric Advisors, Axiometrics Inc., Q3 2016. For 19 largest metros and Austin.

Y-o-Y Change (bps)

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•  Of the 62 markets tracked, 39 recorded vacancy rate increases. Houston (+140 bps), Pittsburgh (+140 bps) and Tulsa (+140 bps) recorded the largest vacancy gains for the year ending Q3 2016. Oklahoma City, El Paso and West Palm Beach also posted increases of more than 100 bps.

•  Twenty-three markets posted declines in vacancy on a year-over-year basis. The markets with the greatest declines were Norfolk (-80 bps), Tucson (-80 bps), Cleveland (-70 bps) and Louisville (-70 bps).

•  Among larger markets, Minneapolis (-70 bps), Detroit (-60 bps) and San Diego (-60 bps) posted healthy drops in vacancy.


FIGURE 11 HISTORICAL U.S. RENTAL RATES AND CHANGE


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•  Rent growth continued to moderate in Q3 2016 from its 2015 peak. The weighted-average lease rate across the tracked markets increased by 2% year-over-year, versus 3.4% for the year ending Q2 2016 and 5.2% a year ago.

•  The average rent appreciation rate is now below both the average annual rate during the past two expansion cycles (3.9%) and the 2.4% historical average from 2000 through Q3 2016.

•  Suburban rent growth is clearly outpacing urban. The share of CBRE-tracked markets in which the suburbs posted higher annual rent growth than their respective urban cores has increased consistently from 27% in Q2 2012 to 71% in Q3 2016.


FIGURE 12 RENT GROWTH FOR LARGEST MULTIFAMILY MARKETS


Rank MetroY-o-Y

Change (%)Average Monthly Rent, Q3 2016

1 Seattle 6.6 1,7282 Tampa 6.1 1,1263 Phoenix 5.8 9564 Detroit 5.4 9895 San Diego 5.4 1,9436 Orange County 5.0 2,0497 Atlanta 5.0 1,1108 Dallas 4.6 1,1239 Chicago 4.3 1,55110 Boston 4.1 2,28211 Miami 4.0 1,67812 Los Angeles 3.8 2,27213 Austin 3.8 1,21814 Minneapolis 3.3 1,339

•  Among the largest multifamily markets tracked by CBRE EA, Seattle had the highest rent growth (6.6%) in the past year, with Tampa, Phoenix, Detroit and San Diego rounding out the top five.

•  Among all multifamily markets tracked by CBRE EA, Sacramento had the highest rate of rent growth (8.9%) in the past year, followed by Salt Lake City (7.4%), Seattle (6.6%), Inland Empire (6.5%), Nashville (6.3%) and Tampa (6.1%).


FIGURE 13 BUYER 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, Q3 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 5.00 2.0 5.75 3.75 4.75 10Boston Downtown High Rise 4.86 3.0 5.75 4.00 4.75 7 - 10Los Angeles West Los Angeles Mid Rise 4.53 5.0 6.00 3.25 4.50 - 4.75 5 - 7Seattle Downtown Mid Rise 3.75 3.5 6.00 4.25 5.00 10Washington, D.C. West End High Rise 4.50 4.1 6.00 4.25 4.50 - 4.75 5 - 7Dallas Intown Dallas High Rise 3.10 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 - 10Austin Downtown High Rise 3.40 3.5 6.00 - 6.25 4.25 5.00 - 5.25 10Chicago River North High Rise 3.60 3.0 6.00 - 6.25 4.25 - 4.75 5.25 10Atlanta Midtown High Rise 2.75 3.5 6.25 4.50 5.25 7New York Manhattan High Rise 5.80 3.0 6.50 4.25 4.75 10Denver Downtown High Rise 2.80 2.0 6.50 4.50 5.00 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 6.50 - 7.00 4.75 - 5.25 5.25 - 5.75 7 - 10Average 3.73 3.3 6.18 4.27 5.02 8.5


FIGURE 13 (BULLET POINTS) BUYER VALUATION UNDERWRITING SURVEY FOR PRIME CLASS A MULTIFAMILY ASSETS: RANKED BY IRR TARGET AND CAP RATE

•  CBRE Research’s Q3 2016 Buyer Underwriting Survey found relatively stable underwriting and expectations.

