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

L.A. Multifamily Fundamentals Remain Strong, Sales Volume Up Slightly in Q1 2018

Image via Alex Chatter

At year-end 2017, we took a look at the Los Angeles multifamily market. We noted then that Los Angeles stood as one of the stronger markets nationally, with low vacancy and high investment volume. As we look at results from the first quarter of 2018, market fundamentals remain strong, although signs of weakness continue to be observed.

Read the full report on Arbor Chatter here: L.A. Multifamily Fundamentals Remain Strong, Sales Volume Up Slightly in Q1 2018

Los Angeles Multifamily Rents Hit New Highs for 2017, Class B/C Vacancies Decrease

Los Angeles remained one of the more sought-after multifamily markets in the U.S. during 2017, as rent growth and investment volume ranked near the top nationally. The vacancy rate also remained low, despite an influx of new supply, and demand for additional housing remains high. The local economy has recovered from the recession, although high housing costs and restricted in-migration may slow expansion.

Read the full report on Arbor Chatter here: Los Angeles Multifamily Rents Hit New Highs for 2017, Class B/C Vacancies Decrease

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

U.S. Multifamily Year in Review 2017 – Still Going Strong

This article was originally published on Arbor Chatter: U.S. Multifamily Year in Review 2017 – Still Going Strong and all charts and images are from Arbor Chatter.

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The U.S. multifamily market continued to post strong results during 2017. Rent growth slowed, although remained healthy, and appears to have peaked in 2015. Despite a high volume of new supply, vacancy increased only slightly and remained at historically low rates. Investment activity was slow to start the year, yet gained momentum as the year went on, and finished just below 2016’s record highs.

Rental Market

The fourth quarter marked the 32nd consecutive quarter with positive rent growth for U.S. multifamily properties, according to data from Reis. Rent increased 4.2% during 2017, up from 4.0% during 2016, although was below the peak of 5.9% posted in 2015.

The vacancy rate increased to 4.5%, up from 4.2% one year ago, yet remained well below the previous high of 8.0% in 2009. The active development pipeline suggests 2016 may have been the cyclical low for vacancy.

Rent growth in Class A properties increased 4.3% year-over-year, as compared with 3.2% for Class B/C properties. Additionally, vacancy in Class A properties increased to 5.8% from 5.5% at the end of 2016, while Class B/C vacancy rose to 3.4% from 3.1%.

Birmingham had the most substantial rent growth among primary markets for the year, increasing 7.3%. Gains in the financial services and construction industries have driven the local economy.

New Development

Data from Reis showed that 2017 was a record year for multifamily supply growth in the U.S., as more than 221,100 new units came online, surpassing the 2016 total of 219,800 units. Demand struggled to keep pace with the additional supply, as absorption totaled 167,700 units, down from 213,900 units in 2016.

Many projects initially expected to finish during 2017 were delayed into 2018, suggesting an even stronger year ahead. Reis forecasts that a total of 265,100 new units will be added to the market in 2018, with absorption predicted to reach 202,500 units.

A total of 199,600 Class A multifamily units were delivered during 2017, building on last year’s total of 207,100 units. In the last eight years, less than 28,000 Class B/C multifamily properties have been added to the market.

Sales Market

Following a slow start to the year, multifamily investment activity increased as the year progressed. Data from Real Capital Analytics (RCA) showed that 2017 volume reached $150.1 billion, just below the historical high of $161.2 billion recorded during 2016, marking the first year since 2009 with a decline in volume.

The average sales price was up 1.0% on the year and up 19% compared to the five-year average. Cap rates continued to decline, falling 10 basis points during the year, to 5.6%.

The RCA CPPI™ apartment price index increased 10.6% during 2017, higher than the 10.1% increase for 2016. In comparison, the all property index increased 7.1% in 2017 and 8.6% in 2016.

