3Q16 US Multihousing Market Overview - ARA · PDF file3q16 united states multihousing market...

MULTIHOUSING MARKET OVERVIEW

3Q16 UNITED STATES

3Q16 UNITED STATES MULTIHOUSING MARKET OVERVIEW

2

TABLE OF CONTENTS

3 Executive Summary

4 Historical Sales Volume Trends

5 Sales Volume Analysis

6 Top Metros by Sales Volume

7 Cap Rates by Metro

8 Historical Cap Rate Trends

9 Yield Spread

10 Historical Price Per Unit Trends

11 Top Buyers and Sellers

12 REIT Consolidation

13 Growth of International Capital

14 International Capital

15 Effective Rent Growth

16 Rent Growth by Class

17 Top Metros for Rent Growth

18 Occupancy Rate

19 Top Metros for Employment Growth

20 Historical Supply and Demand Trends

21 New Supply Matrix

22 Mortgage Debt Outstanding

23 CMBS Origination Volume by Metro

24 Lender Composition


3

EXECUTIVE SUMMARY

Sales

Volume

Cap

Rates

Rent

Growth

Supply and

Demand

International

Capital

Debt

Markets

Demand remains strong with metros such as Austin, Charlotte and Nashville offering

robust inventory increases to keep up with job growth.

After a slow start to the year, quarterly sales volume improved 7.1% year-over-year to

$36.8 billion and reached an all-time high of $164.4 billion during the past 12 months.

Cap rates of institutional-grade multihousing product remained steady, as yields ticked

down 10 basis points quarter-over-quarter to 5.4%.

Effective rent growth moderated to 3.0% year-over-year, signaling a possible reversion

to the mean after outsized rent growth over the past few years.

Foreign investors remain attracted by the risk-adjusted returns offered by multihousing,

as they continue to seek out high-quality assets in the United States.

Regional and local banks have increasingly become a key source of financing for

multihousing, as they look to fill the void left by the CMBS market.


4

Source: Newmark Grubb Knight Frank Research, Real Capital Analytics

HISTORICAL SALES VOLUME TRENDS

$0

$50

$100

$150

$200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

BIL

LIO

NS

Rolling 12 Month Totals Quarterly Totals

Quarterly sales volume increased 7.1%

year-over-year to $36.8 billion, even as

investors remained selective.

United States

Over the past 12 months, sales

volume reached an all-time high of

$164.4 billion as strong economic

and demographic trends supported

the resilient, risk-adjusted returns

offered by multihousing.

Sales volume totaled $111.5 billion

year-to-date, an increase of 11.3%

year-over-year, with the largest gains

taking place in tertiary markets and

the student housing space.

Value-add properties remain in

demand due to yield requirements

and lack of core product on the

market.

3Q16 marks the fourth consecutive

quarter in which multihousing has

been the leader among all property

types for sales volume.


5


SALES VOLUME ANALYSIS 12 Month Totals by Market Tier and Region

Demand for high-quality new developments

continues to fuel sales in leading secondary

markets throughout the Southeast.

Sales Volume by Market Tier Sales Volume by Region

Primary Markets 37.5%

Secondary Markets 49.4%

Tertiary Markets 13.1%

Mid-Atlantic 9.6%

Midwest 7.3%

Northeast 19.3%

Southeast 22.7%

Southwest 20.3%

West 20.8%


6


TOP METROS BY SALES VOLUME 12 Month Totals, $ in Billions

Atlanta, Dallas and Denver have posted

higher sales volume totals than a majority

of primary markets over the last 12 months.

