a Berkshire Hathaway and Leucadia National company ... · cisco market and 2.4% in San Jose. New...
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a Berkshire Hathaway and Leucadia National company APARTMENT ADVISORY JANUARY 2017 SUPPLY DELIVERIES WILL REACH PEAK IN 2017 Many major markets throughout the United States have sustained drastic drops in rent growth over the past 15 months. While the slowing pace of job growth contributed a lot to those declines, the sheer amount of new supply being delivered to these met- ros was the primary drag. On the other hand, the metros with the highest rent growth tend to have only a moderate amount of new supply, which results in quicker absorption and gives landlords leeway to raise rents. Nationwide, 379,302 new apartment units have been identified for delivery in 2017, compared to 295,337 delivered in 2016, according to Axiometrics pipeline data as of Jan. 16, 2017. Job growth, the primary driver of apartment demand, since new workers can afford a place to live, fell to 1.5% in De- cember, according to the Bureau of Labor Statistics (BLS). Increased supply and decreased demand mean property owners and managers must seek lower rents to fill their units. This new year will mark the cycle’s peak for new supply, cresting in the second quarter. 108,433 new units are identified for second-quarter delivery, 28.6% of the year’s total. The pace of supply will be- gin to slow down in the second half of the year and recede even more in 2018. MAJOR MARKETS HIT BY LARGE SUPPLY INFLUX Getting to the markets, the 3,949 new units delivered to San Francisco in 2016 was more than double the rate of the previous year, and supply will increase again in 2017, with 4,927 units identified. San Jose received 3,942 new units last year, with 4,513 scheduled for 2017. Job growth in San Francisco was 2.5% in November, the latest BLS metro information available. The rate was almost a full percentage point lower than it was during 2015. Meanwhile, San Jose’s job growth was a robust 3.3% in November, but even that was a percentage point lower than the year before. The supply imbalance contributed to negative rent growth of 2.3% in December in the San Fran- cisco market and 2.4% in San Jose. New York’s job growth also declined by about a full per- centage point, but that metro’s negative rent growth was generated by the doubling of new supply to 14,254 units in 2016. Deliveries are scheduled to double again this year to 28,990 new units. New York has the most 2017 identified supply in the nation. The result: -0.9% rent growth in December in New York.
Transcript of a Berkshire Hathaway and Leucadia National company ... · cisco market and 2.4% in San Jose. New...
a Berkshire Hathaway and Leucadia National company
APARTMENT ADVISORY JANUARY 2017
SUPPLY DELIVERIES WILLREACH PEAK IN 2017Many major markets throughout the United States have sustained drastic drops in rent growth over the past 15 months. While the slowing pace of job growth contributed a lot to those declines, the sheer amount of new supply being delivered to these met-ros was the primary drag.
On the other hand, the metros with the highest rent growth tend to have only a moderate amount of new supply, which results in quicker absorption and gives landlords leeway to raise rents.
Nationwide, 379,302 new apartment units have been identified for delivery in 2017, compared to 295,337 delivered in 2016, according to Axiometrics pipeline data as of Jan. 16, 2017. Job growth, the primary driver of apartment demand, since new workers can afford a place to live, fell to 1.5% in De-cember, according to the Bureau of Labor Statistics (BLS). Increased supply and decreased demand mean property owners and managers must seek lower rents to fill their units.
This new year will mark the cycle’s peak for new supply, cresting in the second quarter. 108,433 new units are identified for second-quarter delivery, 28.6% of the year’s total. The pace of supply will be-gin to slow down in the second half of the year and recede even more in 2018.
MAJOR MARKETS HIT BY LARGE SUPPLY INFLUXGetting to the markets, the 3,949 new units delivered to San Francisco in 2016 was more than double the rate of the previous year, and supply will increase again in 2017, with 4,927 units identified. San Jose received 3,942 new units last year, with 4,513 scheduled for 2017.
Job growth in San Francisco was 2.5% in November, the latest BLS metro information available. The rate was almost a full percentage point lower than it was during 2015. Meanwhile, San Jose’s job growth was a robust 3.3% in November, but even that was a percentage point lower than the year before. The supply imbalance contributed to negative rent growth of 2.3% in December in the San Fran-cisco market and 2.4% in San Jose.
New York’s job growth also declined by about a full per-centage point, but that metro’s negative rent growth was generated by the doubling of new supply to 14,254 units in 2016. Deliveries are scheduled to double again this year to 28,990 new units. New York has the most 2017 identified supply in the nation.
The result: -0.9% rent growth in December in New York.
a Berkshire Hathaway and Leucadia National company
JANUARY 2017
SMALLER MARKETS, HIGH RENT GROWTH, LESS SUPPLY Smaller metros have had the highest rent growth the past several months. While they will obviously have less supply because of the markets’ size, developers have not flocked to these metros as they have to primary markets.
For example, Sacramento has led all major metros in rent growth for the past 10 months and was the only market to record double-digit rent growth for all of 2016. But only 254 new units were delivered in 2016, 190 units less than in 2015. Identified supply triples to 800 new units in 2017, still easily absorbed by the metro’s solid 2.8% job growth.
Southern California’s Inland Empire – River-side-San Bernardino metro – has had the sec-ond-highest rent growth in the nation and has maintained stable supply levels. With 1,335 new units having been delivered 2016 and only 1,395 more identified for 2017, landlords should be able to fill those units from the new demand created by 2.5% annual job growth.
Construction has slowed down in Salt Lake City, which is expected to receive 1,759 new units this year after peaking in 2015 at 2,295 apartments delivered.
PHOENIX, VEGAS RENT GROWTH COULD BE AFFECTED Among markets with higher rent growth, an influx of new supply could have an effect on Las Vegas and Phoenix this year. Job growth has slowed in both markets, but the pace of apartment construction hasn’t.
Phoenix’s supply stream remains steady, with 6,784 units coming to market in 2016 and 6,526 identi-fied for this year. But job growth declined to 1.1% in November, two full percentage points below the rates of earlier in 2016. Unless job growth improves, Phoenix rent growth could start to moderate.
Supply in Las Vegas will rise significantly – from 2,197 new units in 2016 to 4,182 in 2017. Job growth was 2.0% in November, down from 2.8% in November 2015 and the 2013-2015 average of 3.3%. Again, the result could be a decline in rent growth in the coming months.
Robust job growth does not always remain that way. Supply already in the pipeline will not be absorbed as quickly when demand decreases, meaning rents cannot be pushed as high as they once could. For-tunately, the peak of new supply is near.
APARTMENT ADVISORY
