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

Top U.S. Multifamily Markets of the Decade

This article was originally published on Arbor Chatter: Top U.S. Multifamily Markets of the Decade, and all charts and images are from Arbor Chatter.

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• The 2010s solidified the multifamily market's recognition as a premier asset class.
• Manhattan was the leader for multifamily investment, with $74.5 billion in transactions from 2010 to 2019.
• Markets in the Sun Belt became hot spots for capital over the decade, including standout cities like Atlanta.

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The 2010s decade began in the wake of one of the deepest housing downturns the country had ever seen, amid a global financial crisis, and ended with uncertainties surrounding a trade war with China and accelerated climate change.

There was also a massive demographic shift previously unseen in the country. Baby boomers entered into retirement and millennials came of age.

Over the course of the decade, the multifamily real estate market emerged as a premier asset class. Demand was driven not only by the shifting demographics, but also housing affordability issues surrounding escalating prices, limited supply and stagnant wage growth.

Real Capital Analytics (RCA) recently dubbed the 2010s a “fantastic” decade for the U.S. commercial real estate market overall, as the national RCA CPPI for all property types increased 103% over the last 10 years. The multifamily segment of the index measured an especially successful run, increasing more than 160%, by far the highest of the four major property sectors.

RCA reported a total of $1.2 trillion in transaction volume during the decade, setting record numbers nearly every year. The average sales price increased from $77,900/unit during 2010 to $176,000/unit during 2019, while the average cap rate fell from 6.8% to 5.4%. The top destinations for capital investment were among the largest markets in the country, but a closer look at the data reveals each market’s individual performance.

Manhattan Takes the Top Spot for Multifamily Investment

The Manhattan market led the U.S. with a total of $74.5 billion in multifamily transactions recorded from 2010 through 2019. Manhattan was the nation’s second most expensive market (behind only San Francisco), finishing the decade with an average sale price of $437,400/unit, as compared with $195,900/unit during 2010. Manhattan also finished with the second lowest average cap rate, which declined from 5.6% to 4.4%, again trailing only San Francisco.

Additionally, New York City’s outer boroughs also made the top rankings, with $39.3 billion in volume and prices increasing from $102,200/unit to $237,700/unit.

Demand in the New York area was driven by a tight labor market and strong local economy, including the explosion of the technology sector. Going into the next decade, investors will be keeping an eye on the slowdown in the financial services sector, as well as the stagnant housing market and increasing out-migration.

Dallas Investment Ramps Up in Second Half of the Decade

Dallas was number two on the list, with a total of $68.8 billion in sales. The market dominated the second half of the decade, leading all markets with more than $48.3 billion in sales. The average multifamily sales price finished at $128,500/unit and the cap rate was 7.3%.

Employment in Dallas increased by 35% during the decade, an outstanding rate of growth given the extremely large size of the metro area, adding more than 720,000 jobs. The area’s strong financial services industry and position as a distribution hub, as well as strong population growth and positive migration trends, will continue to drive multifamily demand in the 2020s.

Decade for Los Angeles Characterized By High Housing Costs

Los Angeles finished just behind Dallas, at $65.1 billion. The decade for L.A. was characterized by high prices (finishing at $292,700/unit) and low cap rates (falling from 5.6% to 4.6%), with both trailing only Manhattan among the top markets during 2019.

During the decade, the Los Angeles metro area added nearly 690,000 jobs, representing a 17% growth rate. While a considerable total number of jobs, the growth rate was in line with the national average. The healthcare and construction sectors are expected to remain significant drivers of employment in the area, and high housing costs should continue to solidify rentership demand.

Sun Belt Becomes Top Destination for Capital

Sun Belt markets performed especially well during the expansion. In addition to Dallas, Atlanta ($56.7 billion) and Houston ($47.9 billion) ranked high as top destinations of capital. Atlanta had the highest cap rates among the top markets at the beginning of the decade, at 7.7%, although a strong improvement in occupancy helped depress the cap rate to 5.6% by decade end.

Prices in Houston increased 185%, with cap rates falling from 7.5% to 5.4%, driven by the market’s emerging tech scene. The area’s low taxes and affordable land prices will continue to foster a favorable multifamily investment market.

Austin rounded out the list, with $28.7 billion in multifamily transactions recorded. Austin had the top employment growth rate among large markets during the decade at more than 43%, adding 335,000 jobs.

Western Markets See Strong Price Increases

Some growing western markets where residents went to escape the expensive Bay Area also ranked highly, including Seattle with $40.9 billion in sales. Seattle started the decade with one of the lowest average cap rates in the nation at 5.7%, which declined to 5.0% for 2019.

