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Real facts newsletter national 11 2012-r-ental trends_v3
1. Monthly Multi-Family Report
U.S. Market Update
Rental Trends
™
R e a l e s tat e m a r k e t i n s i g h t f o r t h e m u lt i - fa m i ly i n d u s t r y
NO V e m b e r
2012
in this issue...
2 National Overview
4 RealFacts Meyers INdex
8 RealFacts Meyers Market Coverage
9 About Us
A M e y e r s R e s e a r c h P u b l i c at i o n
2. 2 Rental Trends
National Market Review
The U.S. multifamily market’s average national rent (for markets covered by RealFacts) continued its upward momentum,
reaching a new all-time high of $1,042 per month in the third quarter of 2012, an increase of 4.8% from a year ago. The new
peak also represents an increase of 1.3% from the previous quarter, with all three quarters of 2012 averaging monthly rents over
$1,000. Given the lingering effects of the recent housing market crisis which continues to push former homeowners into the
rental market and more Millennials entering the market, demand fundamentals should continue to be strong for rental units,
keeping rents growing in the near term.
Similarly, as households continue to postpone homeownership, occupancy rates have risen, with the average national occupancy
rate increasing slightly to 93.9% in the third quarter. Although occupancy levels remain below levels seen in the late 1990s, we
anticipate it will continue to edge higher in the short term, given the slow addition of new rental product to the existing stock,
as well as the continued difficulties in the home mortgage market. Overall for 2012, rental rates are forecast to increase 4.2%,
with an average occupancy rate of 93.6% for the year, as fundamentals continue to point to increased demand for apartments.
National Average Rent
$1,100 12%
$1,050 9%
$1,000
6%
Average Rent
$950
3%
$900
0%
$850
-3%
$800
$750 -6%
$700 -9%
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2005
2006
2007
2008
2009
2010
2011
2012
1994
2004
Rent % Change Source: RealFacts
National Occupancy Rate
100.0%
99.0%
98.0%
Overall Occupancy
97.0%
96.0%
95.0%
94.0%
93.0%
92.0%
91.0%
90.0%
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2005
2006
2007
2008
2009
2010
2011
2012
1994
2004
Occupancy Rate Source: RealFacts
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3. Rental Trends 3
National Quarterly Trends
$1,065 94.0%
$1,045 93.5%
$1,025 93.0%
Average Rent
$1,005 92.5%
$985 92.0%
$965 91.5%
$945 91.0%
$925 90.5%
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
1Q2011
2Q2011
3Q2011
4Q2011
1Q2012
2Q2012
3Q2012
Rents Occupancy
Source: RealFacts
Existing Properties by Class
Existing Properties by Class
Class A
8,955 Class A
1,731
70% Class B
13%
8,955 1,731
70% Class B
13% Class C
2,196
17% Class C
2,196
17%
Source: RealFacts
Average Asking Rent by Bed/Bath
$1,600 $1,506
$1,400 $1,302 $1,329
$1,192
$1,200
$1,000 $904 $944
$891
$800
$600
$400
Studio 1 Bed/1 Bath 2 Bed/1 Bath 2 Bed/2 Bath 2 Bedroom 3 Bed/2 Bath 3 Bedroom
Townhome Townhome
Source: RealFacts
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4. 4 Rental Trends
Multi-family Product Trends
The recent strength of the apartment market, an aging stock of apartment units, and the influx of the large Gen Y demographic
cohort has and will continue to reshape the apartment industry over the next decade. Since the recent recession, the trend in
apartment units, along with the for-sale market, has shifted toward smaller unit sizes. This has largely been due to the need to
offer homes and apartments at lower price points. Some of the newer apartment projects are even planning a majority of their
units as one bedroom offerings versus the prevalence of two-bedroom units in the recent past. The emergence of micro units
of roughly 300 square feet of space – even smaller than a typical studio – is drawing a lot of attention. These micro units are
popping up in high-density, urban areas such as San Francisco, New York, and Boston, and they are appealing to the Gen Y renter
who is searching for walkable, more affordable, urban living.
Another notable trend geared towards the needs of the Millennials is a strong technology focus in both the apartment units
themselves, as well as in the leasing offices and community amenities. Apartment communities targeting the Gen Y group are
transforming their leasing offices into a completely wireless experience, offering a modern and dynamic feel, similar to Apple
stores. Web-based technology is also a must for these prospective tenants, who desire the ability to contact management, pay
rent, and get service through the internet 24/7. The business center of old is now more of a cyber café with universal Wi-Fi
expected, and in-unit home networking and IPod docking stations the norm. These technology-focused features are important
to Millennials, and apartment communities looking to capture this group have begun offering these elements to meet their needs.
