Apartment Market Overview and Outlook NMHC Research Conference

Transcription

1 Apartment Market Overview and Outlook NMHC Research Conference

2 Millennials Reshaping Multifamily Demand

3 Millennial Cohort Bigger Than Baby Boom U.S Population by Age Year Old 5-Year Growth: 1,400, Million Population (Millions) Age Note: Total Baby Boomer Population 75 million. Total Millennial Population 80 million Sources: Marcus & Millichap Research Services, U.S. Census Bureau

4 Two-Thirds of Millennials Rent If Not Living with Parents Year Old Population (Mil.) Millennial Propensity to Rent** % 5-Year Growth: 1,400, * 2020* * Forecast ** 2013 American Community Survey Note: Unmarried college students living in dormitories are counted as living in their parents home Sources: Marcus & Millichap Research Services, U.S. Census Bureau Year Olds Living With Parents (Mil.) Young Adults Living with Parents 3.6M Above Long-Term Average Long-Term Average:19.2M M

5 Millennials Live/Work/Play

6 Portland Cohort Growth ( ) Year Old Population Growth -High (Above 1.25%) Year Old Population Growth -Above Average (0.5% to 1.25%) Year Old Population Growth -Average (-0.2% to 0.5%) Year Old Population Growth -Below Average (-0.9% to -0.2%) Year Old Population Growth Low (Below -0.9%)

7 Economic Gains Support Family Formation Could Push Millennials to Suburbs Births Year Old Employment** Y-O-Y Change in Employment 6% 3% 0% -3% Median Age at Marriage 2000: : Births (Millions) -6% * 2018* 2020* * Forecast ** Through 4Q 2014 Sources: Marcus & Millichap Research Services, U.S. Census Bureau, BLS

8 Portland Cohort Growth ( ) Year Old Population Growth -High (Above 1.25%) Year Old Population Growth -Above Average (0.5% to 1.25%) Year Old Population Growth -Average (-0.2% to 0.5%) Year Old Population Growth -Below Average (-0.9% to -0.2%) Year Old Population Growth Low (Below -0.9%)

9 Pacific Region Apartment Market Trends

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11 2015 Apartment Completions* (Units) Pacific Region Apartment Construction vs. Employment Growth 15,000 12,000 9,000 6,000 3,000 0 Upward Pressure on Vacancies Portland Orange County San Diego San Jose San Francisco Sacramento Oakland Inland Empire Seattle 0 30,000 60,000 90, , Employment Growth* *Forecast Sources: Marcus & Millichap Research Services, BLS, MPF Research Los Angeles Downward Pressure on Vacancies

12 Pacific Region Five-Year Millennial Apartment Demand Growth* Year Old Population Growth Potential Demand Growth 82.9% Population (000s) Millennial Propensity to Rent** 70.8% 79.0% 77.3% 86.6% 78.2% 73.4% 79.1% 65.9% 72.2% 0 Portland San Jose Sacramento Oakland San Francisco Orange County Seattle San Diego Inland Empire Los Angeles * ** Propensity to rent based on 2012 American Community Survey Sources: Marcus & Millichap Research Services, U.S. Census Bureau

13 Pacific Region Housing Affordability Based on Home Mortgage Payment and Rent Gap San Francisco San Jose Oakland Orange County San Diego Seattle Los Angeles Portland Sacramento Inland Empire $0 $800 $1,600 $2,400 $3,200 Affordability Gap As of 4Q 2014 Mortgage payments based on 4Q 2014 median home price for a 30-year fixed rate conventional mortgage, 90% LTV, and 1.5% taxes and insurance Sources: Marcus & Millichap Research Services, MPF Research, Freddie Mac, National Association of Realtors

14 8% Apartment Vacancy Rate Trends * Average Vacancy Rate 6% 4% 2% 2015 U.S. Average: 4.8% 0% San Francisco San Jose Oakland Sacramento Los Angeles Orange County Inland Empire San Diego Seattle Portland * Forecast Source: Marcus & Millichap Research Services, MPF Research

15 Apartment Effective Rent Growth Trends 16% * Y-O-Y Percent Change 12% 8% 4% 2015 U.S. Average: 3.4% 0% San Francisco San Jose Oakland Sacramento Los Angeles Orange County Inland Empire San Diego Seattle Portland * Forecast Source: Marcus & Millichap Research Services, MPF Research