$14.3

$8.1

$7.0

$6.8

$6.8

$5.8

$5.4

$4.8

$4.1

$3.9

$3.8

$3.8

$3.5

$3.4

$3.4

$3.1

$3.0

$2.9

$2.7

$2.5

$2.4

$2.4

$2.3

$2.2

$2.2

$0 $4 $8 $12 $16

Charlotte

San Jose

Orange County

Oakland/East Bay

Raleigh/Durham

San Diego

Orlando

Tampa

Broward County

Suburban Maryland

Austin

Boston

Baltimore

Houston

Northern Virginia

Northern New Jersey

Chicago

Seattle

Phoenix

NYC Boroughs

Denver

Los Angeles

Atlanta

Dallas

Manhattan

Significant Sales Volume Growth

Year-over-Year

Pittsburgh 171.0%

Northern New Jersey 163.1%

Baltimore 161.2%

Suburban Maryland 146.6%

San Jose 134.2%

Orange County 113.9%

Las Vegas 90.7%

Broward County 84.7%

Phoenix 76.2%

Denver 55.7%


7

Source: Newmark Grubb Knight Frank Research, Real Capital Analytics ($25M+ Transactions)

CAP RATES BY METRO

MANHATTAN

3.6%

SAN FRANCISCO

3.8%

LOS ANGELES

4.3%

SAN JOSE

4.2%

BOSTON

4.5%

MIAMI

4.6%

SAN DIEGO

4.5%

SACRAMENTO

4.7%

CHICAGO

5.0%

SEATTLE

4.7%

PORTLAND

4.9%

LAS VEGAS

5.4%

SALT LAKE CITY

5.2% DENVER

5.3%

PHOENIX

5.3%

WICHITA

6.0%

OKLAHOMA CITY

5.5% TULSA

5.9 % LITTLE ROCK

6.0% DALLAS

4.9%

AUSTIN

5.0%

SAN ANTONIO

5.4%

HOUSTON

5.7%

MEMPHIS

5.7%

NASHVILLE

5.4%

ST. LOUIS

5.5%

KANSAS CITY

5.4%

INDIANAPOLS

5.8%

MINNEAPOLIS

5.3%

ATLANTA

5.1%

PALM BEACH

4.8% TAMPA

5.4%

ORLANDO

5.4%

JACKSONVILE

5.5%

CHARLOTTE

5.2%

RALEIGH/DURHAM

5.2%

WASHINGTON, DC

4.9%

PHIALDELPHIA

5.0%

DETROIT

6.0%

CINCINNATI

5.8%

COLUMBUS

5.6%

CLEVELAND

6.2%

Some metros are beginning to experience

incremental cap rate expansion; however,

in most metros, cap rates remain firm.


8

HISTORICAL CAP RATE TRENDS

5.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

CA

P R

AT

ES


United States

Cap rates remain steady, ticking down 10

basis points quarter-over-quarter and

decreasing 20 basis points year-over-year.

US Long-Term Average = 6.1%

Notable Cap Rate Expansion

Year-over-Year

Memphis +50 Bps

Chicago +40 Bps

Inland Empire +30 Bps

Houston +20 Bps

Seattle +20 Bps

Notable Cap Rate Contraction

Year-over-Year

NYC Boroughs -60 Bps

Austin -50 Bps

San Jose -40 Bps

San Diego -40 Bps

Charlotte -30 Bps


9

Source: Newmark Grubb Knight Frank Research, Real Capital Analytics, Federal Reserve Bank of St. Louis

YIELD SPREAD Multihousing Cap Rates vs. 10-Year Treasury Note

3Q16 represented the largest spread

between capitalization rates and the 10-

year treasury note in nearly four years.

0

100

200

300

400

500

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

SP

RE

AD

(B

PS

)

CA

P R

AT

ES

Yield Spread Multihousing Cap Rates 10-Year Treasury Rate


10

HISTORICAL PRICE PER UNIT TRENDS


United States

Price per unit grew 7.9% year-over-year,

with the most substantial gains in metros

such as San Jose and Denver.