RealFacts Meyers Index
Across the country, the rental market continues to strengthen. Consequently, RealFacts Meyers’ investment index tracks 28
metro areas throughout the United States. Eleven indicators including rental increases, occupancy, absorption, job growth,
multifamily permit levels, and estimated cap rates for stabilized properties are compiled and measured against historical averages.
The subsequent weighted investment index offers a benchmark of the apartment industry for each metro area from a standpoint
of an investor looking at ground-up development. The nation overall scored a 5.3 on the scale, increasing slightly from our
previous analysis. All but two of the areas (Las Vegas and Boston) saw an annual increase in rents (with Boston showing no
change), and almost three-fourths of the markets analyzed saw occupancy levels hold steady or increase from last year.
“Gateway cities” continue to characterize the top tier markets, which saw rents trend 7% higher from a year ago. Occupancy
rates in these markets average about 95%, and high investment interest keep CAP rate levels around 4% to 5%. Not surprising,
the bulk of the top markets have a heavy tech influence, a sector that continues to hire a younger-than-average workforce who
is generally well-paid and highly mobile. The most significant ground-up growth (based on multifamily permit level change)
can be found in Austin, San Jose, Minneapolis, Denver, and Charlotte. These markets have seen permit levels more than double
from a year ago.
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5. Rental Trends 5
The middle tier markets experienced an uptick in rent of 3% from year ago levels, while occupancy levels remained at 94%
on average. CAP rates in these markets are generally in the 5% to 6% range. This tier includes all of the Southern California
markets, along with Jacksonville, which was a bottom-tier market earlier this year. Jacksonville has improved significantly over
the past year, with rents rising 3%, occupancy increasing 1%, and multi-family permits increasing over 200% from the previous
year. While most investment activity has been focused on new ground-up construction near employment cores, with most A
locations already taken, interest in value-add investment opportunities will increase. Walkability or access to mass transportation
and proximity to jobs are key factors for these markets. Development activity will increase significantly over the next several
years, but timing of market entry and exit will be more critical.
The bottom tier only includes Las Vegas this quarter, with Jacksonville moving up to the mid-tier markets. Las Vegas experienced
a decline of 1% in both average rent and occupancy rate from a year ago. This market saw a significant ramp up in new for-sale
housing during the previous housing cycle and subsequently, was one of the hardest hit markets in terms of foreclosures and short
sales. The glut of newly built distressed housing that is affordably priced competes directly with the rental market. Although the
rent to mortgage payment ratio is only 1.58X in Las Vegas, qualifying for mortgages remains difficult, and the rental market can
expect to recapture many of these previous homeowners, particularly younger singles and couples.
Top Tier Middle Tier Bottom Tier
7.1 Austin 5.9 Los Angeles 4.0 Las Vegas
6.9 San Jose 5.7 Portland
6.9 Washington D.C. 5.7 San Diego
6.8 Minneapolis 5.7 Orange County
6.8 San Francisco 5.3 Miami
6.5 Dallas 5.3 United States
6.5 Denver 5.2 Phoenix
6.4 Charlotte 5.0 Tampa
6.4 Oakland 4.5 Chicago
6.3 Baltimore 4.4 Atlanta
6.2 Houston 4.3 Jacksonville
6.2 Seattle 4.2 Inland Empire
6.2 New York/New Jersey 4.1 Sacramento
6.1 Boston 4.1 Detroit
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6. 6 Rental Trends
RealFacts Meyers MF Investment Index
Apartment Metrics
Rents vs.
3Q 2012 Annual % 3Q 2012 Annual % % of 2011 Units Mortgage Class A Annualized
Metro Area Rent Change Occupancy Change Class A Absorbed Payment Est. Cap Rate 1/ MF Permits
Austin $950 6% 94% 0% 20% 2,199 1.22x 4.25 - 5.00 10,173
San Jose $1,980 10% 95% -1% 10% 815 0.83x 4.00 - 4.75 4,304
Washington D.C. $1,669 3% 95% 0% 12% -74 1.26x 4.00 - 4.75 10,469
Minneapolis $1,116 3% 95% 4% 0% -19 1.63x 4.00 - 5.25 3,350
San Francisco $2,372 11% 96% -1% 12% 960 0.88x 4.00 - 5.00 3,308
Dallas $831 4% 94% 0% 10% 6,466 1.41x 5.25 - 6.25 18,033
