2,000+ UNITS COMPLETING BY APRIL 2020 IN THE NATION’S THIRD-RANKED RENT GROWTH MARKET

Rental Rates

> Annual rent growth has been in the 4-5 percent range over the last 12 months versus 6-8 percent throughout 2017 and 2018 as rent growth continues to moderate with new supply coming to the market. Positive in-migration and younger renters struggling to save enough money to buy a home will continue to lift market occupancy and rents moving forward.

> After a significant jump in occupancy over the last 12 months, Central Sacramento’s rents increased 5.3 percent year-over-year, the submarket’s highest annual increase in two years. Central Sacramento also posted the highest quarterly rent increase at 3.3 percent as new supply hitting the market begins to lift the submarket’s average rents.

Occupancy

> Sacramento’s occupancy rate has remained above 96 percent for 17 of the last 20 quarters. New supply underway should begin to impact the market’s elevated occupancy levels over the next 6 to 12 months.

> South Sacramento posted the highest annual occupancy increase at 1.5 percentage points and is one of five submarkets above 97 percent occupancy.

Sales Activity

> Second quarter’s sales volume (5+ units) more than doubled the first quarter’s total with $407.9 million worth of multifamily properties sold across 44 transactions.

> The average price of $158,663 per unit set in the second quarter is an increase of more than $20,000 from the first quarter’s average.

> Expect accelerating sales activity through the second half of the year as owners look to dispose of high value assets at this point in the cycle.

REGIONAL SUMMARY

Sacramento’s apartment market remains one of the top-performing markets in the country with strong renter demand across the region. Market occupancy increased 20 basis points from the first quarter as the total number of units absorbed in the last three months outpaced new supply by 117 units. Annual rent growth has hovered around 5 percent over the last year, well below the record highs of 10-11 percent throughout 2016, but still third in the nation among the top 50 markets. Multifamily development continues to accelerate with 708 units from four new projects starting construction this quarter. There are now 2,470 units under construction with 2,047 units scheduled to deliver over the next 9 months. New supply will put downward pressure on occupancy moving forward, but Sacramento’s demand has tallied 728 units absorbed per year over the last three years. After a slow start to the year, sales activity picked up in the second quarter, recording $245 million more in sales than the first quarter. With strong market fundamentals, a growing population, and an expanding renter generation of Millennials in Sacramento, the multifamily market will continue to see above 96 percent occupancy rates and will remain a sought after market for investors looking to place capital in a vibrant market.

SACRAMENTO | MULTIFAMILYQ2 2019

Research &Forecast Report

96.7% Q2 2019 Market Occupancy Rate

$1,459Average Monthly

Market Rent

1,183Units Absorbed Last

12 Months(372 Units in Q2)

$407.9MQuarterly Sales Volume($570.9M 2019 YTD Sales Volume)

+0.3% Annual Occupancy Change (+0.2% Quarterly Occupancy Change)

+4.9% Annual Rent Change(+1.9% Quarterly Rent Change)

1,101 New Units Completed

Last 12 Months(2,479 Units Under Construction)

$158,663Per Unit Quarterly Avg.

Sale Price(+6.6% YOY)

