Market Spotlight: Indianapolis Sees Highest Rent Growth in U.S.

This article was originally published on Arbor Chatter as "Market Spotlight: Indianapolis Sees Highest Rent Growth in U.S.", and all charts and images are from Arbor Chatter.

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• Indianapolis multifamily rent growth topped the rankings in Q3 2020.
• Vacancy rates remained near record lows for the market.
• The Indianapolis metro area’s economy has performed better than most during the COVID-19 crisis, with unemployment recovering to near pre-pandemic levels.

The Indianapolis multifamily market experienced the nation’s highest rent growth during the third quarter of 2020 and the vacancy remained near record lows. Employment levels recovered to near pre-pandemic levels, driven by a developing technology industry and strong logistics base. While the course of the COVID-19 pandemic will be the ultimate driver of short-term growth, Indianapolis is well-positioned for long-term success.

Rent Growth Continues

According to Moody’s Analytics REIS, effective rent in Indianapolis grew 3.7% year-over-year, the highest rate among major markets in the country. This was well higher than the U.S. overall rate which fell -1.2% during that time. The strong rent growth was not a new trend. Indianapolis outgrew the U.S. overall for 2019 also, at 4.3% vs. 3.7%. Asking rent for Class A properties increased 3.3% year-over-year, compared to 2.2% for Class B/C, going against the national trend of rents in high-end properties falling faster than workforce units.

The market vacancy rate was at historic lows coming into the pandemic, reaching 5.0% at the end of 2019. By the end of the third quarter of 2020, the rate had increased to only 5.2%, although remaining slightly higher than the U.S. overall rate of 5.0%. The vacancy rate for Class A properties increased to 5.8% from 5.4% at year end, while the Class B/C rate improved to 4.4% from 4.5%, following the national trend of stronger workforce housing performance.

Economy Remains Strong

The Indianapolis metro area’s relatively affordable housing prices and cost of doing business has led to positive migration trends over the last few years. The already strong distribution sector has been further boosted by the growth in e-commerce during the pandemic, and the developing technology sector has provided a well-educated workforce. Additionally, the area’s low reliance on hospitality tourism has shielded its exposure to the recession, although the public sector has shown weakness.

According to the REIS COVID-19 impact tracker, the Indianapolis economy has performed better than most major markets during the coronavirus crisis, and the forecast calls for continued strong job growth.

The U.S. Bureau of Labor Statistics (BLS) reported that payroll employment for the Indianapolis metro area had nearly recovered to pre-pandemic levels by the end of October, down only 0.6% since February, or 6,400 jobs. For the U.S. overall, there were 10.1 million fewer jobs at the end of October compared to February, down 6.6%.

The BLS also reported that the unemployment rate for the area was 4.9%, approaching the the level prior to the COVID-19 outbreak of 2.8%, and well below the peak of 13.3%. As a comparison, the unemployment rate for the U.S. overall was 6.9% at the end of October, and peaked at 14.7%.

Outlook

As with most markets in the U.S., the course of the pandemic will determine the outlook for Indianapolis. However, the local economy has low exposure to the industries that have been hit hardest. The multifamily market entered the pandemic on a strong note and the area’s population growth, well-educated labor pool and growing high-tech industries will drive a fast recovery from the COVID-19 slowdown.

U.S. Multifamily Market Snapshot Q3 2020

 

The multifamily real estate market showed resilience in the third quarter, despite the COVID-19 pandemic. Rent growth posted declines, yet rent payments have held steady and the market fared better than other property sectors.

Source: Arbor Chatter

U.S. Multifamily Market Snapshot Q2 2020

 

The multifamily market felt the effects of the COVID-19 pandemic in the second quarter. Following a historically strong 10-year run, rent growth slowed and sales volume declined, as investors showed caution. Although the quarter’s results show that multifamily is not immune to the recession, and the course of the pandemic is still unknown, the sector has shown resiliency as compared with other sectors.

Source: Arbor Chatter

Phoenix Multifamily Market Snapshot Q1 2020

Prior to the onset of COVID-19, the Phoenix multifamily market stood on solid ground. The market had the highest rent growth in the nation, along with an active development pipeline and high investment activity. Although the Valley of the Sun is not immune to the economic effects of the recession that will be felt throughout the nation, the market is starting from a positon of strength.

Source: Arbor Chatter

U.S. Multifamily Market Snapshot Q1 2020

The U.S. multifamily market finished 2019 on a historic run, then COVID-19 hit. While the full impact wasn’t felt by the end of the first quarter, initial results indicated a slowdown in rent growth, along with a sharp decline in development and investment activity.

Source: Arbor Chatter

U.S Multifamily Market Snapshot Q4 2019

The U.S. multifamily market posted strong results to end 2019. Q4 2019 marked the 40th consecutive quarter of positive rent growth. At the same time, vacancy rates remained low amid active development. Here’s a quick look at the U.S. multifamily market finance and investment benchmarks for Q4 2019.

