multi-family market outlook report - matthews · 2019-05-16 · multifamily properties thrive in...

MATTHEWSA COMMERCIAL REAL ESTATE PUBLICATION AT THE INTERSECTION OF INNOVATION AND INFORMATION

KNOCKSOPPORTUNITYMULTIFAMILY

Austin is establishing itself as one of the best cities to live and work. As the country’s eleventh largest city, it’s expanding business and overall growth has validated Austin as a world leader in a variety of industries. From technology to innovation, energy, workforce development, music, food and culture, it’s easy to see why this city continues to be America’s favorite stomping ground. With unique programs to create a sustainable cultural and economic environment, Austin’s vitality continues to flourish. Economic data suggests that there is no slowdown in sight for its future growth, positioning this city to leverage its strong educational base and talented workforce. According to the U.S. Conference of Mayors, Austin is set to be the fastest growing large U.S. metro economy through 2020.

The biggest economic development engine is Austin’s high quality of life, attracting smart, creative and successful individuals. It’s no wonder that its competitive advantage attracts major corporations such as Apple, AT&T, Dell and many others. The city offers something for everyone, including affordable housing, a safe environment, exceptional schools, as well as healthy and attractive

neighborhoods. Austin provides big city amenities at a small town pace. These lifestyle and cultural assets will only continue to grow as Austin takes its place among the world’s leading cities.

Multifamily properties thrive in markets with job growth and Austin’s unceasing surge secures a strong multifamily market. Austin remains in the top five multifamily investment markets. The positive outlook on employment and favorable demographic trends will not only increase the demand, but also attract investors to the Austin apartment market. In the last 12 months, Austin has created 38,000 jobs resulting in a demand for 28,0000 single and multifamily units.

Its multifamily pipeline looks positive and just experienced another vibrant quarter. In Q1 and Q2 of this year, the Austin Multifamily market saw a total sales volume of $1.9 billion, outpacing Q2 of 2015 by $240 million. The average cap rate in 2015 equated to 5.70%, compared to the 5.41% average cap rate in Q1-Q2 this year. The average price per unit in Q1-Q2 of 2016 came out to $129,066 when compared to the lower price per unit of $112,834 of 2015. There are now over

FORBES

#1AMERICA’S FASTEST GROWING CITIES

+2 MILLIONMETRO POPULATION

2NDBEST REAL ESTATE MARKET IN THE US

In 2015 the Austin Multifamily Market saw a total sales volume of $1,826,500,000 in Q1 and Q2 transactions. This is a total of $162,500,000 less in sales volume, when compared to the sales volume of $1,989,000,000 that took place in Q1 and Q2 of 2016. Q2 of 2016 outpaced Q2 of 2015 by $240,000,000.

SALES BY TOTAL $ (MIL )

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2,5003,0003,500

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QUARTERLY VOL.ROLLING 12-MO. TOTAL

SOURCE: RCA CHANGES IN SALES (YR OVER YR)

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USAAUSTIN

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40,000 upstream units headed toward a maturing market with little indication of this giant wave cresting. A projected 14,200 new multifamily units will be available in the next two years, an almost 7% increase in the number of units already in the market. Austin will outpace supply in 2016, keeping vacancy rates below the historical average.

Considering its unique economic and cultural attributes, the influx of people and businesses gravitating towards Austin is no surprise. Its exceptional growth, demand in the real estate market, cultural influence, art and innovations will have no problem “Keep(ing) Austin Weird.”

The average cap rate in these Q1 and Q2 2015 transactions equated to 5.70%, compared to Q1 and Q2 2016 transactions with an average cap rate of 5.41%. The market in Austin was already strong in 2015, and gained even more strength in 2016. 2016 was strengthened by a Q2 average cap rate of 5.37%.

AVERAGE CAP RATE

SALES BY TOTAL % (MIL) CHANGES IN SALES (YR OVER YR)

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SOURCE: RCAThe average price per unit in the Q1 and Q2 2015 transactions came out to $112,834 when compared to the higher price per unit of $129,066 in the Q1 and Q2 2016 transactions. The market in 2016 was bolstered by a price per unit of $133,100 in Q2 of 2016.

AVERAGE PRICE PER UNIT

FOR MORE INFORMATION REGARDING MULTIFAMILY CONTACT:

DAVE HARRINGTONdave.harr [email protected] 170

Data source: Real Capi ta l Analyt ics*Al l 2016 data is year to date

Dallas is a city where big ideas meet big opportunity. As with any other city in the Lone Star State, Dallas offers a hearty portion of world famous art, innovative eateries and bigger than life personality. The city revolves around a bustling downtown area that expands through an assortment of neighborhoods and commercial centers, supported by a network of freeways that exceeds almost any other city. It boasts the largest urban arts district in the nation; where you’d be more likely to come across a world class exhibit than a broken in pair of chaps. Its past and present is rich in culture, an All-American city that was built on legends.