16 Southwest/Mountain Region Apartment Market Trends

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18 Southwest/Mountain Region Apartment Construction vs. Employment Growth 25,000 Upward Pressure on Vacancies 2015 Apartment Completions* (Units) 20,000 15,000 10,000 5,000 San Antonio Austin Houston Denver Phoenix Salt Lake City Dallas-Ft. Worth 0 Las Vegas 0 20,000 40,000 60,000 80, , Employment Growth* *Forecast Sources: Marcus & Millichap Research Services, BLS, MPF Research Downward Pressure on Vacancies

19 Southwest/Mountain Region Five-Year Millennial Apartment Demand Growth* Year Old Population Growth Potential Demand Growth Population (000s) Millennial Propensity to Rent** 67.4% 68.6% 54.8% 73.8% 72.1% 68.6% 67.2% 71.6% 0 Salt Lake City San Antonio Denver Austin Las Vegas Houston Phoenix Dallas-Ft. Worth * ** Propensity to rent based on 2012 American Community Survey Sources: Marcus & Millichap Research Services, U.S. Census Bureau

20 Southwest/Mountain Region Housing Affordability Based on Home Mortgage Payment and Rent Gap Denver Las Vegas Salt Lake City Phoenix Austin Houston San Antonio Dallas-Ft. Worth $0 $150 $300 $450 $600 Affordability Gap As of 4Q 2014 Mortgage payments based on 4Q 2014 median home price for a 30-year fixed rate conventional mortgage, 90% LTV, and 1.5% taxes and insurance Sources: Marcus & Millichap Research Services, MPF Research, Freddie Mac, National Association of Realtors

21 Apartment Vacancy Rate Trends 12% * Average Vacancy Rate 9% 6% 3% 2015 U.S. Average: 4.8% 0% Salt Lake City Denver Las Vegas Phoenix Austin Dallas-Ft. Worth Houston San Antonio * Forecast Source: Marcus & Millichap Research Services, MPF Research

22 Apartment Effective Rent Growth Trends 12% * Y-O-Y Percent Change 9% 6% 3% 2015 U.S. Average: 3.4% 0% Salt Lake City Denver Las Vegas Phoenix Austin Dallas-Ft. Worth Houston San Antonio * Forecast Source: Marcus & Millichap Research Services, MPF Research

23 Apartment Market Overview and Outlook NMHC Research Conference

24 NMHC Research Conference April 1-2, 2015 page 1

25 Macro Multifamily Trends page 2

26 Supply Wave Puts a Stop to Recovery National Apartment Supply, Demand, and Vacancy 300 Demand & Supply (000s Units) Vacancy 8% 250 7% 200 6% 150 5% % Demand Change (Y/Y) Supply Change (Y/Y) Vacancy 3% Source: CoStar Portfolio Strategy As of 14Q4 page 3

27 If You re Under 40, Good Luck Getting A Loan Loans Serviced By Credit Score And Average Credit Scores By Age Conforming Home Loans Serviced ('000s) 3,350 3,150 2,950 2,750 2,550 2,350 2,150 1,950 1,750 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 Fannie Mae - Total Loans Serviced With Original Credit Score < Credit Score Avg Credit Score By Age (Years) Sources: U.S. Federal Housing Finance Agency (FHFA); FreeScore.com; Costar Group, Inc. As of 15Q1 page 4

28 Young People Still Underemployed Change In Population And Employment By Age Cohort (20-34-Year-Olds) 5,000 4,000 3,000 Cumulative Change in Population and Employed (000s) If labor force participation rate (71.9%) returns to historical norm (75%), there is a potential increase of 2 million employed people in primary-renting demographic. 2,000 1,000 0 (1,000) (2,000) (3,000) (4,000) People Employed Employed at Normal Participation Rate Sources: BLS; Moody's Analytics; CoStar Portfolio Strategy As of 14Q4 page 5

29 Uncoupling Of Households Leaves Demand Upside Population And Household Growth For Those % 3% 2% 1% 0% (1%) (2%) Growth in Year-Olds (Y/Y) Population Year-Old Persons/HH Households Persons Per Household Return to recent average equates to 1.53 million more young households. Recent Historical Average Sources: US Census Bureau; Moody's Analytics; CoStar Portfolio Strategy As of 14Q4 page 6

