Top 10 Markets for Multifamily Sales Volume in 2020

This article was originally published on Arbor Chatter as "Top 10 Markets for Multifamily Sales Volume in 2020", and all charts and images are from Arbor Chatter.

-----

• Dallas finished as the top destination for multifamily capital in 2020, for the fifth consecutive year. 
• Sun Belt markets such as Atlanta and Phoenix continued to attract investors. 
• U.S. multifamily sales overall fell 28% in 2020, compared to 2019’s record total.

The U.S. multifamily market weathered the COVID-19 pandemic better than most sectors of the economy during 2020, boosted by stimulus packages that allowed tenants to generally keep up with rent payments. According to Real Capital Analytics (RCA), sales activity was down 28% in 2020, compared to 2019’s record total. However, the year finished strong. After moderating in the third quarter, the market posted $56.7 billion in sales in the fourth quarter, which was higher than the volume seen in the entire first half of the year. 

Sun Belt markets led the recovery, as investors sought out affordable markets with positive migration trends, strong economies and good job growth.

Dallas Remains Strong

For the fifth year in a row, Dallas led the nation in multifamily investment activity, with $10.3 billion in sales volume. This was only an 8.0% drop from the $11.2 billion in sales recorded during 2019. Dallas was a strong performer during the recent expansion, finishing as the No. 2 sales market for the 2010s, behind only Manhattan.

 
The Dallas economy fared relatively well during the downturn, with employment declines well below the national average. The ability to work from home buffered job losses among the area’s high concentration of corporate headquarters, while the increased demand for housing boosted the construction industry. These factors, along with positive migration trends and a growing technology sector, make Dallas an attractive market for multifamily investment coming out of the recovery.

Sun Belt Markets Shine

Atlanta finished second in the nation for 2020, with $9.5 billion in multifamily sales volume, a 17.4% drop as compared with 2019. The area’s diverse economy lessened the effects of the recession, although the recovery has been slow as the level of COVID-19 cases remains high.

 
After posting a historical market record in multifamily sales volume in 2019, Phoenix finished 2020 with $8.2 billion in sales. This was the third highest total in the nation, although it was down 22.1% year-over-year. The area’s economy fared better than most markets during the pandemic. Tremendous population growth and business relocations have driven the market's recovery, but an extremely high level of positive COVID-19 cases have hindered this progress.

 
Additional Sun Belt markets filled out 2020’s top 10 multifamily sales volume leaders, including Denver, Austin and Charlotte, with Houston, Tampa and Orlando finishing as runners up.

Southeast Region Multifamily Market Sees Strong Rent Growth in Q2 2018

Image via Arbor Chatter

This post originally appeared on Arbor Chatter.


-----

The Southeast Region of the U.S. has continued to see strong rent growth, with nine of the 12 primary markets experiencing rent increases higher than the national average over the 12 months ending in Q2 2018. Vacancy rates across the region have skewed higher recently, driven by the addition of new supply in the markets.


Rent Growth

According to data from Reis, nine of the 12 primary markets in the region posted rental gains higher than the U.S. average of 4.5% over the 12 months ending in Q2 2018. The market with the highest rent growth was Orlando (up 6.9%), where the average asking rent rose to $1,185/unit at the end of the second quarter, up from $1,108/unit one year ago. Orlando is expected to continue to be a strong performer over the long-term, driven by strong demographics behind robust positive net migration and a young working-age population.

Nashville finished with the second highest rent growth in the region, rising 6.5% over the last 12 months (finishing at $1,114/unit, up from $1,046/unit), propelled by a surplus of new Class A product added to the inventory.

Vacancy Rates

Reis data showed that multifamily vacancy in the Southeast Region has skewed higher recently, with nine of the 12 primary markets posting higher vacancy rates than the U.S. average.

The three markets that managed to post vacancy rates lower than the U.S. average of 4.8% at the end of Q2 2018 were: Orlando (rising to 4.7% from 4.3% one year ago), Tampa-St. Petersburg (unchanged at 4.7%), and Jacksonville (improving to 4.4% from 4.7%).