Source: Arbor Chatter

U.S Multifamily Market Snapshot — Q3 2019

The U.S. multifamily market posted strong results through the first three quarters of 2019, with a 39th consecutive quarter of positive rent growth. Sales volume was ahead of 2018’s pace, and cap rates continued their downward trend. Demographics remain favorable for the sector as the economic expansion continues.

Source: Arbor Chatter

U.S. Multifamily Market Snapshot — Q2 2019

At the midpoint of 2019, key indicators showed that the U.S. multifamily market was off to a strong start, with a 38th consecutive quarter of positive rent growth. The vacancy rate remained below long-term averages amid high levels of development activity. Sales volume was ahead of 2018’s pace, hitting a record-high annual total, and cap rates continued their downward trend. Demographics remain favorable for the sector as the economic expansion continues.

Source: Arbor Chatter

Cincinnati Multifamily Market Snapshot —Q1 2019

As the tail of this economic expansion extends further, real estate investors continue to search for yield by investing outside of primary markets. Cincinnati has been a beneficiary of that trend, and the market is booming. The multifamily market is experiencing record investment activity and rent growth. This is coupled with low vacancy and high demand. Employment levels are at all-time highs and unemployment is at historical lows.

Source: Arbor Chatter

Cincinnati is Booming as Economic Expansion Continues

This article was originally published on Arbor Chatter: Cincinnati is Booming as Economic Expansion Continues, and all charts and images are from Arbor Chatter.

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As the tail of this economic expansion extends further, real estate investors continue to search for yield by investing outside of primary markets. Cincinnati has been a beneficiary of that trend, and the market is booming.

Moody’s ranked the Queen City as the best-performing metro area in Ohio. The area’s economic strength was proven when Amazon invested $1.5 billion in a new regional air services hub.

The metro’s multifamily market is experiencing record investment activity and rent growth. This is coupled with low vacancy and high apartment demand. Employment levels are at all-time highs and unemployment is at historical lows. Going forward, Cincinnati’s highly educated and skilled workforce will assure it is well positioned as the economic expansion continues.

Investment Sales Market

Multifamily investment activity in Cincinnati has reached a torrid pace. Sales volume hit a record $609.2 million during 2018, according to Real Capital Analytics (RCA). This volume level eclipsed the 2017 total of $316.7 million, and the previous record-high of $447.3 million in 2016.

The average sale price in 2018 was $75,360/unit, up more than 20% as compared with $62,754/unit in 2017. Additionally, the market started off 2019 on a high note. The first three months of the year recorded a whopping $260.8 million in volume. This was significantly higher than the five-year quarterly average of $96.8 million.

Institutional investors have also increased their interest in the market, making up 13.7% of apartment volume in 2018 (private investors made up 67.1% and cross-border was 19.2%), compared with no activity in 2017 (when the volume was 100% private).

As expected with the property price increases, yields have steadily declined. Cap rates for Cincinnati apartment transactions averaged 6.7% for 2018, the lowest level on record for the market. They were also down from 7.1% in 2017. RCA records show the most recent high was in 2002, when cap rates averaged 9.0%.

Rental Market

On the back of solid investment activity, apartment rent growth in the Cincinnati market continues to accelerate. According to Reis, the average asking rent finished the first quarter of 2019 at $920/unit, up 3.8% from $886/unit one year ago. Rent growth for 2018 was 4.1%, matching 2016 for the market’s highest annual growth rate on record. Class A rent growth was 4.2% and Class B/C was 3.3%. Reis forecasts asking rents overall to increase by 3.8% during 2019.

The market’s vacancy rate improved to 4.1% during the first quarter, down from 4.4% one year ago. This is well below the most recent high of 9.3% during 2003 and 2004. The vacancy rate for Class A apartments was 5.7% at the end of the year and 3.5% for Class B/C assets. Reis reported that strong demand, the market’s small size and limited supply are driving low vacancy conditions. Reis forecasts the overall vacancy rate to climb only slightly in 2019, finishing at 4.6%.

Cincinnati’s development pipeline remains active, with more than 5,300 new apartment units delivered over the last three years. During that time, absorption has totaled 4,300 units. While new supply is currently outpacing demand, the market is making up for a lack of development during the downturn. From 2010 through 2015, only 3,600 units were completed, while 8,100 units were absorbed. Reis forecasts that nearly 1,100 new units are expected to be delivered during 2019, with net absorption expected to approach 800 units.

Economic Overview

Employment levels in Cincinnati have reached historic highs, supported by a strong business services sector, a hot housing market, and a growing commercial aviation cluster. Long-term growth will be solidified by a highly educated and skilled workforce. However, uncertainties around trade policy present risks, given the area’s exposure to tariffs.

According to the U.S. Bureau of Labor Statistics, total nonfarm employment in the Cincinnati, OH-KY-IN metro area increased 1.8% during the 12-months ending in March 2019. This was up from 1.1% in 2018, and higher than the U.S. overall rate of 1.7%. Additionally, the unemployment rate improved to 3.6% at the end of March, matching the lowest level seen since 2001.

