Event - RealPage User Conference

1. U.S. Apartment M k t O tl k
US A t t Market Outlook
Greg Willett
RealPage User Conference
July 13, 2009
It’s still a fuzzy picture
It’s
The economy remains on a downward trajectory, but the
first things that have to happen for recovery to occur are
starting to emerge.
The apartment markets, too, are still weakening in terms of
overall revenues, but the first hints of good news can be
seen if you look hard enough.
y g
The “experts” disagree on the timing and velocity for the
comeback that lies on the horizon.
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2. U.S. quarterly apartment completions will slow
considerably during the immediate future
60k
40k
20k
0k
2006
2007
2008
2009
2010
Source: MPF – TWR Multi-Housing Outlook
Most of the product left under construction is
concentrated in a handful of metros
6%
stock growth based on
g
units under construction,
April 2009
4%
2%
0%
Phoenix
San Antonio
Houston
Raleigh
Denver
Dallas
Austin
Charlotte
Seattle
Las Vegas
Source: MPF Research
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3. Don’t be surprised if the limited volume of new
supply lasts quite a while
When we get to 2010, Dallas should stand alone as the
only metro in the country that still will be adding product
at a notable pace.
Looking beyond the problems with access to capital, recent
rent cuts mean new development deals rarely pencil out
financially at this point.
Developers, especially merchant b ild
D l i ll h t builders, hhave slashed
l h d
their staffing, which should further delay the return of
new construction.
The country has lost about 6 million jobs
since the beginning of 2008
400k
Jan 2008
8
Jan 2009
9
200k
0k
Jan 2006
Jan 2007
-200k
-400k
-600k
-800k
Source: Bureau of Labor Statistics
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4. So what’s the demand story?
The country suffered about 170k net move-outs in calendar
2008, including 130k lost during Q4.
Despite further severe job losses, demand is back in 2009.
Through the first half of the year, positive absorption of
roughly 60k units has occurred.
More than 100% of the net demand seen this year has
been captured by new completions moving through
lease-up. Existing projects are continuing to suffer
resident loss.
What’s spurring current absorption?
While some areas are still losing apartment renters to the
shadow market (individually-owned homes and condos
offered for lease), on net, there’s bounceback from the
shadow market to traditional apartments
apartments.
We’ve lowered the standard on who is an “acceptable”
renter.
Big rent cuts are positioning apartments more favorably
relative to other housing choices.
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5. U.S. apartment occupancy, while weak, is
exceeding expectations so far in 2009
98%
96%
92.3%
94%
92%
90%
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
Source: MPF Research
Properties from the 1990s are today’s
top occupancy performers
95%
Q1 2009 data
92.8
91.6
90.9 91
90% 89.3
85%
2000+ 1990s 1980s 1970s Pre 1970
Source: MPF Research
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6. Occupancy variation by floor plan
is very slight
95%
Q1 2009 data
91.3 91.3 91.2 91.2
90%
85%
Efficiency One Bedroom Two Bedroom Three Bedroom
Source: MPF Research
U.S. annual rent change went negative in late 2008,
and the hole keeps getting deeper in 2009
10%
8%
6%
4%
-3.0%
2%
0%
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
-2%
-4%
Source: MPF Research
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7. Rent cuts register in every product
age sector
2000+ 1990s 1980s 1970s Pre 1970
0%
-0.2
-1% -0.9
-1.5
-1.7
Q1 2009 data
-2% -1.9
Source: MPF Research
June 2008 – June 2009 Even Today’s Best Performers
Revenue Change Are Struggling
Dayton +2.1%
Select secondary markets maintain flat
El Paso +2.1% to slightly rising revenues. (Some –
Fort Myers +1.4% notably Dayton and Fort Myers – are
actually in weak shape, but revenues
Oklahoma City +1.4%
haven’t backtracked from previously
Hartford +0.9% poor levels.)
Louisville +0.8%
Houston and Washington, DC are the
Pittsburgh +0.2%
top-performing big markets. (Boston
Houston -0.2% and Philadelphia just miss making the
Columbus -0.7% cut.)
