Apartment Markets: What’s Hot, What’s Not · 2018-04-05 · As costs rise and equity capital looks beyond apartments, U.S. 5+ rental starts should peak in 2014…but stay active

Witten Market Advisory Services

Market insights for apartment owners, developers, investors and lenders

Market-Smart Investment Decisions

Advisors

NMHC Apartment Strategies/ Finance

May 13, 2014

1

Copyright 2014, Witten Advisors LLC

Dallas, Texas

Apartment Markets: What’s Hot, What’s Not

More new renters enter the market…

Source: Witten Advisors

Market Update Witten



Advisors

2


Dallas, Texas


May 13, 2014

Net Apartment Absorption by Quarter, Seasonally Adjusted

-150

-100

-50

0

50

100

1Q2000

1Q2001

1Q2002

1Q2003

1Q2004

1Q2005

1Q2006

1Q2007

1Q2008

1Q2009

1Q2010

1Q2011

1Q2012

1Q2013

1Q2014

Ap

art

men

t U

nit

s (0

00)

…despite generally modest job growth overall

Source: U.S. Bureau of Labor Statistics establishment survey




Advisors

3


Dallas, Texas


May 13, 2014

288Excl Census Temps 3-Month Average

-1,000

-800

-600

-400

-200

0

200

400Ja

n-0

8

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Job

s G

ain

ed

/L

ost

by M

on

th (

000)

Initial unemployment claims now near pre-recession levels

Source: U.S. Department of Labor

Week of May 3:

319,000

Initial Unemployment

Claims (SA)

4-Week Average:

324,750

200,000

300,000

400,000

500,000

600,000

700,000Ja

n-0

7

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Init

ial C

laim

s fo

r

Un

em

plo

ym

en

t In

sura

nce B

en

efi

ts




Advisors

4


Dallas, Texas


May 13, 2014

More and more Young Adults are finding jobs

Source: U.S. Bureau of Labor Statistics household survey

Market Update

-2,000

-1,500

-1,000

-500

0

500

1,000

1,5002000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

(Ap

ril

y-y

) 2014

Year-

Year

Ch

an

ge i

n 2

0-3

4 E

mp

loym

en

t (0

00)

Witten



Advisors

5


Dallas, Texas


May 13, 2014

Are total 5+ starts at or near their peak?

Big jump in late ’13, but eased in 1Q14

Source: U.S. Department of Commerce; Witten Advisors

0

100

200

300

400

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

5+

Mu

ltif

am

ily U

nit

s

(mo

nth

ly d

ata,

an

nual

ized

, 000)

Monthly Starts Rate Annualized, SA 3-Month Annualized Starts Rate

Market Update

Mar-14: 292k

Mar-14: 305k

Witten



Advisors

6


Dallas, Texas


May 13, 2014

Apartment Starts Witten



Advisors

7


Dallas, Texas


As costs rise and equity capital looks beyond apartments,

U.S. 5+ rental starts should peak in 2014…but stay active


May 13, 2014

5+ Rental Starts

2014

278k

NAHB Expected Starts,

Lagged 6 Quarters

0

50,000

100,000

150,000

200,000

250,000

300,0001Q

92

1Q93

1Q94

1Q95

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

1Q15

1Q16

5+

Ren

tal

Sta

rts,

tra

ilin

g 1

2 m

on

ths

50

60

70

80

90

100

110

NA

HB

Ex

pecte

d S

tart

s In

dex

(aver

age

of

mar

ket

-rat

e an

d a

ffo

rdab

le,

2001=

100)

Demand and net completions ~ in balance through 2016…


Market Outlook Witten



Advisors

8


Dallas, Texas


May 13, 2014

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

400,00019

95

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Ren

tal

Ap

art

men

t U

nit

s

Net Absorption

New Completions

Net Completions

…sustaining occupancy above trend, and also rent growth





Advisors

9


Dallas, Texas


May 13, 2014

85%

90%

95%

100%

1Q95

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

1Q15

1Q16

Occu

pan

cy

-5%

0%

5%

10%

Year-

Year

Eff

ecti

ve R

en

t G

row

th

Equilibrium Occupancy Occupancy Occupancy Forecast

Rent Growth Rent Growth Forecast

Rent increases stretching budgets,

contributing to slower rent gains





Advisors

10


Dallas, Texas


May 13, 2014

Rent Affordability Index (par = 1.00)

