1q17 united states multihousing market overview · 2017-08-31 · slowing cmbs market. 1q17 united...

MULTIHOUSING MARKET OVERVIEW

1Q17 UNITED STATES

1Q17 UNITED STATES MULTIHOUSING MARKET OVERVIEW

2

TABLE OF CONTENTS

3 Executive Summary

4 Historical Sales Volume

5 Sales Volume Analysis

6 Top Markets by Sales Volume

7 Historical Pricing Trends

8 Cap Rates by Market

9 Cap Rate Trends

10 Top Buyers by Region

11 Sales Volume by Transaction Type

12 Yield Spread

13 International Capital - Top Buyers and Countries

14 International Capital - Top Destinations

15 Historical Rent Growth

16 Top Markets by Rent Growth

17 Historical Occupancy Rate

18 Historical Supply and Demand

19 New Supply Markets

20 Employment Growth Markets

21 Homeownership Rate

22 Debt Outstanding

23 Mortgage Maturities

24 Lender Composition


3

EXECUTIVE SUMMARY

Sales

Volume

Cap

Rates

Rent

Growth

Supply and

Demand

International

Capital

Debt

Markets

Over 370,000 units are expected to be delivered nationally in 2017; however, in the

past 12 months, the majority of new supply has been concentrated in the top 15

markets.

A lack of portfolio and entity-level transactions in 1Q17 contributed to a slow start to

the year, although stronger sales growth is anticipated during the second half.

Yields held steady at 5.4% nationally, yet cap rates in tertiary markets have

compressed over the past 24 months, as more investors have moved into these

markets in search of greater returns.

While annualized effective rent growth moderated to 2.1% nationally, western markets

with heavy ties to technology employment saw the strongest gains.

Overseas investors continue to seek out quality multihousing assets and have recently

been flocking to top-tier secondary markets such as Atlanta, Charlotte and Phoenix.

Multihousing maturities are estimated to rise to $114.7 billion in 2017, with debt

outstanding growing to $1.2 billion, as other lenders have filled the void left by a

slowing CMBS market.


4

Source: Newmark Grubb Knight Frank Research, Real Capital Analytics

12-month sales volume fell 8.9% year-over-

year to $143.6 billion, while the quarterly

decline was more pronounced at 35.4%.

HISTORICAL SALES VOLUME United States

$0

$40

$80

$120

$160

$200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Billi

on

s

12-Month Totals Quarterly Totals

Quarterly sales volume was $25.0

billion, representing a 35.4% decline

year-over-year; however, this was

mainly due to uncertainty

throughout the market following the

election.

Activity is projected to be similar to

2016, when sales volume was

weighted toward the second half of

the year.

Although demand remains strong for

well-positioned urban infill assets, it

is expected to slow in the first half of

2017, as investors remain cautious

despite high levels of dry powder

available for acquisitions.


5


Assets in the South and West are the most

sought after due to strong demographic

trends and attractive growth prospects.

SALES VOLUME ANALYSIS By Market Tier and Region, 12-Month Totals

Primary Markets 49.3%

Secondary Markets 30.4%

Tertiary Markets 20.3%

Mid-Atlantic 7.6%

Midwest 8.2%

Northeast 13.9%

Southeast 23.9%

Southwest 22.7%

West 23.7%

Sales Volume

by Market Tier

Sales Volume

by Region


6


TOP MARKETS BY SALES VOLUME 12-Month Totals

Sales volume in top tier secondary markets

such as Dallas and Atlanta surpassed

primary markets over the past 12 months.

$8.8

$8.4

$7.3

$6.8

$5.4

$5.2

$4.9

$4.2

$3.4

$2.9

$2.8

$2.8

$2.5

$2.5

$2.4

$2.3

$2.3

$2.3

$2.2

$2.2

$2.2

$2.1

$2.0

$1.8

$1.8

$0 $2 $4 $6 $8 $10

Billions

RALEIGH-DURHAM

SAN FRANCISCO

INLAND EMPIRE

ORANGE COUNTY

BALTIMORE

SAN DIEGO

NORTHERN NEW JERSEY

DENVER

SUBURBAN MARYLAND

NORTHERN VIRGINIA

CHARLOTTE

BOSTON

LAS VEGAS

ORLANDO

TAMPA

PORTLAND

AUSTIN

CHICAGO

NYC BOROUGHS

HOUSTON

PHOENIX

LOS ANGELES

MANHATTAN

ATLANTA

DALLAS

Primary Markets

Secondary Markets


7

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

Cap rates are holding steady at 5.4%, as

pricing remains tight, as for sale product

remains limited.