The central core of Dallas has experienced a steady and significant growth that speaks to its highly diversified economy. It has become a hub for real estate and business, establishing itself as one of the largest concentrations of corporate headquarters for publicly traded companies such as American Airlines, Neiman Marcus, Kimberly-Clark, JCPenny, ExxonMobil and many others. In 2015, Forbes reported that Dallas is “the best place for business and careers” in Texas. It’s the perfect blend of big city living and rustic southern charm, the aroma of barbecue authenticating the Texas cowboy vibe.


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SOURCE: RCAAVERAGE CAP RATES

SALES BY TOTAL $ (MIL)

#1MOST INNOVATIVE ECONOMY IN THE US

FORBES 2015

4THLARGEST POPULATION IN THE US

+6,700,00POPULATION

The Dallas economy is expected to grow over the next couple of decades making it the perfect time to not only invest in Dallas real estate, but also relocate. Currently, the Dallas metropolitan statistical area is one of the most prominent multifamily markets in the country. People are relocating to the city in droves, increasing the demand for multifamily and residential real estate.

In Q1 and Q2 of this year, the Dallas Multifamily market saw a total sales volume of $3.4 billion, outpacing Q2 of 2015 by $3.1 billion. The average cap rate in 2015 equated to 6.62%, compared to the 6.36% average cap rate in Q1-Q2 this year. The average price per unit in Q1-Q2 of 2016 came out to $98,805 when compared to the lower price per unit of $87,825 of 2015. At the end of 2015, there were 34,000+ units under construction. The growing population adds to the already extremely tight residential housing market, resulting in a high percentage of new renters. Dallas rents are at an all-time high with a roughly 7% increase, however, occupancy rates are still hovering around 95%. While Dallas consistently provides a wonderful quality of life, demand for apartments will continue to rise.

As the 9th largest city in the country, Dallas has something for everyone. It combines clashing images of the city skyline and cowboy vibes. Yet, the city of Dallas describes itself best with the motto: “Big Things Happen Here.”

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SOURCE: RCA

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For the first half of 2015, there were $3,104.9 billion of sales volume versus $3,481.2 billion for the first half of 2016. The average price per unit for 2015 (Q1 & Q2) was $87,825 compared to 2016 (Q1 & Q2) that came in at $98,805. Cap Rates trended downwards from 6.62% to 6.36% between 2015 and 2016.

AVERAGE PRICE PER UNIT CHANGES IN SALES


$5 BILLIONSPENT IN 2015 BY VISITORS

Denver is located at the base of the Rocky Mountains, exactly 5,280 feet above sea level, which perfectly denotes its nickname, “The Mile High City.” Founded in the mid-1800s during the Gold Rush, Denver has come a long way from its Wild West days. It has progressed into an urban center with a growing arts and culinary scene that rivals conventional cosmopolitans. Sure, you can find a Stetson walking around here or there, but the crowd around town has shifted to ambitious, nature-loving individuals who want to change the status quo on everything from outdoor activities, legalizing recreational marijuana to civil rights. The U.S. News & World Report was onto something when it named Denver the best place to live in the United States.

Over the past few years, Denver has experienced an epic surge in population that doesn’t seem to be slowing down anytime soon. The city currently ranks as the 19th most populated in the United States, making it one fastest growing cities in the country. Denver has everything to foster entrepreneurism from an excellent mix of capital, a highly skilled workforce, a wealth of savvy startup CEOs and not to mention an appealing lifestyle. Companies either starting or expanding their operations to Denver are contributing to the increase of an already exceptionally talented workforce. Denver holds the title as the nation’s most educated city with the highest percentage of high school and college graduates.

The cost of living has dramatically increased with average home prices now significantly higher than the national average. As employment flourishes in high-paying industries

such as tech, finance, and healthcare, the demand for multi and single-family homes is rapidly increasing. Vacancies remain low and rents continue to rise in most markets. All in all, Denver is experiencing a gold rush of other sorts.

Private investors are actively seeking opportunities where job growth and substantial demographic trends are creating unique opportunities in real estate. One of the more prominent factors in driving this demand is the phenomenal job growth that has outpaced the national population. Providing housing options for the ever-growing workforce in Denver continues to drive a need for multifamily assets.

Denver’s 2016 multifamily transactions from 2015 to 2016 have mimicked its population growth as the city continues to solidify itself as one of the fastest growing cities in the U.S. With a 150% increase in transaction volume year over year, price per unit has gone up more than $20,000. Even with this surge in unit price, overall capitalization rates have stagnated and seem to possibly be moving in an upward direction. The increase in apartment occupancy and rent has significantly increased the value of multifamily properties. As single-family buying is taking a backseat, the multifamily property values continue to rise specifically in or near the urban areas where Denver residents prefer to live.

Denver is a city with 300 days of sunshine, a place where outdoor adventures and worldly endeavors meets a culturally fascinating urban city center. With that many days of sunshine, it’s no wonder that this world-class city’s future looks so bright.

16THMOST POPULOUS METRO AREA

Denver’s 2016 multifamily transactions from 2015 to 2016 have mimicked its population growth as the city continues to solidify itself as one of the fastest growing cities in the U.S. With a 150% increase in transaction volume year over year, price per unit has gone up more than $20,000. Even with this surge in unit price, overall capitalization rates have stagnated and seem to possibly be moving in an upward direction.