The metro’s housing market has outperformed the national rate, driven by limited supply and accelerated demand. Home prices in Cincinnati increased 6.8% during 2018, significantly higher than the U.S. overall growth rate of 6.0%, according to the U.S. Federal Housing Finance Agency House Price Index.

U.S. Multifamily Market Snapshot — Q1 2019

The first quarter of 2019 marked the 37th consecutive quarter of positive rent growth for the U.S. multifamily market. Vacancy remained below long-term historical averages, amid high levels of development activity that haven’t been seen since the 1980s. Cap rates continued their downward trend and measures of value outpaced other property types. Demographics remain favorable for the sector as the economic expansion continues.

Source: Arbor Chatter

Las Vegas Multifamily Market Snapshot — Q4 2018

The Las Vegas multifamily market posted the highest rent growth in the nation during 2018, bolstered by strong migration trends and a high concentration of prime-age workers. The vacancy rate increased slightly, driven by a rise in new construction, yet it remained among the lowest nationally. Investment activity continued at a robust pace, although it fell slightly short of 2017’s record level.

Source: Arbor Chatter

U.S. Multifamily Market Snapshot — Q4 2018

The U.S. multifamily market further solidified itself as the premier real estate asset class in 2018. Rents increased for the third consecutive year, while vacancy rates remained low despite historically high levels of development activity. Low cap rates and rising prices didn’t restrain investment activity, which reached record-high volume levels. The economic cycle continued its strong and mature expansion, producing an eighth consecutive year of positive job growth.

Source: Arbor Chatter

Las Vegas Posts Highest Multifamily Rent Growth in U.S. in 2018

This article was originally published on Arbor Chatter: Las Vegas Posts Highest Multifamily Rent Growth in U.S. in 2018, and all charts and images are from Arbor Chatter.

Las Vegas experienced the fastest rent growth in the U.S. during 2018, with an 8.6% year-over-year increase in asking rent, according to Reis.

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The Las Vegas multifamily market posted the highest rent growth in the nation during 2018, driven by strong migration trends and a high concentration of prime-age workers. A rise in new construction bolstered a slight increase in the vacancy rate, yet it remained among the lowest nationally. Investment activity continued at a robust pace, although it fell slightly short of 2017’s record level.

Multifamily demand is expected to remain high in 2019, as the local economy expands further into the cycle, especially given that the rapid increase in home prices has reduced homeownership demand.

Rental Market

According to Reis, the asking rent in Las Vegas averaged $1,097/unit at the end of 2018, an increase of 8.6% year-over-year, and the fastest growth in the U.S. Additionally, rent has risen in every quarter since third-quarter 2011. Class A rent increased 9.2% during the year, while Class B/C increased 6.7%. Overall, Reis forecasts rent to increase 5.0% during 2019, then slow into the 3.4% range through 2023.

Driven by the addition of new supply, the market vacancy rate increased to 4.0%, up from 3.2% at the end of 2017, yet it remained among the 20 lowest nationally. Class A vacancy climbed to 5.0%, up from 3.7% one year ago, while Class B/C increased to 2.9%, from 2.7%.

The pace of construction continued to accelerate, with more than 3,800 units coming online during the year. This surpassed the 2017 total of 2,900 units, and marked the highest annual total for the market since 2001. Absorption edged higher, although it was unable to keep pace with new supply, totaling just over 2,500 units.

Reis forecasts indicate that 2018 was the likely peak for apartment construction in the market, with 1,100 units expected to be completed during 2019. Demand is also expected to overtake new supply, as absorption is forecasted at more than 1,300 units for the year.

Sales Market

Multifamily investment has increased substantially in Las Vegas over the last three years. Real Capital Analytics reported that sales volume totaled $2.2 billion during 2018, double the 10-year average of $1.1 billion, although momentum was down compared to 2016 and 2017.

Real Capital Analytics also reported that apartment cap rates in Vegas averaged 5.5% during the year, down from 5.7% at the end of 2017, and the lowest level on record. The average sales price was $122,388/unit for 2018 sales, the highest since 2007.

Economic Overview

The Las Vegas economy has traditionally been dictated by its well-known gaming and entertainment industry. However, the area’s strong migration trends and high concentration of prime-age workers have driven the current cycle.

According to the U.S. Bureau of Labor Statistics, total nonfarm employment in the Las Vegas-Henderson-Paradise, NV, metro increased 3.9% during 2018, as compared with 3.2% during 2017, and 1.8% for the U.S. overall. The largest gains were reported in the manufacturing (up 15.0%) and construction (up 12.3%) sectors, with no major sectors reporting losses.

Vegas-area home prices continued their rapid increase, raising affordability concerns and reducing homeownership demand. The S&P CoreLogic Case-Shiller Las Vegas Home Price NSA Index increased 12.1% during the 12 months ending in November, which was the highest among the 20 cities covered in the index. As a comparison, the U.S. National Home Price Index registered a 5.8% gain.

For more multifamily trends and insights, view our U.S. multifamily market update.