HISTORICAL PRICING TRENDS

$0

$40,000

$80,000

$120,000

$160,000

$200,000

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 2017

Pri

ce

Pe

r U

nit

($

)

Cap

Ra

tes

(%

)

Price Per Unit Cap Rates

Institutional Averages; United States


8


CAP RATES BY MARKET

Yields in supply-constrained markets

remain tight, even as capital chases yield

into secondary and tertiary markets.

ATLANTA

5.2%

AUSTIN

4.9%

BOSTON

4.8%

CHARLOTTE

5.4%

CHICAGO

5.0%

DALLAS

5.1%

WASHINGTON, D.C.

5.0%

HOUSTON

5.4%

JACKSONVILLE

5.7%

KANSAS CITY

5.5%

LAS VEGAS

5.4%

LOS ANGELES

4.4%

MEMPHIS

5.7%

MINNEAPOLIS

4.9%

NASHVILLE

5.5%

MANHATTAN

3.6%

ORLANDO

5.3%

PHILADELPHIA

5.4%

PHOENIX

5.1%

PORTLAND

4.7%

RALEIGH-DURHAM

5.4%

SACRAMENTO

5.1% SALT LAKE CITY

5.5%

SAN DIEGO

4.8%

SAN FRANCISCO

3.8%

SAN JOSE

4.7%

SEATTLE

4.6%

MIAMI

4.9%

TAMPA

5.2%

INDIANAPOLIS

5.9%

COLUMBUS

5.6%

OKLAHOMA CITY

5.6%

SAN ANTONIO

5.3%

ST. LOUIS

5.8%

LOUISVILLE

5.8% DENVER

5.0%

BIRMINGHAM

5.7%

Institutional Averages

CHARLESTON

5.6%

TULSA

5.9%

WICHITA

6.0%

LITTLE ROCK

6.0%

3.0-3.9% 4.0-4.9% 5.0-5.9% 6.0+%


9

As additional capital has been deployed in

tertiary markets, cap rates have

compressed over the last 24 months.

CAP RATES TRENDS By Market Tier and Regions


4.5%

5.0%

5.5%

6.0%

6.5%

1Q15 1Q16 1Q17


10


TOP BUYERS BY REGION 12-Month Totals

As a result of its $3.9 billion acquisition of

Post Properties, MAA was the top buyer in

half of the six US regions.


11

79.0% 82.8% 85.6%

78.6% 74.4%

57.6%

74.3%

87.7% 82.7% 80.3%

72.5%

62.2%

75.8% 72.3% 74.1%

83.5%

16.8%

16.8% 14.4%

16.3% 21.9%

21.9%

22.9%

11.0% 17.3%

19.2%

16.5% 36.7%

20.1%

18.8% 21.6%

16.2%

4.2%

0.4%

5.1% 3.7%

20.5%

2.8%

1.3% 0.5%

11.1%

1.0%

4.1% 8.9%

4.3%

0.3%

0%

20%

40%

60%

80%

100%

Individual Portfolio Entity


Portfolio and entity transactions are down

71.0% year-over-year, conversely, the

market for individual transactions is resilient.

SALES VOLUME BY TRANSACTION TYPE United States


12

Source: Newmark Grubb Knight Frank Research, Federal Reserve Bank of St. Louis, Real Capital Analytics ($25M+ Transactions)

Following a sharp increase in the 10-year

treasury note post election, the yield spread

is now at its lowest level since 2014.

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

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 2017

Sp

rea

d (

BP

S)

Cap

Ra

tes

& T

rea

su

ry N

ote

(%

)

Yield Spread Multihousing Cap Rates 10-Year Treasury Rate


13


While Canada remains the dominant

investor in US multihousing, Israeli firms

have taken a significant market share.

INTERNATIONAL CAPITAL Top Buyers and Countries of Origin, 12-Month Totals

Canada 52.4%

Israel 15.4%

Singapore 7.7%

Germany 4.5%

UK 4.0%

Kuwait 4.0%

France 3.7%

Sweden 2.4%

Switzerland 1.5%

Other 4.5%

Land & Houses PLC

THAILAND

Varia US Properties

SWITZERLAND

GIC

Mapletree Investments

SINGAPORE

Amitim

Electra Ltd

Menora Mivtachim

Psagot

Sage Equities

ISRAEL

AXA Group

CAPSSA

FRANCE

Brookfield Asset Mgmt

CPP Investment Board

Emma Capital

H&R REIT

Manulife Financial

Pure Multi-Family REIT

Starlight Investments

Venterra Properties

Western Wealth Capital

CANADA

Jamestown

GERMANY

Wafra

KUWAIT

Akelius Residential AB

SWEDEN

Top Buyers ($100M+) Top Countries of Origin

TH Real Estate

UK


14


Overseas investors continue to increase

their exposure to top secondary markets

such as Atlanta, Charlotte and Phoenix.

