Apartment Market Predictions: A Look at 2014 and Beyond

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Apartment Market Summary and Outlook

AXIOMETRICS INC. Stephanie McCleskey, Vice President of Research

14901 Quorum Dr., Suite 600

Dallas, TX 75254

www.axiometrics.com

November 2014

http://www.axiometrics.com/

Presentation Outline

• Demand Drivers for Apartments

• New Supply

• Current National Apartment Market Performance

• Current Apartment Market Performance

• Forecast

• 35-39

• 40-44

• 45-49

• 50-54

• 55-59

• 60-64

• 20-24

• 25-29

• 30-34

Between ages 20 and 64 years old,

which group has the largest

population?

• 35-39

• 40-44

• 45-49

• 50-54

• 55-59

• 60-64

• 20-24

• 25-29

• 30-34

Between ages 20 and 64 years old,

which group has the largest

population?

Which is most likely to rent an

apartment?

U.S. Population by Age GroupIn Millions

Prime renter age group has larger population base than other demographics

17

18

19

20

21

22

23

24

20 to 24 years 25 to 29 years 30 to 34 years 35 to 39 years 40 to 44 years 45 to 49 years 50 to 54 years 55 to 59 years 60 to 64 years

Prime renter age group Baby boomers and empty-nesters

Source: Census

Age 30 Population as of Census July 2013Includes Death, Immigration Etc.

Demographics Will Remain in Favor of Multifamily

Source: Census

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4F

201

5F

201

6F

201

7F

201

8F

201

9F

202

0F

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

1Q

14

20

14

F

20

15

F

20

16

F

20

17

F

20

18

F

20

19

F

20

20

F

HO Rate < 25YO HO Rate 25-29 HO Rate 30-34

57.4%

47.5%

50.7%

41.8%

33.3%36.1%

25.7%

21.5%

24.3%

What if Single-Family Improves?

HO Rate for the age group most likely to rent expected to remain subdued

Source: Axiometrics Inc., Census

Change in Renter HH from 2010 to 2013

Significant Renter Demand from Baby Boomers and Empty-Nesters

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

<=34YO Householder 35to 44 years

Householder 45to 54 years





Householder 85years and over

<=34YO Householder 35 to 44 years Householder 45 to 54 years Householder 55 to 59 years

Householder 60 to 64 years Householder 65 to 74 years Householder 75 to 84 years Householder 85 years and over

Source: Census

Effective Rent Growth and Job Growth

Historically, job growth has been the best indicator for the strength of rent

growth. At a national level, the two variables are 86% correlated

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1Q

97

3Q

97

1Q

98

3Q

98

1Q

99

3Q

99

1Q

00

3Q

00

1Q

01

3Q

01

1Q

02

3Q

02

1Q

03

3Q

03

1Q

04

3Q

04

1Q

05

3Q

05

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

3Q

14

Dallas, TX

Effective Rent Growth Job Growth


Effective Rent Growth and Job Growth

Historically, job growth has been the best indicator for the strength of rent

growth. At a national level, the two variables are 86% correlated

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1Q

97

3Q

97

1Q

98

3Q

98

1Q

99

3Q

99

1Q

00

3Q

00

1Q

01

3Q

01

1Q

02

3Q

02

1Q

03

3Q

03

1Q

04

3Q

04

1Q

05

3Q

05

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

3Q

14

Dallas, TX

Effective Rent Growth Job Growth

Rent growth outpaced job growth due to lack of supply

Rent and job growth

are now in balance

as supply delivers to

the market


Job Gain and Job Growth

Current as of September 2014 through forecasted period

MSA

September

Job Gain (000)

September

Job Growth (%)

2015-2020

Forecast (%)

Houston, TX 119.4 4.3% 2.3%

Orlando, FL 39.9 3.7% 2.7%

Dallas, TX 78.0 3.7% 2.4%

Seattle, WA 45.9 3.0% 2.3%

Atlanta, GA 51.9 2.3% 2.2%

Phoenix, AZ 41.2 2.3% 2.7%

New York, NY 104.1 1.9% 1.4%

Los Angeles, CA 73.8 1.8% 1.4%

Boston, MA 45.3 1.8% 1.8%

Chicago, IL 40.1 1.1% 1.4%

National 2,683 2.0% 1.6%

Source: Axiometrics Inc., BLS

New supply is being delivered to the market, but where does it stand compared to historical levels for

multifamily housing?