Denver $1,009 8% 95% 1% 19% 1,303 1.07x 5.00 - 5.75 7,319
Charlotte $763 9% 94% 0% 2% 170 1.28x 4.75 - 5.50 5,784
Oakland $1,627 9% 97% 0% 10% 768 1.04x 4.75 - 5.75 1,478
Baltimore $1,339 6% 94% 0% 4% 30 1.45x 4.00 - 4.75 2,577
Houston $835 5% 92% 1% 12% 5,432 1.37x 4.75 - 5.50 14,396
Seattle $1,158 6% 94% 0% 15% 468 1.10x 5.00 - 6.00 9,077
New York/New Jersey $2,521 11% 96% -1% 19% 61 1.85x 4.75 - 6.50 19,434
Boston $2,086 0% 96% 0% 28% 68 1.59x 4.00 - 5.00 4,862
Los Angeles $1,751 5% 96% 1% 20% 1,135 1.38x 4.75 - 5.50 8,742
Portland $954 6% 96% 0% 12% 825 1.13x 5.00 - 6.25 2,715
San Diego $1,456 4% 95% 0% 15% 798 1.06x 4.25 - 5.00 4,098
Orange County $1,628 5% 95% 0% 14% 513 0.87x 4.00 - 5.25 3,534
Miami $1,259 4% 95% 1% 14% 300 1.69x 5.00 - 6.00 7,920
United States 2/
$1,042 5% 94% 0% 13% 37,785 1.59x 4.75 - 5.75 271,388
Phoenix $755 3% 92% 0% 14% 4,322 1.41x 5.00 - 5.75 2,700
Tampa $870 3% 93% 0% 8% 532 1.65x 5.50 - 6.50 3,560
Chicago $1,221 2% 94% -1% 10% 92 1.80x 5.25 - 6.50 2,651
Atlanta $875 3% 92% -1% 18% 211 2.35x 5.00 - 5.75 5,073
Jacksonville $846 3% 92% 1% 15% 296 1.76x 6.25 - 7.00 2,178
Inland Empire $1,107 2% 94% 0% 22% 427 1.67x 5.75 - 6.50 1,517
Sacramento $963 1% 94% -1% 12% 457 1.57x 6.00 - 7.25 303
Detroit $879 3% 94% -1% 21% 5 4.04x 7.25 - 8.00 416
Las Vegas $746 -1% 92% -1% 13% 872 1.58x 5.75 - 6.75 1,277
Source RealFacts; Census; NAHB, Bureau of Labor Statistics; Indeed.com
1/Estimated Cap rate from a survey of brokers (CBRE, Marcus & Millichap) for stabilized properties.
2/United States rental stats reflect data collected by RealFacts, which includes coverage of 96 MSAs in 14 states.
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8. 8 Rental Trends
RealFacts Geographic Footprint
RealFacts Database Facts
■■ Database of 12,861 Properties
■■ 2.8 Billion Square Feet of Apartments
■■ 92 Consecutive Quarterly Updates of Rents & Occupancy
■■ 96 MSA’s in 16 States
■■ More than 3,300,000 Units
■■ 136 Individual Search Criteria Used Alone or Combined
■■ Over 4,800 Sales Transactions Recorded in the Past Eight Years
■■ 95% of the Database Resurveyed Each Quarter
■■ 19 Year History for Individual Complexes
■■ 23 Years of Experience 1989-2012
For more information on RealFacts, contact Nick Grotjahn at 415.884.2480 x:2
Nov
A Meyers Research Publication
2012
9. Rental Trends 9
About Us
Meyers LLC Advisory Services & Analysis
■■ Multi-family feasibility studies
■■ Highest and best use analysis
■■ Consumer research
■■ Portfolio strategy
■■ Cash flow analysis
■■ Planning and entitlements
■■ Mitigation management
■■ Project management and development
Valuation Financial Analysis Market Insight
• portfolio strategy • debt, equity, and partnership • quarterly newsletter tracking nation’s
• feasibility study restructuring largest markets
• highest and best use analysis • sell/hold sensitivity • database of land sales
• product repositioning • investment fund strategy • strategic partnerships with state
• assest management • recapitalization economists
Market valuation on over $2 billion in assets Proprietary cash flows on all property types. Over $500 million in land transactions
in 2010. tracked quarterly.
Upcoming Events
Nov. 15 Milken Institute Summit California
Jan. 22 NAHB International Builders’ Show
Feb. 26 2013 Housing Market Summit
Mar. 17 Crittenden Multifamily Conference 2013
Nov
A Meyers Research Publication
2012
10. REALFACTS is the original apartment data source….the source behind
the source. We are trusted by our clients for good reason. Our data is
always reliable, always dependable. We conduct surveys that are 100%
primary research. All the data we publish is collected, updated and
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Novato, CA 94949-5639
415.884.2480 To learn more about RealFacts visit www.realfacts.com or contact us at
www.realfacts.com 415.884.2480 x 2.
Meyers LLC has extensive experience in the real estate development
industry, advising a long list of national and local apartment developers
and financial institutions. We understand the challenges our clients face,
and can apply our expertise in research, analysis and capital sourcing to
18401 Von Karman Ave., Ste. 350 ensure they prosper—today and in the future.
Irvine, CA 92612
949.640.0050 | 949.640.0055 (fax)
To learn more about Meyers visit www.meyersllc.com
www.meyersllc.com
Methodology and source list can be made available by request.