•  The Q3 average rent growth assumptions edged down 14 bps from Q2 to 3.3%. However, the expected IRRs and cap rates used in underwriting were essentially unchanged from the prior quarter, reflecting continued confidence in market conditions and a willingness to accept lower returns for high-end, mid- and high-rise assets in the best submarkets.

•  CBRE investment professionals noted, however, that while Q3 pricing held up for prime Class A multifamily assets, the bidding velocity has dropped in recent months, partly due to institutional capital’s more cautious approach to core buying.


FIGURE 14 U.S. MULTIFAMILY ACQUISITIONS VOLUME

Source: CBRE Research, Real Capital Analytics, Q4 2016. Some numbers may not total due to rounding.

Total ($ billions) Change (%)Current Quarter Q3 2015 Q3 2016Individual Assets 25.5 31.6 23.8Portfolios 5.7 5.4 -5.4Entity-Level 3.2 0.0 -Total 34.4 37.1 7.6Year-to-Date - July 2015 2016Individual Assets 86.1 92.3 7.1Portfolios 22.1 25.8 16.9Entity-Level 13.7 3.3 -76.3Total 121.9 121.4 -0.5

•  Multifamily experienced another quarter of robust investment activity; acquisitions totaled $37 billion, up 7.6% from Q3 2015’s level. Multifamily also held the lead as the property sector with the most investment for the fourth quarter in a row.

•  Year-to-date through October, multifamily acquisitions totaled $121 billion, representing a slight drop year-over-year.

•  Excluding entity-level acquisitions, arguably a more representative total, investment is at $118 billion year-to-date, up 9.1% year-over-year.


FIGURE 15 U.S. MULTIFAMILY INVESTMENT SALES VOLUME AND CAP RATES

Source: CBRE Research, Real Capital Analytics, Q3 2016.

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FIGURE 15 (BULLET POINTS) U.S. MULTIFAMILY INVESTMENT SALES VOLUME AND CAP RATES

•  U.S. multifamily cap rates averaged 5.50% in Q3, according to RCA, reflecting a 30-bp decline from the prior quarter and 40-bp drop year-over-year.

•  CBRE investment professionals note that activity by value-add buyers remains heated due to the strong value-creation opportunity in renovating and upgrading older product. This buying activity explains some of the decline in cap rates.


FIGURE 16 LEADING METROS FOR MULTIFAMILY INVESTMENT, H1 2016

Source: Real Capital Analytics, CBRE Research, Q3 2016. Total include entity-level acquisitions. *Los Angeles includes Orange County and Inland Empire.

Rank

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Acquisitions ($ billions)

Market Share (%)Metro Cumulative

1 New York City 13.8 12.4 12.42 Los Angeles* 8.1 7.2 19.63 Dallas/Ft. Worth 6.0 5.4 25.04 Atlanta 5.6 5.0 30.05 Miami/South Florida 5.2 4.7 34.76 Denver 5.1 4.6 39.37 San Francisco Bay Area 4.1 3.6 42.98 Phoenix 4.0 3.5 46.59 Washington, D.C. 3.8 3.4 49.910 Houston 3.6 3.2 53.111 Seattle 3.3 3.0 56.112 Austin 2.9 2.6 58.7

•  The New York City metropolitan area continued to attract the most multifamily investment among U.S. metros, with a total of $14 billion year-to-date, or 12.5% of the $112 billion U.S. total through Q3.


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FIGURE 17 U.S. MULTIFAMILY SALES PRICE INDEX

Source: Real Capital Analytics, Moody’s Investors Services, CBRE Research, Q3 2016. Monthly data. Index = December 2000.

•  The Moody’s/RCA Commercial Property Price Index, based on repeat property sales, reached a new high of 274 for multifamily in September 2016, up 10% year-to-date.

•  Multifamily experienced the largest year-to-date price gain of all major asset classes.

•  The large increase in long-term interest rates in the latter half of Q4 2016 has led to some changes in the multifamily investment arena. These include very modest price adjustments to some transactions in the pipeline. About 18% of deals experienced very small price adjustments (less than 3% on average), based on a survey of CBRE multifamily professionals in December 2016.


FIGURE 18 INSTITUTIONAL MULTIFAMILY RETURNS

Source: CBRE Research, NCREIF, Q3 2016. *For year ending Q3 2016. All returns are reported on an unlevered basis.