$183,399

$0

$50,000

$100,000

$150,000

$200,000

$250,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

PR

ICE

PE

R U

NIT

US Long-Term Average = $134,456

Notable Price Per Unit Growth

Year-over-Year

San Jose 99.7%

Columbus 57.4%

Indianapolis 37.2%

Denver 32.1%

San Francisco 23.6%

Notable Price Per Unit Decline

Year-over-Year

St. Louis -29.8%

Richmond/Norfolk -25.7%

Seattle -18.7%

Tampa -12.0%

Orlando -9.0%


11


TOP BUYERS AND SELLERS

$922

$935

$990

$1,080

$1,109

$1,203

$1,203

$1,232

$1,350

$1,350

$1,350

$1,858

$5,715

$6,990

$8,395

Harbor Group International

TIAA-CREF

FPA Multifamily

TruAmerica Multifamily

Guardian Life Insurance

Greystar Real Estate Partners

Bascom Group

Invesco Real Estate

CPP Investment Board

GIC

Scion Group

Harrison Street Real Estate Capital

Ivanhoé Cambridge

Starwood Capital Group

Blackstone

Top Buyers

$944

$979

$988

$1,046

$1,062

$1,147

$1,254

$1,352

$1,355

$1,789

$1,967

$2,814

$3,363

$5,883

$6,790

TIAA-CREF

AIG

Blackstone

AvalonBay Communities

Brookfield Asset Mgmt

Camden Property Trust

Lone Star

FPA Multifamily

InvenTrust

Campus Crest

Landmark Apartment Trust

Fairfield Residential

Greystar Real Estate Partners

CWCapital

Equity Residential

Top Sellers

United States, Past 12 Months, $ in Millions

Institutional investors such as Blackstone

and Starwood Capital have aggressively

acquired value-add multihousing assets.


12


REIT CONSOLIDATION

Recent entity-level transactions have

proven there is healthy demand for

regionally focused multihousing REITs.

01

02

TITLE HERE

TITLE HERE

Entity-Level Transactions

• Essex Property Trust acquired BRE Properties for $4.3 billion

• Brookdale Senior Living acquired Emeritus for $2.8 billion

• Clarion Partners, Allianz and TIAA acquired Gables Residential for $3.0 billion

• Brookfield Asset Management acquired Associated Estates for $2.5 billion

• Lone Star acquired Home Properties for $7.6 billion

2014

2015

• Starwood Capital Group acquired Landmark Apartment Trust for $1.4 billion

• Harrison Street Real Estate Capital acquired Campus Crest for $1.9 billion

• Mid-America Apartments plans to acquire Post Properties for approximately $4.0 billion

2016


13


GROWTH OF INTERNATIONAL CAPITAL Investment into US Multihousing

As investors search the globe for yield,

capital flow into multihousing may be in its

infancy.