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AVG CAP RATE

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HOUSTON

Houston has recently been accorded the esteemed title of, “City With No Limits.” As home to NASA, the world’s largest concentration of healthcare and research institutions, as well as a number of Fortune 500 companies, it’s no wonder that America’s fourth largest city personifies this namesake. Houston’s climate is a laid-back southern atmosphere that brings you in and keeps you there. However, don’t be mistaken by its southern drawl. It’s unique persona blends high-rise pickup trucks with high-powered industry.

Prominent companies in energy, healthcare, nanotechnology and science draw a dynamic and talented workforce to Houston. It has a strong infrastructure and transportation system, but cars undoubtedly reign. With wealthy undercurrents from Texas gas and oil, there is an explicit

pro-business environment that encourages economic growth and commerce. However, while oil prices have risen in recent months, overall the energy industry has taken a hit, which had had its effect on Multifamily. Properties n the energy corridor have seen softening rents and a tick up in vacancy rates.

Any kind of upward trend of economic growth will inevitably attract a talented workforce that coincides with the need for housing. The Houston market is dynamic, especially in the multifamily market. In Q1 and Q2 of 2015, the Houston Multifamily market saw a total sales volume of $2.6 billion, outpacing the first half of 2016 at $1.8 billion. The average cap rate in 2015 and 2016 have remained the same at 6.65%. The average price per unit in Q1-Q2 of 2016 came

TOP 10PLACES TO VISIT IN THE US

BOSTON GLOBE FORBES

#10IN JOB GROWTH

FORBES

#1MILLIONAIRE CITIES

HOUSTON

The sales volume for the first half of 2015 was $2,603.6 billion versus $1,812.6 billion for the first half of 2016. The average price per unit for 2015 (Q1 & Q2) was $97,340 compared to 2016 (Q1 & Q2) that came in at $80,544. The average Cap Rates for the city of Houston remained the same between 2015 (Q1 & Q2) and 2016 (Q1 & Q2) at 6.65%.


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out to $80,544 when compared to the higher per unit of $97,340 of 2015. Homeownership rates have been slipping, but correspondingly has increased the demand for quality apartments in areas most convenient for this new working class. In 2015, the occupancy levels were above 90% and developers have already delivered 5,034 new apartment units during the first quarter of 2016. In addition to housing, Houston’s exceptional demographic brings in a growing need for retail opportunities ranging from upscale dining to tattoo parlors. This city’s diverse cultural design offers something for everyone.

Houston’s revolutionary surge in industry really proves that this city has no limits. You’ll come to Houston looking for black gold and Texas tea, but you’ll end up leaving with much, much more.

BUSINESS INSIDER

BESTCITY IN AMERICA



AVG CAP RATE

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INLAND EMPIREThe Inland Empire is tucked away just southeast of Los Angeles, an enclave of gentle rolling hills and mountainous alpine terrain. This quintessential California region is home to 4 million residents and continues to be one of the fastest growing areas in the state. It embodies Riverside and San Bernardino Counties, renowned for lush vineyards in Temecula wine country, year-round recreational sporting at Big Bear Mountain and soothing mineral waters from the Glen Ivy Hot Springs. The Inland Empire is one of the most overlooked regions in the state.

Like much of California, the Inland Empire experienced a hard hit during the recession, but unexpectedly bounced back at a tremendous rate of growth. The surge in economic growth can be associated with its close proximity to two of the nation’s largest ports, reaching more than 23 million consumers. With the rise of e-commerce, industrial spaces have become a factor in developing real estate strategies, with cargo being handled by strong networks of distribution centers throughout the area. Companies such as Amazon and Macy’s are relocating their fulfillment warehouses to the Inland Empire because of its inexpensive land and location. It is no surprise that the majority of new jobs have fallen within the logistics sector.

Of course, the growing population of the Inland Empire creates a demand for affordable housing. Homebuyers and renters are being out priced by expensive real estate found along the coast, effectively drawing people out east. Investors are finding that multifamily rents are steadily increasing, giving property owners reason to put money into new developments with more lavish amenities.

+4 MILLIONPOPULATION

±27,000SQUARE MILES

The rental market remains strong with solid occupancies and rent growth. Comparing the first half of 2015 and 2016 throughout the Inland Empire reveals straight forward results. Sales volume increased by about 34% in the first half of 2016, with Q1 2016 showing 55% more in trades than Q1 2015. Average price per unit increased 22% in the first half of 2016 as well. The first half of 2015 showed an average cap rate of 6.01%. The first half of 2016 showed an average cap rate of 5.84%, a 2.8% decrease or a 17 basis point spread. Overall, the market was strong in the first half of 2015, but even better in the first half of 2016.

Inviting destination and boundless wilderness makes this region of California feel like an insider’s secret. The Inland Empire is truly one of California’s hidden gems, a treasure to those who discover its potential for invaluable worth.