Economic Overview

According to data from the U.S. Bureau of Labor Statistics (BLS) , total nonfarm payroll employment in the U.S. increased 1.5% during 2017, a gain of 2.2 million jobs, which was the lowest annual total since 2012. Employment trended up in construction, food services and drinking places, health care, and manufacturing. The unemployment rate was 4.1%, an improvement on the 4.7% rate reported one year ago.

The BLS also reported that over the last 12 months, the Consumer Price Index increased 2.1%. The shelter index rose 3.7%, down from 4.0% one year ago, with both the owners’ equivalent rent and the rent of primary residence indexes increasing 3.2%.

Real gross domestic product increased at an annual rate of 2.6% in the fourth quarter of 2017, according to the “advance” estimate released by the U.S. Bureau of Economic Analysis.

The U.S. Census Bureau reported that the homeownership rate finished 2017 at 64.2%, up slightly from 63.7% at the end of 2016. This marked the first annual increase since the peak of 69.2% in 2004, during one of the biggest housing booms in history.

Chicago Multifamily Market Update: Deal Volume Up as Investors Chase Yield

This article was originally published on ALEX Chatter: Chicago Multifamily Market Update: Deal Volume Up as Investors Chase Yield and all charts and images are from ALEX Chatter.

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The Chicago multifamily market remained strong during Q3 2017, as rents continued to set new record highs. Rising vacancy rates remained in line with the market’s historical average, despite a historically high influx of new supply. Corporate relocations and an emerging technology sector have driven demand. Additional demand factors include more millennials entering prime renting age and baby boomers downsizing into apartments.

Rental Market

According to Reis, the average asking rent for multifamily properties in Chicago reached $1,347/unit at the end of Q3 2017, up from $1,336/unit during Q2 2017, and represented the highest level on record. Year-over-year, rent was up 4.9%. The Class A average at the end of the quarter was $1,835/unit, up 5.8% year-over-year, while rent for Class B/C properties drifted upward 3.0% to $1,065/unit. Gold Coast, an area with a high concentration of new luxury development, posted the highest submarket rent, at $2,480/unit. Reis projects overall rent growth in Chicago will average 4.8% during 2017, and will slow to 1.7% by 2021.

After rising in every quarter since year-end 2009, Chicago’s vacancy rate finished at 4.5%, an increase as compared with 3.8% one year ago. The increase has been mostly driven by the addition of new high-end luxury developments to the market. The Class A vacancy rate finished at 6.1%, up from 5.0% year-over-year, while Class B/C properties finished the quarter at 3.5%, up from 3.2%. East Lake County had the lowest submarket vacancy at 2.0%. Reis forecasts that the market’s overall vacancy rate will reach 4.7% by the end of 2017, then inch up to 4.9% by the end of 2021.

“Although the apartment vacancy rate is expected to continue to rise as the supply of new units is expected to exceed occupancy growth, the increase in vacancy should be moderate,” says Barbara Denham, Senior Economist at Reis. “Most major metros face a similar predicament: higher new completions and decelerating demand.  Chicago’s excess supply is much lower than most major metros as developers have been more cautious relative to other cities, and demand growth has been steady.”

New Development

Among the top U.S. markets, Chicago had the most cranes working on residential projects, according to the most recent Crane Index survey from Rider Levett Bucknall. However, demand for newly constructed luxury apartments has not been able to keep up with the pace of new supply, as more than 6,806 new units were completed during 2016, while absorption totaled 6,233 units. The highest concentration of new development has been in the City West, Gold Coast, and Loop submarkets.

Reis forecasts 7,329 new units will come online in Chicago during 2017, which would mark the highest annual total in the last 30 years, while absorption is expected to reach only 4,155 units. An additional 16,363 new units are expected to be delivered through 2021, representing 3.5% of the existing inventory, with absorption expected to total 14,427 units during that time.

Sales Market

On the multifamily investment side, the Chicago market turned in a strong quarter during Q3, as prices increased and cap rates declined.

