2018 Economic Outlook and Market Implications - … · 2018 Economic Outlook and Market...

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2018 Economic Outlook and Market Implications

Speakers

• Mark Obrinsky, Chief Economist, Senior Vice President, Research, NMHC moderator

• Jeff Adler, Vice President, YardiMatrix

• Jay Lybik, Vice President of Research Services, Marcus & Millichap

• Greg Willett, Chief Economist, RealPage, Inc.


• While “late in the cycle”, we still have several more up years to run• Demand fundamentals are solid, GDP growth is accelerating, Alternative Investment returns/yields globally are low• High, but slowly deteriorating, occupancy on stabilized properties; Sub-mkts with new supply impacted the most• Top Core Markets and CBDs are the areas showing near –term weakness• Decelerating rent growth- ~2-3% overall nationally; but divergence among previously “overlooked” segments

• Investment Capital is Searching Further Afield for Rent Growth and Investment Yield; A Much Tougher Grind• “Non Top 40” Cities- smaller markets with lower cost of living that can still attract knowledge industries• “Non-CBD” Neighborhoods- tilted more towards workforce/rent by necessity areas and Class B/C assets outside

CBDs• “Non-Traditional” Sub-Types- <50 units, older properties

• Dislocation in CRE Debt Markets, driven by regulatory influences, has restrained growth in new construction financing• Dislocations in Bank and CMBS debt markets have extended the apartment rental growth up-cycle• The new supply pipeline of Class A assets is cresting; the need at Class B is acute; but values have gotten ahead of

fundamentalsSource: Yardi®Matrix

Late in the Cycle Investment Themes: 2018-2020


Age Cohorts Today vs 2030

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

0 to 17 years 18 to 24 years 25 to 44 years 45 to 64 years 65 years and over

Pop

ulat

ion

(Tho

usan

ds)

2016 2030

+ 2,631+ 3.6%

- 50- 0.2%

+ 10,648+ 12.5%

- 1,816- 2.2% + 24,863

+ 50.5%

Source: Moody’s Analytics; U.S. Census Bureau (BOC)


Millennial Tailwinds


Student Debt is Increasing Drastically

CAGR Comparison

*College Educated

Student Debt

5.8 %

Med HH Income*

0.1%


-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

0

50

100

150

200

250

Jan-

00

Dec-

00

Nov

-01

Oct

-02

Sep-

03

Aug-

04

Jul-0

5

Jun-

06

May

-07

Apr-

08

Mar

-09

Feb-

10

Jan-

11

Dec-

11

Nov

-12

Oct

-13

Sep-

14

Aug-

15

Jul-1

6

Jun-

17

Year

-ove

r-Ye

ar G

row

th

Pric

e pe

r Uni

t Ind

ex

Lifestyle PPU Index Renter-by-Necessity PPU Index YoY GDP Growth YoY Employment Growth

Source: Moody’s Analytics; Yardi®Matrix

Lifestyle

RBN

GDP

Employment

RBN Slow to Recover

*Variables above are 6-month rolling averages *Multifamily sales price per unit-index 2000 = 100

Asset Values Have Exceeded GDP Growth Since ‘15


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2013 2014 2015 2016 2017 2018 2019

Num

ber o

f Uni

ts

Completions % of Stock

Supply Leveling Due to Construction Delays

Source: Yardi®Matrix


2018 Forecast Completions

Dallas/Fort Worth 24,000

Los Angeles 17,200

Washington, D.C. 16,800

Atlanta 15,000

Northern NJ 14,700Denver 12,300

Seattle 11,100

Houston 10,800

South FL 10,800

New York 20,000

Below-3,000

3,000-5,999

6,000-9,999

10,000-19,999

20,000 or Above

Sources: Marcus & Millichap Research Services, MPF Research


National Apartment Rank by Metro2018 Completions*

Top 10Metros

2018 Completions*Completions as %

Inv.

Dallas-Fort Worth 24,000 3.2%

New York 20,000 1.1%

Los Angeles 17,200 1.6%

Washington, D.C. 16,800 2.8%

Atlanta 15,000 3.1%

Northern NJ 14,700 4.4%

Denver 12,300 4.3%

Seattle-Tacoma 11,100 2.6%

Houston 10,800 1.6%

South Florida 10,800 1.8%

U.S. Total 335,000 2.1%

Bottom 10Metros

2018 Completions*Completions as %

Inv.