INLAND EMPIRE


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INLANDEMPIRE

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Comparing the first half of 2015 and 2016 throughout the Inland Empire reveals straight forward results. Sales volume increased by about 34% in the first half of 2016, with Q1 2016 showing 55% more in trades than Q1 2015. Average Price Per Unit increased 22% in the first half of 2016 as well. One can infer that CAP Rates decreased as well which is indeed what happened. The first half of 2015 showed an average CAP Rate of 6.01%. The first half of 2016 showed an average CAP Rate of 5.84%, a 2.8% decrease or a 17 basis point spread. Overall, the market was strong in the first half of 2015, but even stronger in the first half of 2016. There was more aggressive trading across all categories.


Las Vegas, baby. A deviated, surreal technicolor fantasy that’s straight out of the movies. Walk the casino floor at three in the morning and you’ll find yourself among a cast of eclectic characters: a silvery-blue haired granny drinking a Vodka Collins and pushing slots, an Elvis impersonator ending his late-night shift and an out-of-town newlywed couple rolling the dice. No matter what time of day, Las Vegas is alive and kicking. Sin City lures people from all over the world with its promise of the ultimate escape. Yet, Las Vegas is offering another promise to its patrons and residents alike: economic growth... and all the neon glitz and glamour that goes along with it.

Step away from the roulette table and you’ll find that Vegas has much more to offer than showgirls and gambling. The economy is becoming more and more diversified, bringing in new industry and opportunities for commerce. Las Vegas has traditionally been known for its tourism; world-class restaurants, shopping and resorts, but the dynamics are slowly shifting. Zillow recently dubbed Vegas the fourth best market for first-time homebuyers. The unexpected demand for single-family homes comes from Millennials who have traditionally been ignored because of economic factors. Las Vegas is proving to be a prominent player in the economic recovery with job growth headed in the right direction. Las Vegas is progressing in almost every metric analyzed,

particularly in the multifamily real estate sector. In 2015, the city experienced an expansion of 21,300 jobs. This kind of growth is attracting the Millennial demographic, who isn’t necessarily ready to buy. In response to their demand for high-end rental complexes, investors are continuously buying and upgrading rental properties. In 2015, rent growth and occupancies reached historic highs, all of which are poised for long-term stability.

The first six months of 2016 has been a bright, exemplified by a dramatic increase in multifamily transactions and over a 250% increase in total sales dollars. It also realized a nearly 20% increase in average price per unit from $70,700 to $84,400. Cap rates have also compressed from an average of 6.1 % to 5.8% resulting in the higher price per unit averages. The city is still recovering from the recession, but it offers something that other cities do not. It provides a paradox of luxury and obscenity, as well as the risks and rewards that continue to draw people to Vegas; for better or for worse.

When it comes to Sin City, you never have to roll the dice. Because in this city, it’s scripture, “What happens in Vegas, stays in Vegas.”

The first six months of 2016 has been a bright one in comparison to the same period of 2015, exemplified by a dramatic increase in multifamily transactions and over a 250% increase in total sales dollars. It also realized a nearly 20% increase in Price Per Unit from $70,700 to $84,400. Cap rates have also risen from an average of 5.8% to just over 6.1%, implying a strong rental market.


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+42 MILLIONVISITORS PER YEAR

TOP 3DESTINATIONS IN THE U.S.


CHANGES IN SALES (YR OVER YR)AVG CAP RATE

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Los Angeles is a sprawling metropolitan, a beacon for dreamers looking for their place under the stars. It’s as warm and sunny as it can be relentless; a place where dreams are easily made and broken. LA is the quintessential backdrop for those who are searching for fame, fortune and the best tacos north of the border. It is home to some of the greatest writers, directors and athletes from around the world, breaking ground in the most forward-thinking, innovative industries. You can snowboard in the morning, hike the Hollywood Hills and then surf at sunset, all of which is done through the gridlock of bumper-to-bumper traffic.

As the “Entertainment Capital of the World,” LA is the world’s third-largest economy. Home to Paramount Pictures, 20th Century Fox and Universal Pictures, Los Angeles is the leader in producing movies, television, music and video games. Each industry is completely unrivaled, delivering premium content that’s driven by the most ingenious craftsmen in their fields. It’s no wonder that even the Los Angeles International Airport (LAX) pours in over $60 billion into the local economy as the sixth busiest airport in the world. Above all else, the City of Angel’s most valuable asset is its people. With world-renowned academic institutions throughout the city and a brilliant workforce, LA has the infrastructure and resources to cultivate the most cutting-edge companies.

Most people visit LA to experience Hollywood, but once you leave the Walk of Fame, you quickly learn that Los Angeles is comprised of a diverse patchwork of enclaves.

Each neighborhood has it’s own temperament and charm. Koreatown, Venice, Culver City, Echo Park or DTLA, each sector gives its patrons a one-of-a-kind experience. It’s not surprising that housing prices continue to rise everywhere from the east to west side of town. In July 2016, CoreLogic reported the median sale price of single-family homes jumped 8.5% since this time last year. In turn, this greatly affects the multifamily market as people seek out rental properties. The market is tight for renters and has the lowest vacancy rate of any other major metro area, putting it in the top 10 multifamily markets. There was a significant drop off in price per unit average from the first half of 2015 to the first half of 2016. However, cap rates maintained a steady decline from 2015 to 2016. Average price per unit has dipped from the first half of 2015 to the first half of 2016 due to prices and activity as a whole slowing down. Cap rates though, have continued to drop due to rents not yet catching up with sale prices. However, the rental market is strong, therefore one can suspect cap rates slowing their compression moving forward.