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•  Investment performance by institutionally owned multifamily properties fell under the sector’s long-term average (9.7%) in Q3 2016, and is the lowest return in more than six years.

•  NCREIF reported an 8.5% total return for the year ending Q3 2016 (appreciation 3.7%, income 4.6%), down more than 3 percentage points from 2015’s 12%.

•  The decline is largely due to lower appreciation. In contrast, the income return has changed little this year.


FIGURE 19 U.S. MULTIFAMILY MORTGAGE PRODUCTION

Source: CBRE Research, Commercial Mortgage Alert, Fannie Mae, Freddie Mac, American Council for Life Insurers, Federal Deposit Insurance Corporation, Q3 2016. *Bank data are net changes in total existing multifamily loan holdings and thereby underrepresent new mortgage production. Some numbers may not total due to rounding.

Lending Source Period

Total ($ Billions) Change (%)2015 2016

Current QuarterCMBS Q3 3.1 2.3 -28.1Fannie Mae Q3 7.2 17.9 148.6Freddie Mac Q3 11.0 12.3 11.8Life Insurance Companies Q3 4.8 4.1 -13.9Banks* Q3 13.9 9.0 -35.3Total 29.7 25.4 -14.4Year-to-DateCMBS Q3 10.4 8.4 -19.1Fannie Mae Q3 32.3 40.7 26.0Freddie Mac Q3 34.2 39.1 14.3Life Insurance Companies Q3 11.1 14.4 29.5Banks* Q3 31.7 30.1 -5.0Total 77.0 83.6 8.5

•  Fannie Mae and Freddie Mac continue to dominate multifamily lending. Their combined mortgage production totaled $30 billion in Q3 and $80 billion year-to-date, both substantially higher than in 2015. The agencies are on pace to exceed $100 billion this year.

•  CMBS lending for multifamily assets totaling $2.3 billion in Q3 is down 28% from last year’s Q3 total, and the year-to-date total of $8.4 billion is down 19% from last year at this time. Other property sectors experienced much larger year-over-year declines.

•  For life insurance companies, Q3 multifamily mortgage production fell 14% compared with the prior year. However, the year-to-date total is up 29% from last year’s level. Year-to-date, the multifamily sector had the largest market share, slightly ahead of office.


FIGURE 20 U.S. MULTIFAMILY OUTLOOK

Source: CBRE Research, CBRE Econometric Advisors, Q3 2016.

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FIGURE 20 (BULLET POINTS) U.S. MULTIFAMILY OUTLOOK

•  The outlook for the multifamily market in Q4 2016 and in 2017 remains favorable. Yet continued modest cooling is expected.

•  Construction deliveries should reach a new quarterly high for this cycle in Q4 2016 at about 93,000 units. Next year will also have a very high level of completions that should outpace projected demand. CBRE EA forecasts net absorption of 163,000 units in 2017, while deliveries are projected to reach 259,000 units.

•  Next year’s supply-demand imbalance is projected to temper rent growth and move vacancy rates modestly higher. Under the baseline scenario, 2017 vacancy is expected to increase by 80 bps to 5.5% from 2016’s average of 4.7%. Rental growth for 2017 is projected at only 1.2%.


FIGURE 21 MULTIFAMILY FUNDAMENTALS FOR THE 45 LARGEST U.S. MARKETS, Q3 2016

Source: CBRE Research, CBRE Econometric Advisors, Axiometrics Inc., Q3 2016. Markets ranked by inventory size. *U.S. represents sum of all 62 markets tracked by CBRE EA.

Rank by Inven-tory Market Metro

Total Inventory (Units)

New Supply

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Rate (%) Y-o-Y (bps)

Per Sq. Ft. (2000s

Product)

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($ Per Unit)Y-o-Y

Change (%)U.S.* 14,311,850 165,909 183,308 4.5 20 1.63 1,678 2.0

1 New York 1,891,225 20,848 25,549 3.1 10 3.80 3,005 -1.22 Los Angeles 1,064,002 6,001 3,284 4.0 30 2.83 2,272 3.83 Chicago 702,093 4,228 6,872 4.8 60 2.15 1,551 4.34 Dallas/Ft. Worth 651,901 7,384 8,012 4.4 20 1.37 1,097 4.95 Houston 590,486 8,338 3,784 6.9 140 1.29 1,081 -1.36 Miami/South Florida 559,691 6,667 1,567 4.8 80 1.71 1,609 4.07 Washington, D.C. 552,642 7,768 9,823 4.5 0 2.23 1,704 2.48 Boston 461,499 4,850 5,404 4.0 30 2.60 2,282 4.19 Atlanta 414,002 5,391 6,993 5.1 0 1.21 1,110 5.0

