BK Perspective Real Estate USA 2016

Perspective on Real Estate 2016 - U.S.
Apartment
Demand Growth* (%)
Figure 4.4 shows a scatter plot of major U.S.
apartment markets based on their vacancy level
(x-axis) and year-over-year change in demand (y-axis).
Rent growth is also indicated by the bubble color.
Here we see most of the markets are relatively tight.
Axiometrics’ third quarter 2015 national vacancy rate
was 4.7% and most of the markets shown here fall
below that point.
Apartment demand growth is quite healthy across
the major U.S. markets, with many seeing demand
rise by 2.0% or more over the past year. Among the
tighter markets are those that have benefited from
the growth in knowledge-based industries, including
Boston, New York and San Francisco. Demand
growth will increasingly be constrained in tighter
apartment markets as housing shortages prevent
absorption and ultimately impact hiring and economic
growth. We noted in this publication a year ago that
companies have a much more difficult time growing
in locations where new recruits cannot find housing.
So new construction may temper rent growth in
Fig. 4.4
Metro Apartment Market Performance
5.5
6.5 Y/Y Rent Growth >3.0%
6.0 Y/Y Rent Growth 0.0%-3.0% Austin
Raleigh
5.0
4.5
Dallas
Phoenix
4.0
San Jose Seattle Washington, D.C. Durham
3.5
Portland
Salt Lake
3.0
2.5
2.0
San Francisco
Detroit
Denver Houston
Atlanta
1.5
Minneapolis Boston
Philadelphia
Newark
Orange County
1.0
0.5
New York
Chicago
Los Angeles
0.0
2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
* 2014Q3 to 2015Q3
Vacancy 2015Q3 (%)
36 | Bentall Kennedy (U.S.) Limited Partnership
Source: Axiometrics
some submarkets, but the alternative – stalling
economic growth due to a lack of housing – is far less
appealing.
Indeed, Austin, Raleigh and Dallas have been the
clear leaders in demand growth over the past year
and all three have a modestly higher vacancy rate
than many other large markets. By comparison,
New York’s vacancy rate is approaching 3.0%, and
year-over-year demand growth has eased in recent
quarters from around 1.4% to 1.0%.
Apartment net operating income (NOI) growth has
exceeded the other three major property types in
each of the past two years as conditions have heavily
favored landlords. Healthy NOI growth should
continue. Using the latest data through November
2015 from Axiometrics and smoothing it slightly using
a three-month moving average, we see in Figure 4.5
that national occupancy has improved slightly over
the past 12 months and year-over-year rent growth
is just under 5.0%. Substantial occupancy gains are
still evident in a number of markets. Occupancy is
declining in just over half of the markets shown here,
but many of these are among the tightest markets
in the country. Notably San Francisco and Oakland
experienced some of the strongest rent growth in the
country, and occupancy, while lower than it was a year
ago, is still north of 96%.
The U.S. economy continues to generate a significant
number of new jobs for every multifamily unit
developers start. Over the 12 months ending in
September 2015, there were 7.1 jobs created for
every multifamily housing start. This is not as strong
as the 8.6 average jobs per multifamily start over
the past five years, but it is much higher than the 4.1
average jobs per multifamily start observed over the
past 20 years.
With rental vacancy at its lowest level since 1986 and
the homeownership rate below its 20-year average,
the favorable alignment of national economic trends
and multifamily housing construction should remain a
boon to apartment landlords in 2016. Add to this the