St. Louis 1,070 0.7%

Cleveland 1,500 0.9%

Cincinnati 1,600 1.0%

Inland Empire 1,700 0.9%

Sacramento 1,900 1.3%

Detroit 2,400 0.7%

Indianapolis 2,500 1.7%

Baltimore 3,600 1.7%

Las Vegas 3,700 1.7%

Milwaukee 3,900 2.6%

U.S. Total 335,000 2.1%

* ForecastSources: Marcus & Millichap Research Services, RealPage, Inc., CoStar Group, Inc.


U.S. Apartment Completions TrendsDowntown vs. Suburbs

0

50

100

150

200

250

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

2018

**

Downtown Suburban

Com

plet

ions

(00

0sof

Uni

ts)

* Estimate** ForecastIncludes downtown and suburban submarkets for 46 major metrosSources: Marcus & Millichap Research Services, RealPage, Inc.


Difference Between Class A and Class B Apartment Rent

$0

$150

$300

$450

$600

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

Clas

s A

and

Cla

ss B

Ren

t G

ap

* Through 3QEffective rent gapSources: Marcus & Millichap Research Services, RealPage, Inc.


Largest Spread MarketsBased on Class A and Class B Apartment Rent Gap

Largest SpreadMarkets

3Q 2017Class A Rent

3Q 2017Class B Rent

Rent Gap

Boston $3,040 $1,870 $1,170

New York $4,063 $2,985 $1,078

Chicago $2,203 $1,287 $916

Los Angeles $2,791 $1,921 $870

Northern New Jersey $2,706 $1,871 $836

San Francisco $3,753 $2,936 $817

Washington, D.C. $2,335 $1,612 $723

Seattle-Tacoma $2,160 $1,495 $665

Philadelphia $1,910 $1,247 $663

Oakland $2,810 $2,185 $625

U.S. Average $1,702 $1,177 $525

Effective rentsSources: Marcus & Millichap Research Services, RealPage, Inc., CoStar Group, Inc.


Smallest Spread MarketsBased on Class A and Class B Apartment Rent Gap

Smallest SpreadMarkets

3Q 2017Class A Rent

3Q 2017Class B Rent

Rent Gap

Las Vegas $1,103 $956 $147

Phoenix $1,202 $972 $230

Portland $1,562 $1,302 $260

Jacksonville $1,246 $943 $303

Salt Lake City $1,311 $1,004 $307

Orlando $1,460 $1,152 $308

Kansas City $1,205 $867 $338

San Antonio $1,249 $899 $350

Columbus $1,243 $888 $355

St. Louis $1,221 $863 $358

U.S. Average $1,702 $1,177 $525

Effective rentsSources: Marcus & Millichap Research Services, RealPage, Inc., CoStar Group, Inc.


Key PerformanceTakeaways for theMarkets in 2018


#1: There’s compression in the range of performances across metros

U.S. average = 2.5%

Source: RealPage, Inc.

U.S. average = 5.0%

Rank Metro Annual Rent Growth

1 Sacramento, CA 6.5%

2 Las Vegas, NV 5.7%

3 Jacksonville, FL 5.4%

4 Orlando, FL 5.3%

5 Richmond, VA 5.1%

6 Riverside-San Bernardino, CA 4.7%

7 Phoenix, AZ 4.3%

8 Minneapolis-St. Paul, MN 4.0%

9 (tie) Fort Worth, TX 3.9%

9 (tie) Salt Lake City, UT 3.9%

Rank Metro Annual Rent Growth

1 Oakland, CA 13.0%

2 Portland, OR 12.9%

3 San Jose, CA 9.8%

4 San Francisco, CA 9.7%

5 Denver, CO 9.6%

6 Sacramento, CA 9.5%

7 Seattle, WA 7.8%

8 San Diego, CA 7.6%

9 Orlando, FL 7.2%

10 Phoenix, AZ 7.1%

2017 Rent Growth Leaderboard 2015 Rent Growth Leaderboard


As premiums for the right market selection become smaller …

• Individual property stories become increasingly important when making investment and development decisions

• Operational expertise gains significance in achieving total return


#2: The slowdown in starts expected nationally might not occurin metros with consistently hefty demand


Select spots appear vulnerable to D.C.-like outlooks, with strong

demand capacity prompting inventory growth a little too

aggressive for rent growth to sustain much momentum.