The Los Angeles real estate market is as sunny as its weather. Investors understand that this high demand for apartments forecasts a very bright future for LA real estate. Los Angeles is a city unlike any other in the world. It’s composed of many up and coming neighborhoods, but it’s better than the sum of its parts. This city is what dreams are made of.

3RDLARGEST METROPOLITAN ECONOMY

#1BUSIEST PORT IN THE WORLD

+13 MILLIONMETROPOLITAN POPULATION

There was a significant drop off in price per unit average from the first half of 2015 to the first half of 2016. However, cap rates maintained a steady decline from 2015 to 2016. Price per unit has dipped from the first half of 2015 to the first half of 2016 due to prices and activity as a whole slowing down. Cap rates though, have continued to drop. This inverse reaction is due to rents not yet catching up with sales prices. However, the rental market is strong, therefore one can suspect cap rates slowing their decline moving forward.


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orange countyORANGE COUNTY

Orange County is situated just an hour south of Los Angeles, framed by palm trees and oceanfront views. It stretches from the coastal towns of Seal Beach to San Clemente, a region of Southern California that contains manicured suburbs, pristine beaches, world-class golf courses and a number of the wealthiest communities in California. The OC is often called the “California Riviera,” making it one of the state’s most iconic destinations. It offers an eclectic selection of surf, sport, theme parks, diverse ethnic localities and a remarkable artist community.

As the sixth largest county in the nation, Orange County is a wealthy and highly educated region that has a major economic advantage because of its location. It is consistently one of the highest performing economies in Southern California with the nation’s lowest crime rate. Since 2015, the unemployment has dropped dramatically, providing 41,000 new jobs year after year. Employers such as Fujitsu, Boost Mobile, UK Defense Contractors and Disneyland Resort have contributed to its boom. In effect, the housing sector has also experienced a rise in rents and lower vacancy rates.

The Orange County housing market is on a steady path to full recovery. With Orange County’s construction industry experiencing a resurgence, multifamily construction seems to be gaining momentum. In the last year, an increase in multifamily units was quickly absorbed by the increase in population. The first half of 2016 saw as little as a 1.4% decrease in total sales volume from the first half of 2015. However, as treasury interest rates depressed, we saw a market-wide rise in apartment values: the average price per unit rose by about $10,000, year-to-year. This change was reflected in cap rates as well, as they fell by 20 basis points on average between the two time periods.

Orange County is a 42-mile stretch of immaculate beaches, anchored by renowned academic institutions, an exciting entrepreneurial climate, and a booming real estate market. It is no surprise that it is becoming one of the most desirable places to live.

Welcome to the OC.

ORANGE COUNTY

TOP 7WEALTHIEST COUNTIES IN CALIFORNIA

6THLARGEST COUNTY IN THE NATION

RANKED #1SAFEST AREA IN THE NATION

3RDMOST POPULOUS COUNTY IN THE NATION


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In Orange County, the first half of 2016 saw as little as a 1.4% decrease in total sale volume from the first half of 2015. However, as treasury interest rates depressed, we saw a market-wide raise in apartment values: the average price per unit rose by about $10,000, year-to-year. This change was reflected in cap rates as well, as they fell by 20 basis points on average between the two time periods.


PHOENIXPhoenix has seen steady Multi-family growth over the past year. This is evidenced by an average cost per unit rising by over $10,000 when comparing the first half of 2015 and 2016. In fact, Phoenix had more sales volume in Q2 of 2016 (1.994 Billion) than the entire first half of 2015 (1.386 Billion). This increase in volume has made Phoenix a desirable place to own multifamily real estate creating a decrease in Cap rates from an average of 6% to 5.79% showing the steady increase of the strength of this large MSA.


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4%GROWTH RATE EACH YEAR

ONE OF THE FASTEST GROWING

ECONOMIES IN THE US IN THE PAST 20 YEARS

#1LARGEST CITY IN ARIZONA



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PHOENIXPhoenix is red rocks, blue skies and golden sunshine. This desert metropolis is a complex city that combines a businesslike disposition with cookie-cutter aesthetics and a collegiate raucous. Home to more than 1.5 million people, Phoenix is the fifth largest city in America. It’s an iconic southwestern city with a burgeoning cultural scene set against a sweltering desert landscape. It offers museums, theaters, operas, an impressive botanical garden and more than 200 stunning golf courses scattered across the city. The greater Phoenix area is vast, with more than 300 days of sunshine and picture worthy sunsets. Whether it is from a desolate trail or a rooftop lounge, this desert metropolis has undeniably beautiful views.