0.96

1.05

0.93

0.90

0.92

0.94

0.96

0.98

1.00

1.02

1.04

1.061Q

94

1Q95

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

1Q15

1Q16

Ren

t A

ffo

rdab

ilit

y I

nd

ex

(norm

al r

ent

shar

e of

house

hold

inco

me/

curr

ent

shar

e)

11


Dallas, Texas




Advisors

Comparison of Top 10 Rent Growth Markets: 2013, 2014, 2016

2013 Differ?

Axiometrics

1 Portland 7.8%

2 San Jose 7.6%

3 Oakland 7.4%

4 Denver 7.0%

5 San Francisco 7.0%

6 Miami 5.6%

7 Seattle 5.5%

8 Atlanta 5.2% A

9 Austin 5.1%

10 Houston 5.0%

Witten Advisors

1 Oakland 6.9%

2 San Jose 6.9%

3 Denver 6.8%

4 San Francisco 6.7%

5 Portland 6.6%

6 Seattle 6.3%

7 Austin 5.3%

8 Miami 5.0%

9 Houston 4.8%

10 Nashville 4.6% WA

NMHC Apartment Strategies

May 13, 2014

12


Dallas, Texas




Advisors


2013 Differ? 2014 Differ?

Axiometrics

1 Portland 7.8% Miami 6.2%

2 San Jose 7.6% San Jose 5.8%

3 Oakland 7.4% Seattle 5.0%

4 Denver 7.0% Oakland 4.9%

5 San Francisco 7.0% San Francisco 4.3%

6 Miami 5.6% Phoenix 4.2% A

7 Seattle 5.5% Riverside 4.1%

8 Atlanta 5.2% A Atlanta 4.0% A

9 Austin 5.1% Houston 4.0% A

10 Houston 5.0% West Palm Beach 4.0% A

Witten Advisors

1 Oakland 6.9% Nashville 6.6% WA

2 San Jose 6.9% Seattle 6.6%



5 Portland 6.6% Sacramento 5.5% WA

6 Seattle 6.3% Portland 5.4% WA

7 Austin 5.3% Riverside 5.1%

8 Miami 5.0% Los Angeles 4.9% WA

9 Houston 4.8% Miami 4.5%

10 Nashville 4.6% WA San Jose 4.4%


May 13, 2014

13


Dallas, Texas




Advisors


2013 Differ? 2014 Differ? 2016 Differ?

Axiometrics

1 Portland 7.8% Miami 6.2% Chicago 4.5% A

2 San Jose 7.6% San Jose 5.8% Baltimore 4.3% A

3 Oakland 7.4% Seattle 5.0% Orange County 4.2% A

4 Denver 7.0% Oakland 4.9% Fort Lauderdale 4.1% A

5 San Francisco 7.0% San Francisco 4.3% San Jose 4.1%

6 Miami 5.6% Phoenix 4.2% A Raleigh 4.0% A

7 Seattle 5.5% Riverside 4.1% Denver 4.0% A

8 Atlanta 5.2% A Atlanta 4.0% A Washington DC 3.9% A

9 Austin 5.1% Houston 4.0% A Cincinnati 3.8%

10 Houston 5.0% West Palm Beach 4.0% A Seattle 3.7%

Witten Advisors

1 Oakland 6.9% Nashville 6.6% WA Cincinnati 4.7%

2 San Jose 6.9% Seattle 6.6% Salt Lake City 4.4% WA

3 Denver 6.8% Oakland 6.3% Fort Worth 4.3% WA

4 San Francisco 6.7% San Francisco 5.9% Austin 4.3% WA

5 Portland 6.6% Sacramento 5.5% WA Minneapolis 4.3% WA

6 Seattle 6.3% Portland 5.4% WA San Jose 4.2%

7 Austin 5.3% Riverside 5.1% San Antonio 4.1% WA

8 Miami 5.0% Los Angeles 4.9% WA Los Angeles 3.8% WA

9 Houston 4.8% Miami 4.5% Seattle 3.6%

10 Nashville 4.6% WA San Jose 4.4% New York City 3.6% WA


May 13, 2014

14


Dallas, Texas




Advisors


Markets in Common


Axiometrics

1 Portland 7.8% Miami 6.2%

2 San Jose 7.6% San Jose 5.8%

3 Oakland 7.4% Seattle 5.0%


5 San Francisco 7.0% San Francisco 4.3% San Jose 4.1%

6 Miami 5.6%

7 Seattle 5.5% Riverside 4.1%

8

9 Austin 5.1% Cincinnati 3.8%

10 Houston 5.0% Seattle 3.7%

Witten Advisors

1 Oakland 6.9% Cincinnati 4.7%

2 San Jose 6.9% Seattle 6.6%



5 Portland 6.6%

6 Seattle 6.3% San Jose 4.2%

7 Austin 5.3% Riverside 5.1%