Washington, DC -1.0%
Source: MPF Research
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8. June 2008 – June 2009 Quite a few high profile markets
Revenue Change look a lot like the nation in total
San Antonio -3.3%
Florida cities -- previously among the
West Palm Beach -3.7% nation’s worst performers -- now rank in
Chicago -4.0% the middle of the pack (or better) for
annual revenue change.
Minneapolis -4.3%
Charlotte -4.9% San Francisco and San Diego are in a
Detroit -5.0% little better shape than other California
markets.
San Francisco -5.1%
Orlando -5.1% Even the worst Midwest metro areas –
Dallas -5.2% Chicago, Minneapolis and Detroit – rank
no worse than mid-tier U.S. performers.
San Diego -5.3%
Source: MPF Research
June 2008 – June 2009 West Region Markets and NY
Revenue Change Have Gotten Really Ugly
Austin -7.3%
Enormous rent cuts emerged virtually
Las Vegas -7.9% overnight in most California markets
Northern New Jersey -7.9% plus Seattle and metro New York.
Phoenix -8.2%
Las Vegas and Phoenix remain on the
Los Angeles -8.7% downward slope in performance. Austin
Riverside -8.7% began to struggle big-time during recent
months.
Orange County -8.8%
San Jose -12.7%
Seattle -12.8%
New York -13.6%
Source: MPF Research
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9. Most markets should hit bottom during 2010’s
first half
The still weakened economy won’t provide much support
y p pp
for apartment demand. And loss of renters to purchase
seems likely to head upward again in many locales.
But deliveries will be very limited.
Revenues should inch down slightly. Rent cuts probably
will continue at levels a bit steeper than the modest
upturn expected in occupancy.
occupancy
Real recovery kicks into gear during the 2011-
2013 time frame
Demand expectations actually are fairly modest. We’re
p y y
probably in for another “jobless recovery,” so it might
take until at least 2013 to replace all the positions lost
in 2008-2009.
There’s pent-up new household formation headed the
apartment market’s way, but we also have an increase
in the loss of renters to home purchase ahead of us.
MPF Research assumes those two influences largelyg y
cancel each other out.
Apartment deliveries will be very limited across a vast
majority of metros.
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10. Real recovery kicks into gear during the 2011-
2013 time frame
Revenue growth is anticipated to average around 4%
g p g
annually in 2011-2013, with improvement focused first
on occupancy increases and then on rent gains.
Select markets should remain laggards even
as we move into recovery during 2011-2013
Detroit
It’s tough to envision much of a turnaround during the near
term for the Motor City.
Cincinnati, Dayton, Louisville, St. Louis
The economy will be late picking up momentum in the
traditionally slow growth metros. And when it does,
housing demand probably will be centered on the
single-family
single family sector in especially affordable metros
metros.
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11. Select markets should remain laggards even
as we move into recovery during 2011-2013
New York, Northern New Jersey y
We’ve probably fundamentally changed the financial
sector for the foreseeable future, limiting prospects for
an immediate comeback in New York.
Chicago, Los Angeles, Orange County
Job loss is turning out to be so big in places like Chicago,
LA and Orange County that it will take these areas a
while to fill in the hole. Slowed immigration also could
hole
play a factor impacting the pace of recovery in some
markets.
Other markets seem apt to display notable
momentum during the 2011-2013 time frame
Minneapolis
p
Minneapolis was the Midwest’s strongest performer during
the last cycle, and it seems likely to get back on track
more quickly than other cities in the region.
Atlanta, Denver, Fort Worth, Houston, Orlando, Phoenix,
Salt Lake City
The traditional fast-growth metros should see job additions
jump back to substantial volumes fueling apartment
volumes,
demand. At the same time, they probably won’t receive
new supply anywhere near the historically typical level
(Houston perhaps being the exception).
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12. Other markets seem apt to display notable
momentum during the 2011-2013 time frame
San Francisco, San Jose
The Bay Area jumps back to the top of the list, partly just
because “normal” rent growth is so much stronger than
in other metros. Average annual revenue growth in
2011-2013 should top 6%.
For further info, contact:
MPF Research
4000 International Parkway
Carrollton, TX 75007
(972) 820-3100
www.mpfresearch.com
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