Providing its citizens an incredible quality of life, people are consistently making the move to Phoenix. The growth rate is up 4% every single

year, ranking it as one of the fastest growing economies for the last 20 years. As a whole, the state of Arizona is ranked #1 in projected job and entrepreneurial growth. There is something about this city that inspires people to put down roots, pursue their passions and start a business. The “next-gen” appeal is bringing in cutting-edge companies and indie business owners alike. The economy in Arizona is accelerating, a place where high and low culture effortlessly merges.

The landscape of Phoenix offers its residents bargain prices with million dollar views, drawing in more and more transplants every year. With this unique demographic, experts are finding that the housing market is stronger than it’s been since the crash. According to RL Brown’s Housing Reports, Phoenix real estate investors have been building 25% more single-family homes since

last year. Commercial real estate is growing rapidly with multifamily properties booming. The average number of units constructed has already surpassed the Phoenix MSA 20-year average with 5,448 unitsdeveloped this year alone. This isevidenced by an average cost perunit rising by over $10,000 whencomparing the first half of 2015 and2016. In fact, Phoenix had more salesvolume in Q2 of 2016 at 1.9 billionthan the entire first half of 2015 at 1.3billion. This increase in volume hasmade Phoenix a desirable place toown multifamily real estate creatinga decrease in cap rates from anaverage of 6% to 5.79% showing thesteady increase of the strength of thislarge MSA.

The real estate market in Phoenix is heating up. A city that’s more than meets the eye, it’s no wonder that the “Valley of the Sun” continues to shine.


PORTLAND

Portland has an unfair advantage with its beautiful parks, stunning mountain views and charming residential streets (not to mention a craft brewery on every block). Once the best-hidden secret of the northeast, Portland has become a major cultural mecca. The city is as quirky as its residents, offering worldly wonders like a vacuum museum, swimming in city fountains, a dormant volcano and a celebrated scene for bikes and brews. The people in Portland are movers and shakers, changing the way we look at everything from predictive technology to donuts.

As the largest city in the state, its diverse economy fosters high-tech companies such as Google, Apple and IBM, bringing with it some of the brightest minds from all over the world. There are over 1,700 tech-related companies throughout the metropolitan area. With such boom in industry, the population is growing nearly 2% annually. These jobs are crucial to the local economy. Bloomberg reported in early 2016 that Oregon had the best-performing economy in the nation, factoring in elements such as employment, home prices, tax revenues, personal income, mortgage delinquency and the publicly traded equity of its companies.

With the advantages of a big city and the feel and affordability of a small town, Portland has experienced a surge in population. Young entrepreneurs, innovators and

creatives are steadily making Portland home, inevitably increasing the demand for housing. Multifamily construction projects are happening all over the city, particularly in areas such as Grant Park Village, Burnside, The Pearl District and areas north of the Fremont Bridge. The cost of rent is rising with the high demand and low supply of housing. The Portland City Council approved a 1% construction tax that will raise an estimated $8 million extra to go towards building low-income housing. This provides people who earn 80% or less of the median family income to qualify. Sales volume in the Portland market decreased slightly from $956 million to $870 million when comparing the first halves of 2015 and 2016. Average prices per unit beat the national average increase of 8.3%, growing from $146K to $161K, representing a 10.1% rise year over year. At $162K, the average price per unit at the end of Q2 2016 was the highest the Portland market has ever seen. Capitalization rates steadily declined from 5.77% in Q1 2015 to 5.71% in Q2, and from 5.65% in Q1 2016 to 5.57% in Q2. This represents a 2.30% average decline year over year, mostly in line with the national average decline of 2.82%.

Portland is home to the most eclectic selection of people, food, culture and industry. Things are constantly changing here. Even with its accelerated economic and demographic growth, the city and its people seem to have no problem remaining “The City That Works.”


#5BEST CITY TO LAUNCH

A STARTUP

TOP TENIN TECH EXPORTS

5THMOST INNOVATIVE STATE

LARGESTCITY IN OREGON


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Sales volume in the Portland market decreased slightly from $956MM to $870MM when comparing Q1&Q2 2015 to Q1&Q2 2016. Average prices per unit beat the national average increase of 8.3%, growing from $146K to $161K, representing a 10.1% rise year over year.

At $162K, the average price per unit at the end of Q2 2016 was the highest the Portland market has ever seen. Capitalization rates steadily declined from 5.77% in Q1 2015 to 5.71% in Q2, and from 5.65% in Q1 2016 to 5.57% in Q2. This represents a 2.30% average decline year over year, mostly in line with the national average decline of 2.82%.



AVG CAP RATE

AVG PRICE PER UNIT


San Diego is a sunny metropolis of old world charm and new world ventures, offering outstanding shopping, art, culture and historical destinations. All of which is set along a coast of ocean spray. The uniform here is flip-flops; where locals wear them with sunny confidence all-year round. With the self-proclaimed title of “America’s Finest City,” there is something here for everyone and any local will proudly tell you that. They will also have strong convictions about where you can find the best carne asada fries, a staple in San Diego cuisine. It is much like LA but well mannered, without the traffic, without the strife and without the True Hollywood Story. Even a simple shout out to the Chargers football team will give you a boisterous high-five from an absolute stranger. San Diego has big city standards with a small town feel; blessed with gentle Mediterranean climate, top-notch museums, pristine beaches, offbeat bars, upscale dining and an urban playground called, The Gaslamp.

