IRVINE & SILICON VALLEY, CA — Ten-X (formerly Auction.com) released its latest Multifamily Market Outlook report, which highlights the sector’s top buy and sell markets. The long-term forecast report, which is based on Q3 2015 current and expected fundamentals, reveals Orlando, FL, Raleigh-Durham, NC, Fort Lauderdale, FL, Phoenix, AZ and Sacramento, CA, as the sector’s top buy markets thanks largely to local economic gains and population inflows. Meanwhile, investors in Northern New Jersey, Philadelphia, Miami, Pittsburgh and Boston might consider selling due to slowing economic outlooks and diminishing employment. “The overall multifamily sector remains healthy and the trend of renting instead of owning continues across the U.S.,” said Ten-X chief economist Peter Muoio. “Despite being six years into its expansion, the demand drivers for multifamily are still in place with no signal of waning in the coming years.” While Ten-X’s latest Multifamily Market Outlook Report reveals markets investors need to keep their focus on, it also outlines how multifamily construction is heating up as demand drivers are holding strong. Effective rents are up by 4.3% nationwide from one year ago, which accounts for an all-time peak. n Other multifamily findings in the report include deal volume inching up to $34 billion in Q3 2015 and Q3 cap rates dropping by 20 bps from the prior quarter to 5.8%. 2015-2019 U.S. Multifamily Projections: Top 5 Buy Markets 2015 Rents (per unit) 2019 Rents (per unit) 2015 Vacancies (percentage) 2019 Vacancies (percentage) Orlando, Fla. $970 $1,169 5.3% 4.3% Raleigh-Durham, N.C. $886 $1,069 6.3% 3.8% Fort Lauderdale, Fla. $1,247 $1,493 4.4% 5.6% Phoenix $802 $964 4.7% 4.8% Sacramento, Calif. $1,054 $1,259 2.1% 3% To 5 Sell Markets 2015 Rents (per unit) 2019 Rents (per unit) 2015 Vacancies (percentage) 2019 Vacancies (percentage) Northern New Jersey $1,673 $1,832 4.7% 5.2% Philadelphia $1,167 $1,286 3.8% 6.2% Miami $1,240 $1,359 5% 7.8% Pittsburgh $924 $1,025 3.8% 5.5% Boston $1,982 $2,189 5.6% 8.4% 2015 Rents (per unit) 2019 Rents (per unit) 2015 Vacancies (percentage) 2019 Vacancies (percentage) U.S. $1,179 $1,345 4.6% 5.5%
The Multifamily Sector’s Top Five Buy Markets*:
Orlando, Fla.
Orlando’s economy is picking up as total employment has soared post-recession. It’s now at a record high, surpassing its 1990s peak and recently notching greater than 4.5-percent year-over-year growth. Employment is up in the professional/business services sector and now stands a very substantial 9-plus% year-over-year growth. Orlando’s supply pipeline will remain heavy in the near future and though absorption will weaken in the coming years, vacancies will decline to the low-3-percent range and settle in at the low-4-percent range over the next few years.
Raleigh-Durham, N.C.
Employment stands at an all-time peak here, nearly 17-percent higher than its recessionary low, with job growth driven by the Research Triangle’s professional/business services, as well as the education/healthcare service sectors. A sharp decline in availability through 2019 is expected as the supply pipeline dries up. Vacancies are at 6.7%, which is up 30 bps from one year ago, thanks to heavy completions. Rates will decline significantly in the coming years, however, as construction cools. Also expect to see rents with an aggregate gain of more than 20% through 2019.
Fort Lauderdale, Fla.
Another market where the professional/business services sector is seeing big gains, Fort Lauderdale has unemployment figures that are below the national average and down substantially from a year ago in the high-4-percent-range. Payrolls are up 3.4-percent from a year ago with continued growth expected. Population growth also continues, measuring 1.3-percent in 2014. Vacancies have leveled off in recent years, but will decline in the near term amid little new supply. The city’s rent gains will average better than 5-percent annually through 2018 and NOI gains should grow an average of 5.8% annually through 2019 due to near-term declining vacancies and robust rent growth.
Phoenix Phoenix is enjoying nearly 3-percent annual growth on average, a total that should continue over the next three years. Employment growth is up, in the same manner as other thriving multifamily sectors, and the region has become a popular place to relocate. Phoenix vacancies are tight and will keep declining to the mid-3-percent range by 2018. Rents are expected to average annual growth in the high-4-percent range through 2019. Low availability and strong rent growth will propel average annual NOI gains in the low-5-percent range over the next few years. Sacramento, Calif. Post-recession employment has recovered nicely, having overtaken its pre-recession peak and growing nearly 3% from a year ago. Sacramento benefits from a surprisingly booming hospitality sector (growing jobs by more than 12% in the past year), as well as rising rent growth, which is expected to measure a whopping 8% for 2015 before cooling to a more stabilized but still strong pace. NOI should grow at a robust average annual rate of 4.7% through 2019. The Multifamily Sector’s Top Five Sell Markets*:
Northern New Jersey
The region’s apartment sector outlook is constrained due to slow employment growth and poor demographics. The economy’s progress has been slow and employment growth has been inconsistent, albeit trending upward, barely topping 1-percent gains from a year ago most recently. Unemployment, meanwhile, is higher than the U.S. average at the low-5-percent range. Vacancies are at 4% and could hit the low 5-percent range by 2019 and rent growth will decelerate, slowing from its 2.6-percent year-ago figure to a low point of 1.8% in gains by 2019.
Philadelphia
With a heavy supply pipeline on the horizon and vacancies on tap to rise, Philadelphia’s economic outlook is a bit bleak. Growth has been slow to take hold and year-ago employment growth is trending in the low 1-percent-range. Metro population growth is very slow, consistently trailing the national average. Vacancies are at a low point right now (3.1%) and will rise to north of 6% by 2019, spurring a slowdown in rent growth along the way.
Miami
Miami’s economy remains on solid ground but its growth pace has cooled since early 2015. Population gains have decelerated for three consecutive years (though on par with the U.S. average) and unemployment is north of 6% — well above the national average. Miami’s apartment market is exposed to shifting supply and demand. Vacancies are in the low 4-percent range but projected to rise over the next few years and once-hot rent growth is starting to cool with gains now down to 3.5% after topping 6% year-over-year growth in 2014.
Pittsburgh
Pittsburgh’s economy is getting hit by low natural gas prices that are affecting job growth. Employment is up 1% from a year ago, but momentum is going in the wrong direction as employment has declined in the past six months and unemployment is now in the low-5-percent range (above the national average for the first time since 2006). Vacancies are in the mid-3-percent range but a projected slowdown in absorption will combine with more completions to boost availability above 5% by year-end 2019.
Boston
Boston’s economy is in good overall shape, but job growth has slowed since June. Unemployment is in the low-4-percent range but has increased over the past six months. Vacancies have already been inching up for a few years and currently are topping 5%. Slower rent growth and rising vacancies will mean weaker NOI gains, particularly toward 2018-19.
*Data source for Top Buy/Sell Markets: REIS, Ten-X Research forecasts.