30 4 & 5 Star Vacancies To Surpass 3 Star Vacancies Vacancy Rate for The National Index 7.5% Vacancy Rate 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% Star 4 & 5 Star Source: CoStar Portfolio Strategy As of 14Q4 page 7

31 4 & 5 Star Rents Racing Ahead National Asking Rents By Class 1,500 Average Asking Rent ($/Month) 1,400 $170 or 13% above prerecession high 1,300 1, % Average Annual Growth 1,100 1, % Average Annual Growth Star 4 & 5 Star $90 or 9% above prerecession high Source: CoStar Portfolio Strategy As of 14Q4 page 8

32 Investors Can't Fall Out Of Love With Apartments U.S. Quarterly Sales Volume and Price Per Unit 35 Total Sales ($ Billions) $/Unit (000s) Sales Volume Avg $/Unit (3 Quarter Moving Average) Avg. $/Unit Since Source: CoStar Portfolio Strategy As Of 14Q4 page 9

33 Widening Spread For CBD Over Suburban Two Quarter Cap Rate Moving Average In "Sexy Six" Metros 7.5% Cap Rate (2 Qtr Moving Average) 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% CBD Suburban *"Sexy Six" metros include: Boston, Chicago, Los Angeles, New York, San Francisco, and Washington, D.C. Source: CoStar Portfolio Strategy As of 14Q4 page 10

34 Northeast Markets page 11

35 Northeast Markets: Supply Versus Demand Change In Near Term (14Q4-16Q4) Supply And Demand 8% Change in Supply 7% Boston 6% 5% 4% 3% 2% 1% Philadelphia New York Norfolk Baltimore Northern New Jersey Long Island Washington, DC Pittsburgh 0% 0% 1% 2% 3% 4% 5% 6% Change in Demand Source: CoStar Portfolio Strategy As of 14Q4 page 12

36 Northeast Market Vacancies (Present, Future, Historic) Marketwide Vacancy Rate 8% 7% 6% 5% 4% 3% 2% Washington - NoVA - MD Pittsburgh Hartford Boston Baltimore Philadelphia New York Northern New Jersey Long Island National Historic Average ( ) Source: CoStar Portfolio Strategy As of 14Q4 page 13

37 Construction Has Spread Throughout DC Heat Map For New Multifamily Construction Source: CoStar Portfolio Strategy As of 14Q4 page 14

38 Northeast Asking Rent Growth By Class Year-Over-Year Rent Growth 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Boston New York Hartford Baltimore Northern New Jersey Washington - NoVA - MD Philadelphia Long Island Pittsburgh 4 & 5 Star 3 Star Source: CoStar Portfolio Strategy As of 14Q4 page 15

39 Northeast Asking Rents By Class - Projected 2015 Year-Over-Year Rent Growth 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% (0.5%) (1.0%) Boston New York Hartford Baltimore Northern New Jersey Washington - NoVA - MD Philadelphia Long Island Pittsburgh 4 & 5 Star 3 Star Source: CoStar Portfolio Strategy As of 14Q4 page 16

40 Southeast Markets page 17

41 Southeast Markets: Supply Versus Demand Change In Near Term (14Q4-16Q4) Supply And Demand 8% Change in Supply 7% Nashville Raleigh Charlotte 6% 5% 4% Atlanta Orlando New Orleans Richmond Miami Tampa Ft. Lauderdale Jacksonville Palm Beach County 3% Memphis 2% 2% 3% 4% 5% 6% 7% Change in Demand Source: CoStar Portfolio Strategy As of 14Q4 page 18

42 Southeast Market Vacancies (Present, Future, Historic) Marketwide Vacancy Rate 10% 9% 8% 7% 6% 5% 4% Memphis Richmond Raleigh Atlanta Jacksonville New Orleans Nashville Tampa Ft. Lauderdale Miami Charlotte Orlando Palm Beach County National Historic Average ( ) Source: CoStar Portfolio Strategy As of 14Q4 page 19

43 Southeast Asking Rents By Class Year-Over-Year Rent Growth 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Palm Beach County Orlando Ft. Lauderdale Atlanta Nashville Tampa Miami Jacksonville Charlotte New Orleans Raleigh Memphis 4 & 5 Star 3 Star Source: CoStar Portfolio Strategy As of 14Q4 page 20