0k

5k

10k

15k

20kmaximum target starts in 2018


#3: Workforce/Blue-Collar neighborhoods may deserve a closer look


Neighborhood Type

Metro Dallas Neighborhood

Current Monthly

Rent

Current Annual Rent

Growth

Urban CoreIntown Dallas

Oak Lawn$1,678$1,528

-0.1%-1.6%

Upscale Suburb

FriscoLas ColinasRichardson

Allen/McKinney

$1,275$1,270$1,256$1,171

+0.9%+1.6%-1.8%-0.2%

Workforce/Blue-Collar

Area

MesquiteNortheast Dallas

South IrvingNorthwest Dallas

$940$924$921$885

+2.7%+5.8%+4.5%+4.5%

Neighborhood Type

Metro Atlanta Neighborhood

Current Monthly

Rent

Current Annual Rent

Growth

Urban CoreMidtown

Buckhead$1,746$1,587

+1.2%-2.1%

Upscale Suburb

DunwoodyVinings

AlpharettaSandy Springs

$1,393$1,313$1,309$1,251

+1.7%+6.8%-0.4%-3.8%

Workforce/Blue-Collar

Area

DoravilleDouglasville

West MariettaStone Mountain

$975$941$908$846

+4.5%+4.9%+2.9%+4.2%


Rent Spreads Are Wide

$600$700$800$900

$1,000$1,100$1,200$1,300$1,400$1,500$1,600$1,700$1,800$1,900$2,000

Mar

-10

Jun-

10Se

p-10

Dec-

10M

ar-1

1Ju

n-11

Sep-

11De

c-11

Mar

-12

Jun-

12Se

p-12

Dec-

12M

ar-1

3Ju

n-13

Sep-

13De

c-13

Mar

-14

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Mar

-16

Jun-

16Se

p-16

Dec-

16M

ar-1

7Ju

n-17

Sep-

17De

c-17

Average Rental Rate by Asset Class

Discretionary Upper Mid-Range Low Mid-RangeWorkforce - Upper RentOverall

2010-2017 CAGR

2.9% Discretionary

4.2% Upper Mid-Range

5.0% Low Mid-Range

4.9% Workforce - Upper

4.8% Workforce - Lower

4.3% Overall

Dec.2010

Dec.2017

Discretionary-Upper-Mid

$449 $443

Discretionary-Lower-Mid

$688 $684



Expect a Bumpy 18-24 months


Washington, D.C.

Charlotte

Dallas

Houston

Jacksonville

Austin

Las Vegas

Miami

Northern New Jersey

Orlando

Phoenix

Raleigh

Sacramento

San Antonio

San Francisco

Atlanta

BaltimoreBridgeport - New Haven

Chicago

Denver

Inland Empire

Kansas City

Los Angeles

Nashville

Orange County

PhiladelphiaPortland

Salt Lake City

San Diego

San Jose

Twin Cities

Tampa

Seattle

Boston

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

Com

plet

ions

as a

% o

f Sto

ck

Job Growth YoY

Marker size is proportionate to total units in each market as of October 2017.

represents < 2.0% forecasted rent growthrepresents 2.0%-4.0% forecasted rent growthrepresents >4.0% forecasted rent growth

Slower growth, potential supply absorption issuesHigher growth, potential supply absorption issues

Higher growth, not yet oversupplied

Richmond


Intellectual Capital Nodes – Dallas-Fort Worth

*Multifamily rent growth based on Dec 2012 through Dec 2017*Change in multifamily occupancy based on Nov 2016 through Nov 2017Source: Yardi® Matrix


Intellectual Capital Nodes – Atlanta

*Multifamily rent growth based on Dec 2012 through Dec 2017*Change in multifamily occupancy based on Nov 2016 through Nov 2017Source: Yardi® Matrix


Rent Growth Forecasts

*YOY 2018 data is Dec 2017-Dec 2018. Data ranked by 2018 values. Source: Yardi®Matrix