10 Seattle 350,339 5,865 6,994 4.3 10 2.17 1,728 6.611 Phoenix 337,682 5,396 4,536 5.5 10 1.16 956 5.812 Philadelphia 294,634 2,619 3,110 4.6 20 1.75 1,351 1.113 San Diego 291,798 1,994 2,425 3.9 -60 2.18 1,943 5.414 Denver 288,398 6,301 6,354 5.1 90 1.66 1,420 2.215 Minneapolis 253,526 2,503 6,009 2.7 -70 1.58 1,339 3.316 Detroit 249,411 1,251 3,054 2.9 -60 1.30 989 5.417 Orange County 233,012 1,539 2,372 3.9 -30 2.40 2,049 5.018 Tampa 226,636 2,819 2,088 4.6 40 1.26 1,126 6.119 San Francisco 218,850 1,811 1,062 4.3 80 4.24 3,254 -1.320 Cleveland 200,225 745 3,315 3.8 -70 1.09 935 -0.321 Oakland 198,113 403 228 4.2 60 2.98 2,389 0.922 Baltimore 197,583 1,662 784 5.4 70 1.57 1,293 1.623 Austin 192,448 6,963 6,854 4.7 40 1.45 1,218 3.824 Orlando 188,032 3,311 3,251 4.1 20 1.26 1,161 4.925 Portland 182,200 2,724 2,519 4.6 90 1.72 1,411 4.026 Las Vegas 168,880 1,469 2,478 5.6 -40 1.06 923 4.927 Newark 166,091 1,789 2,399 2.7 20 2.16 1,782 3.528 Inland Empire 162,846 888 1,092 4.5 -20 1.70 1,481 6.529 San Jose 151,129 852 1,222 4.6 70 3.24 2,778 -1.230 San Antonio 151,075 3,998 4,779 5.7 20 1.23 938 2.531 Cincinnati 150,959 1,992 2,557 4.3 0 1.14 931 2.632 Columbus 150,150 2,655 2,763 4.3 10 1.08 870 3.933 Charlotte 141,819 5,316 5,332 4.2 -10 1.17 1,041 4.534 Indianapolis 140,152 2,641 3,401 6.3 -20 1.06 819 3.935 Kansas City 128,669 2,638 3,252 4.1 -10 1.10 953 3.936 Raleigh 128,025 3,698 3,838 4.8 -20 1.14 1,046 4.837 St. Louis 127,650 304 1,239 6.1 20 1.23 947 3.738 Sacramento 126,606 6 418 3.7 -40 1.60 1,389 8.939 Nashville 121,446 4,029 3,825 3.9 30 1.31 1,153 6.340 Norfolk 113,804 1,017 2,189 5.6 -80 1.29 1,044 1.641 Pittsburgh 106,971 1,626 1,682 6.3 140 1.48 1,199 -6.742 Providence 99,326 279 -154 3.1 40 1.73 1,471 3.743 Jacksonville 89,195 1,699 1,896 5.3 50 1.08 969 1.844 Salt Lake City 86,852 835 1,223 3.8 -10 1.27 1,032 7.445 Memphis 85,016 264 710 6.5 -30 1.01 835 3.7


FIGURE 21 (CONTINUED) MULTIFAMILY FUNDAMENTALS FOR THE 45 LARGEST U.S. MARKETS, Q3 2016

Source: CBRE Research, CBRE Econometric Advisors, Axiometrics Inc., Q3 2016. Markets ranked by inventory size. *U.S. represents sum of all 62 markets tracked by CBRE EA.