Data from Real Capital Analytics (RCA) showed that sales volume totaled $1.6 billion during the quarter, higher than the five-year quarterly average of $892.2 million. The 12-month average sale price was $190,990/unit, up 9.0% from the same time one year ago.

Through the first nine months of the year, sales totaled $3.3 billion, higher than the $2.9 billion recorded for the same period during 2016. For all of 2016 sales totaled $4.6 billion, the highest annual total on record.

“It should come as no surprise that deal volume is growing in Chicago even as it falls in other major markets of the US. Investors are hungry for yield and Chicago has that and then some,” says Jim Costello, SVP, Real Capital Analytics. “Over the last 12 months, cap rates in Chicago have averaged 140 basis points lower than those for the large coastal markets. This growth in deal activity is following the yield advantages.”

The RCA Chicago Apartment CPPI™ increased 9.1% over the last 12 months, compared to 9.9% one year ago and 10.0% for the U.S. overall.

Foreign investment accounted for $503.5 million of transaction volume year-to-date. Canadian investors accounted for $262.5 million of activity, with France following close behind at $201.0 million.

Chicago’s 12-month rolling average cap rate at the end of September was 5.9%, down from 6.1% one year ago, although higher than the U.S. overall average of 5.6%.

Economy

The Windy City’s recovering business cycle continues to move forward at a healthy pace, although budgetary issues and high crime rates remain a concern.

The U.S. Bureau of Labor Statistics reported that total nonfarm employment in the Chicago-Naperville-Arlington Heights, IL metropolitan division increased by 0.3% (representing 11,100 jobs) during the 12 months ending in September 2017, lower than the 1.2% gain for the U.S. overall during that time.

The largest gains over the last 12 months were in the financial activities sector (up 4.1%), while the losses were measured in the trade, transportation, and utilities sector (down 0.7%). Chicago’s unemployment rate fell to 4.2%, an improvement from 4.9% one year ago, and in line with the U.S. overall rate.

The local housing market continued its recovery, as the S&P Case-Shiller Home Price Index increased 3.9% during the 12 months ending in September, trailing the U.S. index, which increased 6.2%. Chicago’s index remains well below its pre-recession high set in March 2007.

The Zillow Home Value Index for Chicago increased 6.4% during the 12 months ending in September 2017, lower than the 6.9% increase for the U.S. index during that time. Zillow also reported that Chicago's price-to-income ratio came in at 3.1, putting it 2.2% higher than the market historical average, although in line with the U.S. average. Mortgage affordability was reported at 41.4% lower than the historical average, while rental affordability was 20.8% higher than its historical average.

Q1 2017 Multifamily Market Update: Despite Slow Sales, Prices Still Up

This article was originally published on ALEX Chatter: Q1 2017 Multifamily Market Update: Despite Slow Sales, Prices Still Up and all charts and images are from ALEX Chatter.

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Average asking rents in Colorado Springs increased 6.6% year-over-year as of March 2017, according to Reis. While familiar primary markets comprise most of the top 10 strongest performing markets, we are starting to see more secondary markets outperforming.

The U.S. multifamily market continued to post positive results during Q1 2017. Rent growth remained strong, while vacancy remained low and demand kept pace with high levels of new supply. Investment activity was slow to start the year, although prices continued to increase. 

Rental Market

According to data from Reis, the average asking rent in the U.S. reached $1,314/unit during Q1 2017, a 3.2% increase over the $1,273/unit average reported one year ago. This marked the 29th consecutive quarter of growth, although lower than the 5.7% annual growth rate reported one year ago. The asking rent for Class A properties increased 3.0% year-over-year, while Class B/C rents increased 3.1% for the same period. Overall, Reis forecasts rent growth will average 3.2% during 2017, then slow to 2.1% by 2021.