National

2018 2019 2020

2.5% 2.9% 2.8%

Top 20 Markets

Market YOY 2018 2019 2020

Reno 9.5% 8.2% 7.3%

Sacramento 7.2% 6.5% 6.2%

Tacoma 6.6% 5.9% 5.4%

Colorado Springs 6.5% 4.0% 3.8%

Eastern Los Angeles County 6.0% 5.0% 5.0%

Spokane 5.7% 5.2% 4.0%

Central Valley 5.7% 5.2% 4.5%

Eugene 5.0% 4.8% 4.6%

Boise 5.0% 4.5% 3.4%

Phoenix 5.0% 4.0% 3.0%

Market YOY 2018 2019 2020

Inland Empire 4.9% 4.6% 4.4%

Salt Lake City 4.9% 4.7% 4.5%

Las Vegas 4.8% 4.1% 3.5%

Suburban Dallas 4.8% 4.5% 4.3%

Seattle 4.8% 4.5% 4.0%

North Central Florida 4.5% 4.0% 3.8%

Orlando 4.5% 4.2% 4.1%

Fort Worth 4.4% 4.5% 3.4%

Columbus 4.3% 3.6% 3.2%

Suburban Atlanta 4.2% 3.8% 3.7%


Rent Growth Forecasts

*YOY 2018 data is Dec 2017-Dec 2018. Data ranked by 2018 values. Source: Yardi®Matrix

National

2018 2019 2020

2.5% 2.9% 2.8%

Bottom 20 Markets

Market YOY 2018 2019 2020

West Houston 1.7% 1.9% 2.1%

Austin 1.6% 2.1% 2.9%

Wichita 1.6% 1.7% 1.7%

Washington DC - Suburban Maryland 1.5% 1.6% 1.5%

Omaha 1.5% 1.5% 1.5%

Portland 1.5% 2.0% 2.3%

Baltimore 1.5% 1.3% 1.4%

New Orleans 1.4% 1.8% 2.0%

Mobile 1.2% 1.6% 2.0%

Tulsa 1.2% 1.3% 1.4%

Market YOY 2018 2019 2020

Columbus GA 1.1% 1.2% 1.3%

Northern Virginia 1.1% 1.0% 1.6%

Central East Texas 1.0% 1.2% 1.5%

Baton Rouge 0.9% 1.5% 1.9%

Oklahoma City 0.8% 1.3% 1.1%

McAllen 0.8% 1.0% 1.2%

Corpus Christi 0.8% 0.5% 0.4%

El Paso 0.7% 0.6% 0.5%

Amarillo 0.4% 0.6% 0.4%

Manhattan -1.0% 0.8% 1.1%


National Apartment Rank by Metro2018 Effective Rent Growth*

Top 10Metros

2018 Rent* Rent Growth

Sacramento $1,450 8.7%

Denver $1,550 6.8%

Inland Empire $1,500 6.4%

Los Angeles $2,200 6.3%

Tampa $1,197 6.3%

Orlando $1,233 6.2%

Portland $1,400 6.0%

Detroit $1,014 5.4%

Seattle-Tacoma $1,643 5.4%

Jacksonville $1,015 5.2%

U.S. Total $1,384 3.1%

Bottom 10Metros

2018 Rent* Rent Growth

Boston $1,996 1.1%

Houston $1,106 1.8%

Baltimore $1,321 2.0%

Nashville $1,178 2.0%

West Palm Beach $1,535 2.0%

Fort Lauderdale $1,515 2.2%

Austin $1,243 2.3%

Cleveland $915 2.3%

San Francisco $3,150 2.3%

St. Louis $880 2.3%

U.S. Total $1,384 3.1%

* ForecastSources: Marcus & Millichap Research Services, RealPage, Inc., CoStar Group, Inc.


Near-Term Market Performance Expectations

SacramentoLas Vegas

MinneapolisSouthern California

PhoenixStill

Str

ong Houston

ManhattanOrlando

PhiladelphiaSan JoseU

pgra

ded Austin

BrooklynCharlotte

DallasSeattleD

owng

rade

d

Continue to achieve rent growth ranking in the top tier among

markets

Move up in rent growth ranking among markets relative to

recent position

Move down in rent growth ranking among markets relative

to recent position




2018 Economic Outlook and Market Implications

Jeff Adler, Vice President, Yardi Matrix

Jay Lybik, Vice President of Research Services, Marcus & Millichap

Greg Willett, Chief Economist, RealPage, Inc.

2018 Economic Outlook and Market Implications - … · 2018 Economic Outlook and Market...

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