It comes as no surprise that tourism is a huge part of the San Diego economy. It hosts almost 34 million visitors every year, contributing $9.9 billion in total spending. At the end of 2015, tourism reached record numbers in hotel and visitor spending with an overall visitation growth of 1.2%.

The city has six universities and more than 80 research organizations that conduct groundbreaking research, providing the city a human capital and infrastructure that enables it to compete at a global level. San Diego is also home to the largest concentration of military in the world.

One out of every four jobs in the region is from the defense industry.

The growing economy and low interest rates situate the San Diego housing market in an advantageous position. The city experienced an unexpected decline in single-family home prices in 2015, but home prices are starting to rise again. San Diego is second in the nation when it comes to home buying affordability, right after San Francisco. On the other hand, multifamily residential development has far outpaced single-family construction. In this year alone, there have been 1,248 apartment units completed with another 8,106 on the way. Luxury apartments have become an unexpected competition of amenities. The more the amenities, the higher the rent and San Diegans are willing to pay for it. Some of the more extravagant amenities include dog spas, video walls and outdoor kitchens. San Diego had a stronger 1st half of 2015 than 2016 in terms of change in sale volume changes (net 163% increase vs 10% increase). However, cap rates in 2016 have dropped, while they remained stagnant in 2015 and the average price per unit has increased $6,000 each quarter this year. The market is still on the way up, but at slower rate this year than 2015.

San Diego’s breezy, balmy climate is perfect almost all year round, drawing in more people every single year. From the excitement of Broadway in La Jolla to the picturesque coves for seaside excursions, San Diego is absolute paradise.

8THLARGEST CITY IN THE US

11THMOST VISITED CITY IN THE US FOR

OVERSEAS TRAVELERS

San Diego had a strong Q1 in 2015, sales volume increased 206% and jumped from 318.8 million dollars of transactions in Q4 2014 to 887.1 million. Q2 regressed a little bit (43%) in volume but still an overall strong 1st half of the year in increase of sales. Cap rates stayed relatively the same for Q1 and Q2 going from an average of 5.05 in Q4 2014 to 4.98 in Q1 and staying there for Q2. Average price per unit steadily climbed at about 10,000 per quarter, going from 181k in Q4 2014 to 191k in Q1 2015 and 200k in Q2 2015

San Diego had a stronger 1st half of 2015 than 2016 in terms of its increase in the volume of sales (net 163% vs 10%). However, cap rates in 2016 have dropped vs being stagnant in 2015 and the average price per unit has increased $6,000 each quarter this year. The market is still on the way up but at a slower rate this year than last year.


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SAN FRANCISCO

San Francisco is the land of fog and fabulous. It’s a place where nothing is too outlandish or too bizarre, setting the foundation for social change and celebration. Whether it be a poem never written, a technological advancement not yet conceived or a cannabis brownie to be consumed, it will undoubtedly happen here. Often referred to as, “The Bay,” San Francisco is a 7 x 7 mile concentration of diverse microclimates. Rolling fog can be tumbling over the Golden Gate Bridge as the sun shines down on the Mission. It will give you goosebumps in one moment and then suddenly turn up the heat. The city is charming and unforgiving, from the bustle of Union Square to the endurance of its iconic Chinatown, San Francisco beguiles with an energy that is absolutely contagious.

San Francisco and its neighboring cities have become a financial and dot-com mecca, ranking as one of the top producing cities in the world. Jobs continue to flood into The Bay and it is expected to continue at this pace. It has been predicted that by the end of 2016, 48,000 new jobs are to be produced, a 4.4% increase from last year. The city has seen a slight shift towards mobile communications, research and development, healthcare, hospitality and the Internet. Needless to say, industry heavyweights such as Google, Cisco Systems, Hewlett Packard, Logitech, Facebook and others are still working diligently out of the Bay Area.

The city makes it remarkably easy to live the good life. An excellent public transit system featuring a network of cable cars, expansive and lush parks, world-class dining and a budding art scene creates a uniquely diverse

climate that welcomes people of all kinds and creeds. Subsequently, it is one of the most desirable places to live. When comparing the first half for both 2015 and 2016, there are few major shifts in volume and pricing. The total sales volume in Q1 and Q2 of 2015 was 11.5% higher than the first two-quarters of this year. The dip in sales volume has created more competition in the market. Therefore, the price per unit has continuously been on the rise quarter over quarter, and is up 38% from the first half of 2015 & 2016, directly correlating to the lower cap rates in 2016. Average cap rates in 2015 were 3.94% in comparison to 3.66%.

A booming industry means there will be less affordably housing for the middle class. The housing supply in this city simply can’t keep up with the strong demand that continues to flood its market. Vacancy is very low and rent is expected to rise at a 5.4% average. The median rent is $1,463 per month. The issue lies in that the city is on a peninsula, restricting the opportunity for new housing developments. The only way to remedy this is to build up. However, this is San Francisco and as we have found in the past, earthquakes come into play. Most of the city is zoned to restrict building to a vertical height of 40 feet.