8 Miami 5.0%

9 Houston 4.8% Miami 4.5% Seattle 3.6%

10 San Jose 4.4%


May 13, 2014

15


Dallas, Texas




Advisors


Market Differences


Axiometrics

1 Chicago 4.5% A

2 Baltimore 4.3% A

3 Orange County 4.2% A

4 Fort Lauderdale 4.1% A

5

6 Phoenix 4.2% A Raleigh 4.0% A

7 Denver 4.0% A

8 Atlanta 4.0% A Washington DC 3.9% A

9 Houston 4.0% A

10 West Palm Beach 4.0% A

Witten Advisors

1 Nashville 6.6% WA

2 Salt Lake City 4.4% WA

3 Fort Worth 4.3% WA

4 Austin 4.3% WA

5 Sacramento 5.5% WA Minneapolis 4.3% WA

6 Portland 5.4% WA

7 San Antonio 4.1% WA

8 Los Angeles 4.9% WA Los Angeles 3.8% WA

9

10 New York City 3.6% WA


May 13, 2014

© 2014 AXIOMETRICS INC. ALL RIGHTS RESERVED. 16

Urban Core Rent Growth – July 2011 (U.S. Peak) Urban submarkets averaged > 6% annual effective rent growth.

ERG is Effective Rent Growth

Source: Axiometrics Inc.


Urban Core Rent Growth – March 2014 The average has dropped to 1.8%, which is below the U.S. benchmark of 3.1%.

ERG is Effective Rent Growth



National Effective Rent Growth by Submarket Type Urban core submarkets are currently underperforming suburban submarkets,

but they significantly outperformed earlier in the recovery/expansion period.

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Apr-

09

Ju

l-09

Oct-

09

Ja

n-1

0

Apr-

10

Ju

l-10

Oct-

10

Ja

n-1

1

Apr-

11

Ju

l-11

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Jan-1

4

Annual Effective Rent Growth

Urban Core Suburban



Variance in Annual Rent Growth by Submarket July 2011 (U.S. Peak) – Most urban cores were strong

Each circle represents an individual submarket.



Variance in Annual Rent Growth by Submarket March 2014 (Current) – Urban cores have weakened

Each circle represents an individual submarket.



Deliveries are up in both the Urban Core and the Suburbs

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Apartment Units Delivered By Quarter Top 10 Markets

Urban Core Suburban Source: Axiometrics Inc.

Based on Top 10 Markets for units delivered in 2014: Atlanta, Austin, Charlotte, Dallas, Denver, Houston,

Los Angeles, New York, Seattle, and Washington, DC.


New Urban Core Construction has Slowed There has been enough activity in the suburbs to keep the total number of starts

at a consistent level since 2012.

Based on Top 10 Markets for units delivered in 2014: Atlanta, Austin, Charlotte, Dallas, Denver, Houston,

Los Angeles, New York, Seattle, and Washington, DC.

0

10,000

20,000

30,000

40,000

50,000

60,000

Ju

n-1

1

Au

g-1

1

Oct-

11

Dec-1

1

Feb

-12

Ap

r-1

2

Ju

n-1

2

Au

g-1

2

Oct-

12

Dec-1

2

Feb

-13

Ap

r-1

3

Ju

n-1

3

Au

g-1

3

Oct-

13

Dec-1

3

Feb

-14

Apartment Units Started - Trailing Six Months Top 10 Markets

Urban Core Suburban Total

Questions/Discussion




Advisors


May 13, 2014

23


Dallas, Texas

Documents

Apartment Markets: What’s Hot, What’s Not · 2018-04-05 · As costs rise and equity capital looks beyond apartments, U.S. 5+ rental starts should peak in 2014…but stay active