INTERNATIONAL CAPITAL Top Destinations, 12-Month Totals

1.5%

SEA

4.3%

DAL

4.5%

AUS

1.6%

SA

11.3%

ATL

1.2%

CHI

1.6%

SF/SJ

13.0%

NYC

1.2%

HOU

7.2%

PHX

2.8%

BOS

3.9%

DEN

5.9%

DC

1.5%

POR

3.8%

R-D

5.7%

CHA

1.9%

SO FL

1.8%

TAM

3.0%

ORL

MAJOR MARKETS 23.1%

BY MARKET TIER As a % of Overall Investment

BY REGION As a % of Overall Investment

SECONDARY & TERTIARY 76.9%

MID-ATLATNIC 7.6%

MIDWEST 4.9%

NORTHEAST 14.0%

SOUTHEAST 38.7%

SOUTHWEST 24.7%

WEST 10.1%

2.2%

LA


15

Source: Newmark Grubb Knight Frank Research, Axiometrics

Annualized effective rent growth is a

modest 2.1%, with the national average up

to $1,280 per unit.

HISTORICAL RENT GROWTH Annual Effective Rent

-10.0%

-6.0%

-2.0%

2.0%

6.0%

10.0%

$0

$300

$600

$900

$1,200

$1,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Eff

ec

tive

Ren

t (%

)

Eff

ec

tive

Ren

t G

row

th (

$)

Effective Rent Effective Rent Growth

Class A Effective Rent Growth

2Q16 2.7%

3Q16 1.0%

4Q16 -2.0%

1Q17 1.0%

Class B Effective Rent Growth

2Q16 2.8%

3Q16 1.1%

4Q16 -1.3%

1Q17 0.3%

Class C Effective Rent Growth

2Q16 2.4%

3Q16 1.0%

4Q16 -0.4%

1Q17 0.0%


16


Rent growth across the nation has

moderated over the last several quarters,

but remains strongest in western markets.

TOP MARKETS BY RENT GROWTH Year-over-Year Change

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%8.8%

5.2% 4.9% 4.8% 4.8%

4.4% 4.3% 4.2%

3.4% 3.4% 3.2% 3.2% 3.2%


17


Despite high levels of new housing supply

entering the market, occupancy remains

extremely strong throughout the country.

HISTORICAL OCCUPANCY RATE United States

94.9%

91.0%

92.0%

93.0%

94.0%

95.0%

96.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

All Classes Long-Term Average

Long-Term Average = 94.0%

Class A Occupancy Rate

2Q16 95.3%

3Q16 95.2%

4Q16 94.9%

1Q17 94.7%

Class B Occupancy Rate

2Q16 95.6%

3Q16 95.5%

4Q16 95.0%

1Q17 94.8%

Class C Occupancy Rate

2Q16 95.5%

3Q16 95.0%

4Q16 94.6%

1Q17 94.6%

Heavy delivery months


18


With over 370,000 units to be delivered in

2017, inventory growth continues to climb

at a modest pace of 1.5% nationally.

HISTORICAL SUPPLY AND DEMAND United States

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

100,000

200,000

300,000

400,000

500,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Inve

nto

ry G

row

th (

%)

New

Su

pp

ly &

Ab

so

rpti

on

(U

nit

s)

New Supply Absorption Inventory Growth


19

0

5,000

10,000

15,000

20,000

25,000

30,000

Atlan

ta

Au

stin

Ba

ltim

ore

Bir

min

gh

am

Bo

sto

n

Cha

rlo

tte

Chic

ago

Cin

cin

na

ti

Cle

ve

lan

d

Colu

mbu

s

Dalla

s

Den

ve

r

Detr

oit

Hou

sto

n

India

na

polis

Jackson

vill

e

Ka

nsa

s C

ity

Las V

ega

s

Los A

nge

les

Lou

isvill

e

Me

mph

is

Min

nea

polis

Nash

vill

e

New

Yo

rk C

ity

Okla

ho

ma

City

Oa

kla

nd

Orl

and

o

Ph

ilad

elp

hia

Ph

oe

nix

Po

rtla

nd

Rale

igh-D

urh

am

Sa

cra

me

nto

Sa

lt L

ake

City

Sa

n A

nto

nio

Sa

n D

ieg

o

Sa

n F

ran

cis

co

Sa

n J

ose

Se

att

le

So

uth

Flo

rida

St.

Lo

uis

Ta

mp

a

Tu

lsa

Wa

sh

ing

ton

, D

.C.