Phoenix and Denver finished the decade in the same spot, with each falling just shy of $40 billion. Phoenix saw the second-highest price growth in the nation during the decade (trailing only Las Vegas), with the average sales price rising to $157,200/unit from $45,400/unit, an increase of nearly 250%. Prices in Denver also showed a strong increase of nearly 200%, finishing at $219,400/unit.

Market Spotlight: Charlotte Outperforms in 2019

This article was originally published on Arbor Chatter: Market Spotlight: Charlotte Outperforms in 2019, and all charts and images are from Arbor Chatter.

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• Charlotte's rent growth has been among the highest nationally in 2019, up 6.5% year over year in the third quarter.
• The market has seen a flurry of investment activity, with sales volume this year expected to beat 2018's record high of $2.8 billion.
• Employment growth in the metro was greater than the national average, with significant gains in the technology sector.

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Charlotte Multifamily Market Comes Out on Top

As 2019’s prime leasing season comes to an end, it’s a good time to examine the Charlotte multifamily market, which has been one of the nation’s top performers so far this year. The area’s low taxes, diverse employers, affordable housing and high quality of life have made the area attractive for residents, as well as investors and businesses.

Rent growth in Charlotte has been on par with national leaders, amid record-high levels of investment volume and new development. The local economy and housing market are also thriving, in part boosted by the growing technology sector.

ULI and PwC recently named Charlotte one of the top markets for real estate investment and development in their Emerging Trends in Real Estate 2020® report. The metro area also ranked high in a recent study by COMMERCIALCafé as a popular destination for in-migration, citing the Queen City’s popularity with the younger generation and its position as the nation’s second-largest banking center.

The Charlotte multifamily market is likely to remain attractive to investors, as the local economy continues to draw new employers and skilled workers to the area.

Rental Market

Charlotte posted the third-highest multifamily rent growth rate in the country over the last 12 months, behind only Miami and Phoenix. According to the latest data from Reis, the average asking rent finished the third quarter at $1,183/unit, up 6.5% year over year and significantly higher than the 3.8% growth rate for the U.S. overall. Rent for Class A properties averaged $1,351/unit, up 6.2% year over year. Rent for Class B/C properties increased 4.7%, to $865/unit. Reis forecasts rent to grow at 4.7% in 2020, and slow to 2.6% by 2023.

The vacancy rate was 5.7% at the end of the quarter, up slightly from 5.4% as of the third quarter of 2018. The increase in vacancy has mostly been at the bottom of the market. The vacancy rate for Class A properties was 6.3%, an improvement from 6.4% one year ago, despite the addition of new supply to the market. The Class B/C vacancy rate was 4.5%, up from 3.6%. The U.S. overall vacancy rate was 4.7%, unchanged year over year.

Multifamily development in Charlotte remains active, with 9,000 units forecasted to come online this year. This surpasses the previous record high of 6,600 units added during 2018. An additional 12,800 units are expected to be added to the market through 2023, ranking Charlotte third nationally based on share of existing inventory, trailing only Charleston and New York City.

Investment Sales

The appeal of the Charlotte market has led to a flurry of investment activity. According to Real Capital Analytics, sales volume reached a record high of $2.8 billion in 2018, and is on pace to surpass that high in 2019. Through the first nine months of the year, $2.5 billion in transactions were recorded, as compared with $2.3 billion for the same period last year.

The weighted average cap rate for transactions so far this year was 5.4%, down from 5.6% for 2018, which was the lowest annual average on record. The year-to-date cap rate was in line with the U.S. national average and slightly lower than the Southeast regional average of 5.7%.

The average sales price through the first nine months of the year was $131,000/unit, up from $123,800/unit for 2018 transactions. In comparison, the U.S. average sales price was $164,700/unit for the first nine months of 2019.

Economic Overview

According to the U.S. Bureau of Labor Statistics, the Charlotte-Concord-Gastonia, NC-SC metro area registered 2.3% employment growth for the 12 months ending in October 2019, resulting from the addition of 26,900 new jobs. This was higher than the 1.4% growth rate for the U.S. overall during the same period. Charlotte sectors experiencing the largest employment growth were leisure and hospitality (up 4.9%), financial services (up 4.6%), and education and health services (up 3.6%). Only one private sector recorded a loss (logging, mining, and construction was down 3.4%).

Charlotte’s technology industry has been a standout performer during the current expansion. The industry employs an estimated 55,000 workers in the region, up more than 30% from 2014, according to the Charlotte Regional Business Alliance. The area’s low cost of doing business and skilled workforce have attracted employers to the area. Charlotte was also recently ranked the top emerging tech hub for software engineers to buy a home.