New Supply

YTD Q3

Net Absorption

YTD Q3



Per Sq. Ft. (2000s

Product)

Average Mo. Rent

($ Per Unit)Y-o-Y

Change (%)U.S.* 14,311,850 165,909 183,308 4.5 20 1.63 1,678 2.0





New Supply

YTD Q3

Net Absorption

YTD Q3



Per Sq. Ft. (2000s

Product)

Average Mo. Rent

($ Per Unit)Y-o-Y

Change (%)U.S.* 14,311,850 165,909 183,308 4.5 20 1.63 1,678 2.0



(continued from previous slide)


FIGURE 22 ATLANTA MULTIFAMILY COMPLETIONS AND NET ABSORPTION

Source: CBRE Research, CBRE Econometric Advisors, Axiometrics, Q3 2016. Note that units are counted as completed when the property has reached stabilization.

(continued to next slide)

Forecast

Units (000s) Completions Net Absorption

3

6

12

9

-6

-3

0

2005 2007 2011 20152009 2013 2017

•  Atlanta’s market metrics are impressive, particularly demand. Q3’s trailing 12-month absorption total of 8,300 units placed Atlanta fourth highest in the nation for apartment demand, according to CBRE EA.

•  Drivers of demand consist of the metro area’s growing population, especially due to in-migration and employment growth, as well as demographic and lifestyle shifts. As of October, year-over-year employment is up by 70,400 or 2.7%. CBRE EA's 2017 forecast (no near-term recession scenario) is for 63,000 new jobs.

•  The high demand has not been met with oversupply. Development activity is robust but has been in balance with demand; only 300 more units were completed than absorbed in the year ending Q3 2016.


FIGURE 23 ATLANTA MULTIFAMILY RENT CHANGE AND VACANCY

Source: CBRE Econometric Advisors, Axiometrics, Q3 2016. Vacancy is four-quarter average. Rent change is based on same-store rent index.

%

2005 2009 20132007 2011 20172015-9

-3

3

-6

-0

6

12

9

Y-o-Y Rent Change Vacancy

Forecast

•  Atlanta’s Q3 2016 vacancy of 5.1% is its lowest since 2001 and is down 10 bps from the prior year. While the decline was very small, it contrasts favorably with the national trend of slightly rising vacancy.

•  At 5%, Atlanta’s rent growth for the year ending Q3 2016 was also one of the higher levels achieved among U.S. metros and is well above Atlanta’s 2000-2015 average of 1%.

•  CBRE EA is projecting delivery of 8,700 new units for Atlanta in 2017, an 11.6% increase from the 2016 estimate of 7,800 units. The construction cycle is expected to reach its peak in 2017 and moderate after that.


$ in Billions

2010

8

4

10

6

2 1.22.1

3.43.9

5.96.8

5.6

0

2014

2013

2012

2011

2016

YTD

2015

Q1 Q2 Q3 Q4 TOTAL

FIGURE 24 ATLANTA MULTIFAMILY ACQUISITIONS VOLUME

Source: Real Capital Analytics, Q3 2016.

•  Atlanta’s attractive multifamily market has drawn the attention of a wide variety of capital sources, resulting in elevated sales volumes. In Q3, investment reached $2.4 billion, the second highest quarterly total in this expansion cycle.

•  The year-to-date total of $5.6 billion represents a 6% gain from the same period a year ago, according to RCA data.

•  Based on year-to-date total investment, Atlanta is the fourth most active metro market for acquisitions, after New York, Los Angeles and Dallas/Ft. Worth.

FOR MORE INFORMATION, PLEASE CONTACT:

CAPITAL MARKETS Brian McAuliffe President Capital Markets, Institutional Properties +1 312 935 1891 [email protected] Jeff Majewski Executive Managing Director Head of Production, Americas Capital Markets +1 713 787 1994 [email protected] CAPITAL MARKETS - MULTIFAMILY Chris Akins Senior Managing Director Capital Markets, Multifamily Investment Sales +1 321 861 7852 [email protected] Peter Donovan Executive Managing Director Capital Markets, Multifamily +1 617 217 6035 [email protected] Colleen Pentland Lally Director, Capital Markets Operations Capital Markets, Multifamily +1 617 217 6041 [email protected]

Spencer G. Levy Americas Head of Research +1 617 912 5236 [email protected] Follow Spencer on Twitter: @SpencerGLevy Follow Spencer on LinkedIn Jeanette I. Rice, CRE Americas Head of Investment Research +1 214 979 6169 [email protected] Follow Jeanette on Twitter: @RiceJeanette Matt Vance Economist +1 617 912 5242 [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.

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