44 4&5 Star Vacancies Surging In Nashville Vacancy Rate By Star Rating Southeast Region Nashville Change in Vacancy Rate by Rating, 13Q4-14Q4 Miami Raleigh New Orleans Charlotte Atlanta Tampa Palm Beach Memphis Orlando Jacksonville 0% 2% 4% 6% 8% 10% 4&5 Star 3 Star Source: CoStar Portfolio Strategy As of 14Q4 page 21

45 West End-CBD, Nashville: Inventory Doubling By 2016 Heat Map For New Multifamily Construction Source: CoStar Portfolio Strategy As of 14Q4 page 22

46 Southeast Asking Rents By Class - Projected 2015 Year-Over-Year Rent Growth 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% (1.0%) Palm Beach County Orlando Ft. Lauderdale Atlanta Nashville Tampa Miami Jacksonville Charlotte New Orleans Raleigh Memphis 4 & 5 Star 3 Star Source: CoStar Portfolio Strategy As of 14Q4 page 23

47 Midwest Markets page 24

48 Midwest Markets: Supply Versus Demand Change In Near Term (14Q4-16Q4) Supply And Demand 5% Change in Supply Kansas City 4% Minneapolis Milwaukee Columbus OH 3% Indianapolis 2% Cleveland Chicago Cincinnati 1% Detroit St. Louis 0% 0% 1% 2% 3% 4% 5% Change in Demand Source: CoStar Portfolio Strategy As of 14Q4 page 25

49 Midwest Vacancies (Present, Future, Historic) Marketwide Vacancy Rate 9% 8% 7% 6% 5% 4% 3% 2% Indianapolis Oklahoma City St. Louis Cincinnati Kansas City Cleveland Chicago Columbus OH Milwaukee Minneapolis Detroit National Historic Average ( ) Source: CoStar Portfolio Strategy As of 14Q4 page 26

50 Cleveland s Construction Moving Downtown Heat Map For New Multifamily Construction Source: CoStar Portfolio Strategy As of 14Q4 page 27

51 New Construction Pushing 4 & 5 Star Vacancies Vacancy Rate By Star Rating - Midwest Region Cleveland Change in Vacancy Rate by Rating, 13Q4-14Q4 Indianapolis Cincinnati Minneapolis Columbus OH Kansas City Saint Louis Detroit Milwaukee Chicago 0% 2% 4% 6% 8% 4&5 Star 3 Star Source: CoStar Portfolio Strategy As of 14Q4 page 28

52 Midwest Asking Rents By Class Year-Over-Year Rent Growth 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Cleveland Detroit Indianapolis Cincinnati Columbus OH Chicago Kansas City Milwaukee Minneapolis St. Louis 4 & 5 Star 3 Star Source: CoStar Portfolio Strategy As of 14Q4 page 29

53 Midwest Asking Rents By Class - Projected 2015 Year-Over-Year Rent Growth 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Cleveland Detroit Indianapolis Cincinnati Columbus OH Chicago Kansas City Milwaukee Minneapolis St. Louis 4 & 5 Star 3 Star Source: CoStar Portfolio Strategy As of 14Q4 page 30

54 Francis Yuen, Senior Real Estate Economist These CoStar Portfolio Strategy materials contain financial and other information from a variety of public and proprietary sources. CoStar Group, Inc. and its affiliates (collectively, CoStar ) have assumed and relied upon, without independent verification, the accuracy and completeness of such third party information in preparing these materials. The modeling, calculations, forecasts, projections, evaluations, analyses, simulations, or other forward-looking information prepared by CoStar and presented herein (the Materials ) are based on various assumptions concerning future events and circumstances, which are speculative, uncertain and subject to change without notice. You should not rely upon the Materials as predictions of future results or events, as actual results and events may differ materially. All Materials speak only as of the date referenced with respect to such data and may have materially changed since such date. CoStar has no obligation to update any of the Materials included in this document. You should not construe any of the data provided herein as investment, tax, accounting or legal advice. CoStar does not represent, warrant or guaranty the accuracy or completeness of the information provided herein and shall not be held responsible for any errors in such information. Any user of the information provided herein accepts the information AS IS without any warranties whatsoever. To the maximum extent permitted by law, CoStar disclaims any and all liability in the event any information provided herein proves to be inaccurate, incomplete or unreliable CoStar Realty Information, Inc. No reproduction or distribution without permission. page 31