Canada

Israel China

United Kingdom

Total Investment by International

Capital into US Multihousing

2006 $4.2 B

2007 $4.8 B

2008 $1.8 B

2009 $1.0 B

2010 $2.1 B

2011 $4.3 B

2012 $4.2 B

2013 $5.1B

2014 $5.6 B

2015 $18.9 B

2016-YTD $6.4 B

$22.1 B PAST 5 YEARS

Singapore

Switzerland

Germany

$3.6 B PAST 5 YEARS

$2.3 B PAST 5 YEARS

$1.9 B PAST 5 YEARS

$2.2 B PAST 5 YEARS

$1.8 B PAST 5 YEARS

$1.9 B PAST 5 YEARS


14


INTERNATIONAL CAPITAL

Manhattan 45.3%

San Jose 5.0%

Phoenix 4.6%

Atlanta 4.4%

Denver 3.3%

Charlotte 2.9%

Dallas 2.7%

Washington, DC 1.9%

Raleigh/Durham 1.8%

Other 28.1%

Top Buyers

Ivanhoé Cambridge Canada $5.7 B

GIC Singapore $1.3 B

CPP Investment Board Canada $1.3 B

ADIA UAE $398 M

Qatar Investment Authority Qatar $382 M

Electra Ltd Israel $366 M

Venterra Properties Canada $337 M

Grosvenor UK $333 M

Wafra Kuwait $263 M

Kuafu Properties China $261 M

Shanghai Construction Group China $261 M

Akelius Residential AB Sweden $243 M

Jamestown Germany $240 M

Starlight Investments Canada $214 M

Pure Multi-Family REIT Canada $189 M

Top Market Destinations

Top Buyers and Destinations, Past 12 Months

Foreign investors remain attracted to

multihousing in primary metros as well as

emerging secondary markets.

Top Tertiary Destinations

Greensboro, NC

Colorado Springs, CO


15

Source: Newmark Grubb Knight Frank Research, Axiometrics

EFFECTIVE RENT GROWTH

-6.0%

-3.0%

0.0%

3.0%

6.0%

9.0%

$0

$300

$600

$900

$1,200

$1,500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

RE

NT

GR

OW

TH

(%

)

EF

FE

CT

IVE

RE

NT

($

)

Effective Rent Annualized Effective Rent Growth

United States

Effective rent grew 1.2% quarter-over-

quarter, yet rent growth decelerated year-

over-year from 4.9% to 3.0%.


16


EFFECTIVE RENT GROWTH

$1,626

$1,214

$915

$0

$400

$800

$1,200

$1,600

$2,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

RE

NT

AL

RA

TE

S

Class A Class B Class C

Quarterly Data by Class

Class B has seen the largest rent surge

over the past five years and has averaged

1.7% quarterly increases since 2014.


17

Source: Newmark Grubb Knight Frank Research, Axiometrics, Costar

TOP METROS FOR RENT GROWTH Annual Effective Rent Through 3Q16

Western metros heavily influenced by

technology have experienced the largest

year-over-year rent growth gains.

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

11.9%

7.9%

6.7% 6.7% 6.4%

5.7% 5.6% 5.5% 5.4% 5.4% 5.3% 4.9%

4.6% 4.4% 4.3% 4.3% 4.1% 4.0% 4.0% 3.7%

YE

AR

-OV

ER

-YE

AR

RE

NT

GR

OW

TH

(%

)

Western Metros

All Metros (ex-West)


18


OCCUPANCY RATE

91.0%

92.0%

93.0%

94.0%

95.0%

96.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

OC

CU

PA

NC

Y R

AT

E

94.8%

95.1%

US Long-Term Average = 93.8%

United States

Occupancy rates have increased 10 basis

points year-over-year while decreasing 10

basis points quarter-over-quarter.


19

Source: Newmark Grubb Knight Frank Research, U.S. Bureau of Labor Statistics (August 2016)

TOP METROS BY EMPLOYMENT GROWTH

SEATTLE

3.7%

PORTLAND

2.9%

SAN FRANCISCO

2.4%

SAN JOSE

3.6%

INLAND EMPIRE

2.3%

SALT LAKE CITY

3.1%

PHOENIX

2.3%

DENVER

3.2%

AUSTIN

3.2%

DALLAS

3.4%

NASHVILLE

3.6%

ATLANTA

2.7%

RICHMOND

3.3%

RALEIGH/DURHAM

2.5%

JACKSONVILLE

3.8%

ORLANDO

4.4%

TAMPA

3.1%

MIAMI

2.4%

Year-over-Year Change

New permits continue to pour into markets

such as Charlotte, Dallas, Denver and

Orlando, as developers follow jobs.

LAS VEGAS

2.9%

CHARLOTTE

2.6%

SACRAMENTO

2.6%

WASHINGTON, DC

2.4% LOUISVILLE

2.2%

PHILADELPHIA

2.2%

BOSTON

2.1%


20


HISTORICAL SUPPLY AND DEMAND TRENDS United States

Rental demand remains strong and most

markets continue to post very high

absorption relative to historical averages.