2 Sacramento Research & Forecast Report | Q2 2019 | Sacramento | Multifamily | Colliers International

SACRAMENTO | MULTIFAMILYQ2 2019

1,493

349 438

1,009

556

698

257

586

297

618

1,069

481

7.2%

9.7%10.4%

6.3%

4.7%4.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-

200

400

600

800

1,000

1,200

1,400

1,600

2014 2015 2016 2017 2018 2019 YTD

Annu

al R

ent G

row

th

Units

Annual Absorption Annual New Supply Annual Rent Growth

$1,8

89

$1,8

22

$1,6

61

$1,5

99

$1,5

37

$1,4

38

$1,3

17

$1,3

22

$1,3

13

$1,2

25

$1,2

16

$1,2

581.0%

4.2%3.9%

4.3%3.9%

2.9%

4.1%

3.3% 3.3%2.9% 2.8%

1.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

$0

$500

$1,000

$1,500

$2,000

Avg. Monthly Rent Vacancy Rate

$1,283 $1,285

$1,512

$2,037

96.0%

96.7%

96.8%

95.9%

95.8%

95.9%

96.0%

96.1%

96.2%

96.3%

96.4%

96.5%

96.6%

96.7%

96.8%

96.9%

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$2,200

Studio 1 BR 2 BR 3 BR

Avg. Market Rent Market Occupancy

95.9

%

95.7

%

96.1%

96.0

%

96.5

%

96.1%

96.0

%

95.9

%

96.4

%

96.6

%

96.1%

95.9

%

96.5

%

96.5

%

96.5

%

96.3

%

96.4

%

96.7

%

96.4

%

96.5

%

96.7

%

$1,022

$1,108

$1,222

$1,332

$1,395

$1,459

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

95.0%

95.2%

95.4%

95.6%

95.8%

96.0%

96.2%

96.4%

96.6%

96.8%

Q22014

Q22015

Q22016

Q22017

Q22018

Q22019

Avg.

Mar

ket R

ent (

All U

nit T

ypes

)

Mar

ket O

ccup

ancy

Rat

e

Market Occupancy Market Rent

APARTMENT MARKET FUNDAMENTALS Market Occupancy & Average Market Rents

Annual Supply/Demand & Annual Rent Growth

Monthly Rent & Vacancy Rate by Submarket Market Rent & Occupancy by Unit Type

Q2 2019 NOTABLE NEWS

About a year ago, AG Spanos Companies completed its 199-unit BDX at Capital Village in Rancho Cordova at 3175 Data Drive. By late December 2018, Spanos sold the property to Oakmont Properties for $57.5 million, or

$289,000 per unit.

But AG Spanos is far from done in our market. This quarter, the

Stockton-based developer started construction on 293 units in

North Natomas at 3949 Truxel Road, due to complete early 2021, and 214 units at El Dorado Hills Town Center, set to complete by

summer 2021. Both projects (507 total units) are in submarkets that have historically seen mild levels

of apartment development.

Source: RealPage/MPF Research

3 Sacramento Research & Forecast Report | Q2 2019 | Sacramento | Multifamily | Colliers International

SACRAMENTO | MULTIFAMILYQ2 2019

$407

.9M

$111K

$57K

$120K

$161K

$194K

$159K

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

2009 2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018 Q2 2019 Q2

Sacramento Apartment Sales Activity - Quarterly Sales Volume & Price Per Unit

Dollar Volume Average Price Per Unit

7.4%

6.5%

6.3%

5.8%

5.5%

4.8%

Davis 10,225 $1,907 $2.07 1.0% 99.0% 0 -73

Central Sacramento 16,393 $1,820 $2.29 4.2% 95.8% 199 260

Roseville / Rocklin 17,160 $1,596 $1.74 3.9% 96.1% 167 177

Folsom / Orangevale / Fair Oaks 13,598 $1,563 $1.79 4.3% 95.7% 238 277

Natomas 12,464 $1,491 $1.74 3.9% 96.1% 232 280

South Sacramento 20,530 $1,388 $1.60 2.9% 97.1% 50 28

N Sacramento / N Highlands 10,197 $1,304 $1.53 4.1% 95.9% 0 -29

Citrus Heights 7,197 $1,295 $1.62 3.3% 96.7% 0 2

Rancho Cordova 12,730 $1,287 $1.65 3.3% 96.7% 160 221

Arden-Arcade 14,701 $1,211 $1.59 2.9% 97.1% 0 106

Carmichael 9,187 $1,197 $1.49 2.8% 97.2% 0 -93

Woodland / West Sacramento 735 $1,151 $1.62 1.9% 98.1% 55 73

SACRAMENTO AREA 151,735 $1,459 $1.70 3.3% 96.7% 1,101 1,183

Units Completed Units Absorbed

Q2 2019 Trailing 12 Months

Submarket Name Existing UnitsAvgerage Monthly

RentAverage Rent/SF Vacancy Rate Occupancy Rate

PROPERTY SUBMARKET UNITS PRICE $/UNIT $/SF CAP RATE BUYER SELLER

Copper Creek Carmichael 268 $48,000,000 $179,104 $266 5.20% Bridge Partners JCM Partners

Artisan Square Apartments Arden/Arcade 204 $37,250,000 $182,598 $277 5.50% Affordable Housing Dev Corp JCM Partners