Landlords continued offering concessions in lieu of discounting rents, as the asking-to-effective rent spread was $54/unit at the end of the quarter, representing the largest gap since 2009. Asking rent increased 3.2% for the 12 months ending in March 2017, while effective rent grew 3.0%.

The strongest performing multifamily market in the U.S. over the last 12 months was Nashville, where average asking rent increased 8.1% to $1,029/unit, up from $952/unit. Rent growth has been boosted by active new development and by strong employment gains, led by the health-care industry. The supply chain bears watching, as nearly 8,000 units were completed over the last two years, and about 18,000 units are expected to be completed through 2021.

Seattle posted the second fastest growth among primary markets, increasing 7.1% to $1,606/unit from $1,500/unit. Driven by a strong local economy — with a broad industry base featuring aerospace, high-tech, and e-commerce — rents have increased in every quarter since 2009 in the market.

Reis also reported that the national vacancy rate remained low despite new deliveries, finishing the quarter at 4.3%. Vacancy was essentially unchanged from one year ago and remained below the most recent high of 8.0% in Q1 2010. The Class A vacancy rate finished at 6.0%, up slightly from 5.8% at the end of 2016, while the Class B/C vacancy rate was essentially unchanged at 2.9%. Reis forecasts the overall vacancy rate to finish 2017 at 4.8% and reach 5.2% by 2021.

Multifamily development continues to make headlines throughout the U.S., and while oversupply remains a concern, demand has so far been able to keep pace with supply. Reis forecasts a total of 291,352 new units to come online during 2017, eclipsing the 210,526 units that were delivered during 2016. Absorption totaled 207,103 units during 2016 and is expected to reach 211,614 units for 2017.

A pullback in supply is expected over the next several years and some 2017 projects could be pushed further into the cycle.

Sales Market

Multifamily investment activity was down sharply to start the year. Pricing increases, with sellers unwilling to lower asking prices, may point to a disconnect between buyers and sellers.

Data from Real Capital Analytics showed that a total of $26.0 billion in apartment transactions were recorded during Q1 2017, which was lower than the five-year quarterly average of $30.7 billion. The average sale price was up 11% compared to the five-year average price.

The average cap rate for Q1 2017 multifamily sales was 5.4%, down from 5.7% one year ago, and represented the lowest level on record. The cap rate spread over the 10-year Treasury yield was 290 bps, down 30 bps since the end of 2016.

The multifamily sector continued to show strong price growth compared to other property asset classes. The Moody’s/RCA CPPI™ apartment price index increased 8.1% during the 12 months ending in March 2017, but was lower than the 14.9% increase measured one year ago. The all property index increased 7.2% over the last 12 months, compared with 9.1% one year ago. 

Economic Overview

As the U.S. economy continued into an eighth year of expansion, wage growth began to increase as the labor force neared full employment.

According to the U.S. Bureau of Labor Statistics (BLS), total nonfarm payroll employment edged up 1.6% for the 12 months ending in April 2017, as compared with 1.9% one year ago. The unemployment rate was 4.4%, an improvement on the 5.0% rate measured in April of last year.

The BLS also reported that real average hourly earnings increased 2.7% during the 12 months ending March 2017, as compared with a 2.5% gain for the 12 months ending in March 2016, while the Consumer Price Index (CPI) increased 2.4%.

Gross domestic product (GDP) rose at a 0.7% annual rate in Q1 2017, up from 2.1% during Q4 2016, as reported by the U.S. Bureau of Economic Analysis (BEA). 

The U.S. Census Bureau reported that the homeownership rate finished Q1 2017 at 63.6%, down slightly from 63.7% at the end of 2016, yet slightly higher than the 63.5% rate reported one year ago. These compare with a high of 69.4% in 2004, during one of the biggest housing booms in history.

The S&P/Case-Shiller U.S. National Home Price Index© reported a 5.8% annual gain in February, up from 5.6% last month and 5.2% one year ago. Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last 12 months.