-50,000

100,000

250,000

400,000

550,000

700,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

UN

ITS

Supply Demand


21


NEW SUPPLY MATRIX

Nashville

Charlotte

Austin

San Antonio

Houston

Dallas

Denver

Seattle

San Jose

Portland

Orlando

Phoenix

Atlanta

San Francisco

Washington, DC

Boston

Philadelphia

San Diego

Miami

Tampa

Las Vegas

New York

Los Angles

Chicago

Sacramento

Raleigh/Durham

0

5,000

10,000

15,000

20,000

25,000

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

NE

W S

UP

PL

Y (

UN

ITS

)

INVENTORY GROWTH (%)

Select Metros, Past 12 Months

Inventory growth is strongest in high-

growth population markets such as Austin,

Charlotte, San Antonio and Nashville.


22

Source: Newmark Grubb Knight Frank Research, Federal Reserve Bank of St. Louis

MORTGAGE DEBT OUTSTANDING

$0

$200

$400

$600

$800

$1,000

$1,200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

BIL

LIO

NS

Despite moderating sales volume,

multihousing debt outstanding

increased 10.1% year-over-year to

$1.14 trillion.

Multihousing debt outstanding has

risen in seven of the past eight years.

Regional and local banks have

provided additional liquidity to the

marketplace, as large banks continue

to face scrutiny from regulators.

United States

Multihousing debt outstanding increased

10.1% year-over-year and 2.3% quarter-

over-quarter.


23

Source: Newmark Grubb Knight Frank Research, Trepp

CMBS ORIGINATION VOLUME By Metro

CMBS origination volume has been heavily

directed to top-tier secondary markets such

as Denver, Dallas, Houston and Atlanta.

LOS ANGELES

$1.6 B

DENVER

$1.2 B

DALLAS

$1.4 B

ATLANTA

$1.0 B

SEATTLE

$366.8 M

INLAND EMPIRE

$393.2 M

NASHVILLE

$292.1 M

ORLANDO

$295.9 M

PHOENIX

$733.3 M

TAMPA

$287.1 M

Greater than $1B $500-999M $250-499M

HOUSTON

$1.2 B

CHICAGO

$588.4 M

WASHINGTON, DC

$681.1 M

NEW YORK

$848.6 M

SAN DIEGO

$411.7 M

CHARLOTTE

$291.4 M

LAS VEGAS

$457.1 M

PORTLAND

$281.2 M

MIAMI

$460.7 M

SAN FRANCISCO

$864.4 M


24


LENDER COMPOSITION United States

As the CMBS market has decelerated,

regional and local banks have become a

crucial source of financing.

3.3% 8.1% 10.0%

6.3% 1.7%

3.2%

4.9% 5.2%

5.9%

7.3%

68.4% 51.9%

51.9%

51.6%

44.2%

5.5%

7.8% 7.8%

6.6%

7.7%

2.3%

5.0% 4.8%

3.4%

4.1%

7.3%

10.3% 8.7%

10.3%

14.9%

8.9% 11.4% 10.8% 14.1%

18.8%

1.1% 0.6% 0.5% 1.7% 1.4%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015 2016

CMBS Financial Government Agency Insurance International Bank National Bank Regional/Local Bank Private/Other

www.aranewmark.com

New York City

HEADQUARTERS

125 Park Avenue

New York, NY 10017

212.372.2000

Jonathan Mazur

Managing Director, Research

212.372.2154

[email protected]

Michael Wolfson

Capital Markets Research Analyst

212.372.2453

[email protected]

Newmark Grubb Knight Frank Research Reports are also available at www.ngkf.com/research All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Grubb Knight Frank (NGKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NGKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NGKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.

3Q16 US Multihousing Market Overview - ARA · PDF file3q16 united states multihousing market...

Documents

Transcript of 3Q16 US Multihousing Market Overview - ARA · PDF file3q16 united states multihousing market...