Shaliko Apartment Homes Roseville/Rocklin 152 $36,500,000 $240,131 $234 4.50% Sequoia Equities Oakmont Properties

The Luxe Arden/Arcade 220 $36,250,000 $164,772 $226 Undisclosed ColRich Latitude Management

Marconi Gardens East, Marconi Village, Marconi Oaks

Carmichael, Arden/Arcade 290 $35,395,000 $124,193 $105 Undisclosed C&P Real Estate Spartan Enterprises

Q19* Central Sacramento 68 $26,800,000 $394,117 $580 4.65% Woodmont Real Estate Services SKK & Grupe

Southwood Townhomes South Sacramento 98 $26,800,000 $273,469 $213 5.80% Klingbeil Capital Management Gallelli Real Estate

Q2 2019 Significant Sales

Sacramento Apartment Sales Activity - Quarterly Sales Volume & Price Per Unit

Submarket Summary

*Q19’s sale price is inflated due to the inclusion of 3,000 SF of ground floor, above market retail space

Source: RealPage/MPF Research

4 Sacramento Research & Forecast Report | Q2 2019 | Sacramento | Multifamily | Colliers International

COLLIERS INTERNATIONAL301 University Avenue Ste 100

Sacramento, CA 95825+1 916 929 5999

www.colliers.com/sacramento

MARKET CONTACTRandy DixonManaging DirectorRandy.Dixon@colliers.com+1 916 563 3023

RESEARCH CONTACTSBob ShanahanSenior Research AnalystBob.Shanahan@colliers.com+1 916 563 3018

Ken JohnsonResearch ManagerKen.Johnson@colliers.com+1 916 563 3065

652

404

55

232 211

925

698

254

688

-

100

200

300

400

500

600

700

800

900

1,000

Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020

Sacramento Apartment Development PipelineNew Units Completed/Completing Per Quarter

4,119 Units Completed Last 12 Months & Currently Under Construction

1,343 Units Completed July 2018-June 2018

2,776 Units Under Construction Completing August 2019-November

2020

This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers Interna-tional excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this doc-ument and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s). Real estate officer license corporation identification number 01908588. ©2019. All rights reserved.

THE FINAL WORD

Though construction activity has expanded in recent months, Sacramento’s new supply over the last five years has been well below the previous cycle’s peak. There are more than 2,000 units scheduled to deliver in the next 12 months across the region with 42 percent of those units completing in Central Sacramento. With annual absorption hovering around 900 units over the last two years, expect the market occupancy rate to drop closer to 96 percent by this time next year. However, renter demand continues to exceed expectations with pricey new developments leasing up quite well.

Renters will have a greater selection of new housing choices with all the multifamily development underway. In order to attract renters, developers are differentiating themselves from the competition. This is resulting in a number of increasingly standard amenities for new apartment projects to meet the needs of today’s tenants, including, rooftop decks, swimming pools, pet spas, dog parks, bocce ball courts, bike storage facilities, and ground floor restaurants or retail. The GIO Apartments under construction just off of Highway 50 at Stockton Blvd, for example, is a five-story project with a rooftop deck swimming pool and westward-facing views of Downtown Sacramento’s skyline. Other amenities and features at GIO include ground floor retail, a bike lounge, bike parking, a pet grooming center, a dog park, and a 251-space parking garage. The 213-unit project should be completed by October 2019.

Limited new supply and significant population growth in the last five years created a tight apartment market in Sacramento. As a result, rents increased significantly. This notable supply/demand imbalance is evidenced by the Sacramento market averaging 336 more units absorbed per year versus new units completed each year over the last five years (579 new units completed, 915 units absorbed on average since 2014). Annual rent growth has moderated from its double-digit pace set in 2016, but the Sacramento market still finished third in the nation among the top 50 markets. Going forward, annual rent growth should continue to moderate closer to 4 percent after averaging 7.6 percent per year over the last five years. Despite rising levels of new supply hitting the market for the foreseeable future, Sacramento’s strong job growth and expanding population should support one of the top-performing multifamily markets in the country.

Sacramento Apartment Development Pipeline - New Units Completed Per Quarter

The Press under construction at 20th & Q will be the largest multifamily development in Midtown at 277 units once completed next spring. SKK Developments and DeBartolo are the owner/developer team behind the project.