The bulk of new supply is in the top 15

markets, where 56% of deliveries have

occurred over the last four quarters.

NEW SUPPLY MARKETS 12-Month Totals



20

EMPLOYMENT GROWTH MARKETS Year-over-Year Change, Largest Metros

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

Employment growth accelerated in many

metros, and the entire state of Florida

experienced above-average advances.

0.0-0.9% 1.0-1.9% 2.0-2.9% 3.0-3.9% 4.0-4.9%


21

63.7%

58%

60%

62%

64%

66%

68%

70%

1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017

Homeownership Rate Long-Term Homeownership Rate Average

HOMEOWNERSHIP RATE United States

Source: Newmark Grubb Knight Frank Research, U.S. Census Bureau

National homeownership is on the rise,

however, the number of renter households

has grown in several key markets.

Long-Term Average = 65.3%

Major Changes in Homeownership

2005-2016

ARIZONA

-9.2%

NEVADA

-8.9%

COLORADO

-8.7%

FLORIDA

-8.1%

OHIO

-7.2%


22

Source: Newmark Grubb Knight Frank Research, Mortgage Bankers Association

Multihousing debt outstanding grew to $1.2

trillion, as REITS, Agency & GSE’s grew

their debt considerably year-over-year.

DEBT OUTSTANDING United States

Agency & GSE 45.6%

Bank & Thrift 33.5%

Life Insurance 8.0%

State/Local Gov't 5.8%

CMBS 4.1% Other 3.0%

REITs +18.5%

Agency & GSE +14.9%

Bank & Thrift +11.2%

Life Insurance +9.0%

State and Local Gov’t +3.3%

CMBS -23.7%

Pension Funds -13.8%

Federal Gov’t -2.0%

Year-over-Year % Change


23

Source: Newmark Grubb Knight Frank Research, Trepp

Multihousing mortgage maturities are

expected to rise 12.7% to $114.7 billion in

2017, up from $101.8 billion in 2016.

MORTGAGE MATURITIES United States

$17 $20 $22 $25 $29

$33 $33 $33 $32 $29 $27 $24 $27

$34 $41

$48

$3 $4

$5

$10 $9

$8 $9 $10 $10 $13 $15

$16

$21 $6

$5

$4

$3

$3 $3

$3 $3

$3 $4 $4 $4 $4 $4

$4

$5

$4

$4

$4

$24

$27

$31

$35

$38 $40

$44

$50 $53 $55 $55 $58

$62

$64

$64

$64

$0

$25

$50

$75

$100

$125

$150

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Billi

on

s

Banks CMBS Life Insurance Agency, GSE & Others


24


Regional and local banks have expanded

their multihousing lending, filling some of

the void left by CMBS.

LENDER COMPOSITION

4.3%

6.6%

7.4%

5.9%

7.2%

6.3%

4.2%

6.4%

6.0%

5.9%

45.8%

67.4%

55.8%

69.4%

61.4%

26.9%

69.4%

63.1%

34.3%

53.3%

1.6%

2.7%

3.6%

2.1%

1.0%

0.9%

3.6%

1.8%

1.5%

1.9%

7.2%

6.6%

7.9%

6.1%

6.1%

4.8%

2.8%

7.5%

6.5%

6.4%

2.6%

0.7%

2.2%

1.4%

1.8%

5.6%

0.5%

1.6%

4.3%

2.4%

22.1%

6.6%

7.9%

8.5%

10.2%

13.4%

6.8%

9.8%

18.6%

12.7%

14.9%

8.2%

13.8%

5.1%

10.8%

41.3%

11.4%

8.4%

27.8%

16.1%

1.5%

1.2%

1.4%

1.5%

1.5%

0.8%

1.3%

1.4%

1.0%

1.3%

0% 20% 40% 60% 80% 100%

West

Southwest

Midwest

Southeast

Mid-Atlantic

Northeast

Tertiary Markets

Secondary Markets

Primary Markets

United States

Financial Gov't Agency CMBS Insurance Int'l Bank Nat'l Bank Reg/Local Bank Private/Other

12-Month Totals

www.aranewmark.com

New York City

HEADQUARTERS

125 Park Avenue

New York, NY 10017

212.372.2000

Blake Okland

Vice Chairman, Head of US Multifamily

704.379.1987

[email protected]

Jonathan Mazur

Managing Director, Research

212.372.2154

[email protected]

Michael Wolfson

Senior Capital Markets Research Analyst

212.372.2453

[email protected]

Joshua Manning

Capital Markets Research Analyst

212.372.2488

[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.

1q17 united states multihousing market overview · 2017-08-31 · slowing cmbs market. 1q17 united...

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