Housing Market

Driven by economic growth that has outpaced the availability of for-sale single-family homes, Charlotte’s home price gains are among the highest in the nation. The S&P CoreLogic Case-Shiller Charlotte Home Price Index increased 4.6% for the 12 months ending in September, behind only Phoenix. However, this rate was lower than the 5.2% increase reported at the same time last year. For comparison, the 20-City Composite gained 2.1% over the last 12 months.

Despite the recent run-up on pricing, home prices still remain affordable, at more than 20% below the U.S. average. This trend combined with limited supply has led to Charlotte having one of the nation’s highest homeownership rates. The area’s homeownership rate of 72.3% at the end 2018 ranked fifth among the nation’s 75 largest metropolitan statistical areas, significantly higher than the U.S. overall rate of 64.8%, according to the U.S. Census Bureau.

Charlotte Multifamily Market Snapshot — Q3 2019

The Charlotte multifamily market has been one of the top performers in 2019, with strong rent growth and record-high investment volume. The metro’s growing technology sector has also boosted the local economy and job market.

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

Midyear 2019 Top Markets for Rent Growth

This article was originally published on Arbor Chatter: Midyear 2019 Top Markets for Rent Growth, and all charts and images are from Arbor Chatter.

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• The national average asking rent increased 1.9% as of midyear 2019, and is forecasted to grow 4.2% for the full year.
• The multifamily market with the most substantial rent growth over the last 12 months was Denver.
• Knoxville and Albuquerque broke into the top five markets for rent growth during the first half of the year.

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At the midpoint of 2019, key indicators showed that the U.S. multifamily market has been off to a strong start.

According to Reis, the national average asking rent increased 1.9% during the first half of the year and is forecasted to grow 4.2% for the full year. Additionally, the vacancy rate improved to 4.7%, down from 4.8% at the end of 2018.

A closer look at the top-performing markets over the last 12 months, as measured by rent growth, shows some familiar strong performers as well as some newcomers.

Denver Moves to the Top

The multifamily market with the most substantial rent growth over the last 12 months was Denver, fueled by a diverse economic base and flourishing technology industry. Reis reported that Denver’s average asking rent reached $1,461/unit at the midyear point, up from $1,364/unit one year ago. The metro’s average asking rent has risen in every quarter since 2009.

This market boom has fueled a wave of new construction, which has put pressure on vacancy. The vacancy rate for Denver’s multifamily market increased to 6.1% at midyear, up from 5.3% one year ago. The vacancy rate was also among the highest nationally for primary markets.

Elevated construction activity is expected to continue. A total of 9,800 new units forecast to be delivered to the Denver market this year. This is compared to the 11,300 units delivered in 2018, which was the market’s highest annual total on record. However, demand remains strong. Absorption is forecasted to approach 8,000 units this year, following a record high of 8,800 units in 2018.

Las Vegas and Phoenix Remain Strong

Las Vegas and Phoenix took the top two spots for multifamily rent growth in 2018, with growth rates of 8.8% and 8.3%, respectively. However, the two metros slipped to the second and third slots to start the year.

The average asking rent in Las Vegas, which has risen in every quarter since 2011, registered $1,124/unit at midyear 2019. This was up 6.9% from one year ago. The delayed yet strong rebound from the recession has driven the local economy, although further improvement will depend on continued gains in industry sectors outside of entertainment and tourism.

Rent in Phoenix grew 6.8% over the last 12 months, finishing at $1,081/unit, having risen in every quarter since 2010. Despite being struck by the recession, the diverse job market in Phoenix has recovered significantly. Additionally, its population has been the fastest-growing in the country.

Knoxville and Albuquerque Break Through

Knoxville and Albuquerque broke into the top five markets for rent growth during the first half of the year, with year-over-year growth rates of 6.8% and 6.3%, respectively.

Multifamily rent in Knoxville has risen for seven consecutive quarters, reaching $801/unit at the midyear point of 2019. It is forecast to increase 6.9% overall this year. Additionally, vacancy fell to 3.4%, its lowest level in nearly 20 years. The metro’s vacancy rate was also among the tightest nationally. The University of Tennessee is a reliable driver of the local economy, which boasts an unemployment rate among the lowest in the country.

The average asking rent in Albuquerque reached $889/unit at midyear and has risen for six consecutive quarters. The vacancy rate was among the lowest in the country. Rent is forecasted to increase 4.0% for the year, driven by a well-educated workforce and diverse economic base. This includes the opening of a new Netflix production hub and Facebook data center.

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