The highest vacancy rates in the Southeast at the mid-year mark were reported in Birmingham and Nashville, both at 7.1%. Vacancy in both markets has been driven by the addition of new supply. Reis data revealed that more than 1,100 new multifamily units were delivered in Birmingham during 2017, representing 2.5% of total inventory and the highest annual total since 2006. In Nashville, nearly 6,600 units were delivered last year, which represented 5.8% of the existing inventory and was the highest annual total on record for the market.

The highest level of multifamily development in the Southeast Region during 2017 was in Atlanta, with a total of 9,000 new units completed. Atlanta finished fourth nationally for the year, behind only the Houston, Dallas, and New York City markets. Reis forecasts more than 27,200 additional units to come online in Atlanta through 2022, the third-highest forecasted total nationally for that time, behind only Dallas and Los Angeles.


Employment 

According to the U.S. Bureau of Labor Statistics, employment in the South region (combined South Atlantic and East South Central areas) increased 1.6% during the 12 months ending in July 2018, lower than the 2.4% growth rate for the 12 months ending in July 2017, yet in line with the U.S. overall growth rate.

The Orlando-Kissimmee-Sanford, FL metropolitan area had the highest employment growth rate in the region over the last 12 months (3.6%), followed by Raleigh, NC (3.2%) and Jacksonville, FL (3.1%).

The unemployment rate for the South finished at 3.9%, down from 4.2% one year ago, while the labor force participation rate increased 1.3%.

Dallas Multifamily Market Remains Strong Through Q1 2018

Image via Alex Chatter

After standing out as one of the stronger performing markets in the country during 2017, Dallas continued its momentum during the first quarter of 2018. Rent growth and investment activity remained strong, while vacancy rates held at historically low levels despite a high volume of new supply added to the market.

Read the full report on Arbor Chatter here: Dallas Multifamily Market Remains Strong Through Q1 2018

Dallas Multifamily Posts Strong 2017, Eyes on Supply & Demand Balance for 2018

The Dallas multifamily market posted strong results in 2017 as rent growth continued and investment activity was high. Vacancy — driven by an influx of new supply — increased,  though levels remained well below previous highs.

Read the full report on Arbor Chatter here: Dallas Multifamily Posts Strong 2017, Eyes on Supply & Demand Balance for 2018

The Numbers Behind the Dallas Multifamily Boom

This article was originally published on ALEX Chatter: The Numbers Behind the Dallas Multifamily Boom.

-----

View over downtown Dallas from the Reunion Tower.

Dallas was one of the hottest multifamily markets in the U.S. during 2016. Rent growth accelerated as vacancy reached historic lows, strong employment growth continued to drive new development, and investment activity reached record highs.

Rental Market

Dallas posted the fastest rent growth and the lowest vacancy in the Southwest region during Q4 2016. According to Reis, the average asking rent reached $1,063/unit during the quarter, up from $1,049/unit during the third quarter, and has risen in every quarter since year-end 2009. Year-over-year, asking rent climbed 6.0%, up from $1,003/unit in Q4 2015. Reis forecasts rents will grow 5.1% during 2017, and will slow to 2.0% by 2021.

The class A average was $1,290/unit, up 5.0% year-over-year, while class B/C properties rose 5.7% to $785/unit. Central Dallas posted the highest submarket rent, at $2,103/unit.

Reis also reported that the vacancy rate in Dallas ended the year at 3.8%, an improvement from 4.7% one year ago, and the lowest level since 1993. Class A vacancy was 4.7%, while class B/C properties finished the year at 2.6%. Mesquite/Seagoville had the lowest submarket vacancy rate, at 1.2%. Reis forecasts vacancy will increase to 5.3% by the end of 2021.

New Development

Multifamily development in Dallas has been among the strongest in the nation, with the second most units completed during 2016 and planned to come online during 2017, trailing only Houston.