Success can come with a price, and it’s projected to show in the exceptionally high rents in this already dense city. Yet, if we know anything about San Francisco at all, we know that it will survive with good times and glitter. Grab your coat; it’s positively fabulous out here.

SAN FRANCISCO


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When comparing quarter 1 & 2 for both 2015 & 2016; there are few major shifts in volume and pricing. The total sales volume in 2015 (Q1&Q2) was 11.5% higher than the first 2 quarters of this year. The dip in sale volume has created more competition in the market; therefore, the price per unit has

continuously been on the rise quarter over quarter, and is up 38% from 2015 – 2016 (Q1 & Q2) which is a direct correlation to the lower CAP rates in 2016. Average cap rates in the 2015 were 3.94% in comparison to 3.66%.

4THMOST POPULOUS CITY IN CALIFORNIA

5THMOST POPULOUS MSA

2NDMOST DENSELY POPULATED

MAJOR CITY IN THE US

TOP 10CITIES MOST LIKELY TO PROSPER



AVG PRICE PER UNIT


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Seattle is an enclave of neighborhoods, each with their own distinguished personality where entertainment is boundless. Queen Anne is an elegant, posh neighborhood, whereas Capital Hill is cool and edgy. Ballard is rooted in its maritime and Scandinavian heritage that’s become a hip foodie hotspot. Fremont, the self-proclaimed “center of the universe” is an arty neighborhood with a supersize troll living under the Aurora Bridge, thriving off a quirky bohemian vibe. However, one could just cut to the chase and beeline for the infamous Pike Place Market, the city’s proverbial pantry and one of the oldest continuously operating farmers markets. Seattle is an extraordinary urban city surrounded by unrivaled beauty.

To those on the outside, Seattle is an innovative city that is home to some of the most renowned macro-brands. However to locals, the city is comprised of micro-brands and grassroots movements. Take a walk around town and you’ll find yourself surrounded by charming coffee shops, breweries, pot shops and unfettered bookstores that thrive in a city that gave rise to Starbucks and Amazon. The economy here is booming. The unemployment rate is not only below the national average, but growing well above. In just one year, Microsoft contributed $9.16 billion to the state economy, providing 267,611 jobs to the residents. Similarly, the aerospace company Boeing contributed $70 billion to the local economy in a single year, producing $3.2 billion in wages. These power players headquartered in Seattle are

bringing big dollars to the city’s economy.

Seattle has fallen short in supply for housing, but the market is improving. Experts suggest that there is relief in sight for buyers since the city is experiencing a record-breaking market. The median price for single-family homes in July 2016 was $350,000, a jump of 9.6% from a year ago. A little more than 90% of new housing development in the past year was multifamily, but the housing demand was still missed by 10-22%. Seattle exceeded expectations for housing construction, but population growth was more than expected. Sales volume in the Seattle market increased slightly from $1.95 billion to $2.02 billion when comparing the first half of 2015 to 2016. Despite prices per unit increasing 8.3% nationally, the average price per unit in the Seattle market decreased 4.6% from $203,774 to $194,467 over the same period. Interestingly enough, prices appeared to be on the rise in 2015, moving from an average of 198K in Q1 to 209K at the peak, before taking a dive to 194K in Q1 2016 where they have remained since. Capitalization rates declined 19 and 4 basis points respectively from their Q1 highs, ending at 5.06% in 2015 and 5.08% in 2016.

The Seattle housing market is truly driven by demand and its limited supply. With everything it has to offer, go out and explore Seattle. You won’t want to miss out on the catch of the day.

#3TOP 10 CITIES FOR MILLENNIALS

#2TOP U.S. SUMMER DESTINATIONS

#3BEST TECH CITY IN THE US

FOR MORE INFORMATION REGARDING MULTIFAMILY CONTACT:

DAVE HARRINGTONdave.harr [email protected] 170

Sales volume in the Seattle market increased slightly from $1.95Bn to $2.02Bn when comparing Q1&Q2 2015 to Q1&Q2 2016. Despite prices per unit increasing 8.3% nationally, the average price per unit in the Seattle market decreased 4.6% from $203,774 to $194,467 over the same period. Interestingly prices appeared to be on the rise in 2015, moving from an average of 198K in Q1 to 209K at the peak, before taking a dive to 194K in Q1 2016 where they have remained since. Capitalization rates declined 19 and 4 basis points respectively from their Q1 highs, ending at 5.06% in 2015 and 5.08% in 2016.


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Matthews REIS Disclaimer 2016

This publication has been produced by Matthews Retail Group, Inc. solely for information purposes and the information contained has been obtained from public sources believed to be reliable. While we do not doubt their accuracy, we have not verified such information. No guarantee, warranty or representation, expressed or implied, is made as to the accuracy or completeness of any of the information contained and Matthews REISTM shall not be liable to any reader or third party in any way. This publication is not intended to be a complete description of the markets or developments to which it refers. All rights to the material are reserved and cannot be reproduced without prior written consent of Matthews REISTM.

multi-family market outlook report - matthews · 2019-05-16 · multifamily properties thrive in...

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