Construction data from Reis shows 11,567 new units completed during 2016, which built on strong totals of 11,955 units in 2015, 12,346 units in 2014, and 10,177 units in 2013. Much of the new development has been in high-amenity high-rises near downtown. Reis analysts forecast 19,696 new units to come online during 2017, representing 4.2% of the existing inventory, and would be the highest annual total on record for the market.

Amid the flood of new supply, demand has remained strong. Absorption totaled 14,462 units during 2016, the third highest total on record for the market, and absorption is forecast to reach 14,150 units for 2017.

Investment Sales

The Dallas investment market posted a record breaking fourth quarter. According to data compiled by Real Capital Analytics, multifamily volume reached $3.1 billion, more than double the five-year quarterly average of $1.7 billion, and the highest quarterly total on record for the market. Sales totaled $9.4 billion during 2016, higher than the 2015 total of $8.3 billion. There were 406 significant transactions recorded during the year, compared with 392 for all of 2015.

The purchase of Landmark Apartment Trust Inc. by Starwood Capital Group and Milestone Apartments Real Estate Investment Trust in January accounted for a significant portion of Dallas sales volume in 2016. The deal included 27 multifamily properties in the Dallas market, made up of more than 6,800 units and valued at approximately $458.1 million.

Dallas also solidified its standing as a desirable market for foreign investment. A total of $341.7 million in foreign capital was used to purchase multifamily properties in the market during 2016, which was following an even stronger 2015 when $1.6 billion in capital came through. Furthermore, Dallas has been the number two destination in the U.S. for foreign multifamily investment over the past five years, trailing only Manhattan.

The average multifamily sale price in Dallas for 2016 was $112,846/unit, the highest level on record for the market, and up 21% from $93,158/unit during 2015. In comparison, the U.S. overall average sale price was $145,720/unit, up 7.2% from $135,895/unit one year ago.

The average cap rate for 2016 sales in Dallas was 6.1%, down from 6.5% in 2015, and the most recent high of 8.2% in February 2009. The cap rate spread over the 10-year Treasury yield was 355 bps, down 69 bps year-over-year, which was tighter than the five-year average of 437 bps. In comparison, the U.S. cap rate was 5.7%, as compared with 5.9% one year ago.

Economic Overview

Data from the U.S. Bureau of Labor Statistics showed that employment for the Dallas-Plano-Irving, TX metropolitan area increased 4.2% (representing 103,400 jobs) during 2016, higher than the 1.6% gain for the U.S. overall during that time. The largest gains over the last 12 months were in mining, logging, and construction (up 6.5%); professional and business services (up 6.1%); and leisure and hospitality (up 5.6%). No major industry sectors reported losses on the year. The unemployment rate rose to 3.6%, essentially unchanged from one year ago, and lower than the U.S. overall rate of 4.7%.

The housing market also remained strong during the year, with price growth higher than the national average. The S&P Case-Shiller Home Price Index for Dallas increased 8.1% during the 12 months ending in December, outpacing the U.S. index, which increased 5.8%.

The financial services and business services sectors are expected to continue to drive employment growth in Dallas during 2017. The area’s strength as a distribution center, high concentration of corporate headquarters, and favorable demographics will solidify its economy in the longer run; although growth will be business-cycle dependent because of a high exposure to the volatile high tech industry.

Affordability

The market boom in Dallas has taken a toll on affordability. The city council has taken up a task force to address the issue and a recent report from the Federal Reserve Bank of Dallas showed the housing market to be the least affordable major metro area in the state.

Zillow measures rental affordability as the share of household income spent on rental payments, excluding utilities and other costs.

According to data from Zillow, rent affordability in Dallas-Fort Worth, TX was 29.9% at the end of 2016, ranking 84th out of 300 markets. In comparison, the historical average for the market measured from 1985 through 1999 was 21.8%, ranking a more favorable 241st.

Despite the recent increases, rent affordability in Dallas remained only slightly higher than the national average of 29.2% at year-end. Historically, the national average was 25.8%.