Total

Residential Single-family Multifamily

Total


New supply is being delivered to the market, but where does it stand

compared to historical levels for each housing type?

Total


New supply is being delivered to the market, but where does it stand

compared to historical levels multifamily housing?

Total


New supply is being delivered to the market, but where does it stand compared to historical levels for mulitfamily housing housing?

National Residential Units Permitted (1Q10-2Q14)

-

200

400

600

800

1,000

1,200

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14

Total Residential Permits Single-Family Multifamily

Total

Single-Family

Apartments, Condos, Student Housing, Seniors Housing, Affordable


National Residential Units Permitted (1Q10-2Q14)


-

500

1,000

1,500

2,000

2,500

2Q

96

4Q

96

2Q

97

4Q

97

2Q

98

4Q

98

2Q

99

4Q

99

2Q

00

4Q

00

2Q

01

4Q

01

2Q

02

4Q

02

2Q

03

4Q

03

2Q

04

4Q

04

2Q

05

4Q

05

2Q

06

4Q

06

2Q

07

4Q

07

2Q

08

4Q

08

2Q

09

4Q

09

2Q

10

4Q

10

2Q

11

4Q

11

2Q

12

4Q

12

2Q

13

4Q

13

2Q

14

Total Residential Permits Single-Family Multifamily

Total

SF

MF

Supply has increased the past few years, but is still well below historic levels

U.S. Apartment New Supply: 5+ Units

Rational behavior assumption: Once occupancy, rent and job growth start to

decelerate, underwriting will be harder, resulting in slower new supply starting

2016


0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1Q

97

3Q

97

1Q

98

3Q

98

1Q

99

3Q

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1Q

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3Q

00

1Q

01

3Q

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1Q

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1Q

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3Q

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1Q

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1Q

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F

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F

1Q

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F

3Q

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F

1Q

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F

3Q

19

F

1Q

20

F

3Q

20

F

New Supply LTA Supply Inventory Growth

Current level

New Supply by Market

Deliveries are projected to slow in the next couple years

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1Q

97

1Q

98

1Q

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1Q

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F

1Q

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F

1Q

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F

1Q

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F

1Q

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F

1Q

20

F

Austin

New Supply Inv Growth

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1Q

97

1Q

98

1Q

99

1Q

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1Q

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F

1Q

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F

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F

1Q

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F

1Q

20

F

Los Angeles


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

- 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

1Q

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F

New York


0.0%

0.5%

1.0%

1.5%

2.0%

-

1,000

2,000

3,000

4,000

5,000

6,000

1Q

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1Q

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F

San Francisco



Which of these years has been the

strongest for your property or

portfolio?

2010 2011 2012 2013 2014

National Year-to-Date Rent Growth

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010

2010

Source: Axiometrics Inc.


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%


2010 2011

2010

2011



0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%


2010 2011 2012

2010

2011

2012



0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%


2010 2011 2012 2013

2010

2011

2012

2013



0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%


2010 2011 2012 2013 2014


The strongest YTD rent growth post recession has been in 2014

Year-to-Date Rent Growth by Market

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%


Atlanta

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%


Dallas

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%


New York

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


Denver


Performance of Top Ten Major Markets

Northern California markets continue to be a top performer

Effective Rent Growth Occupancy Rate

MSA Sep-12 Sep-13 Sep-14 Sep-12 Sep-13 Sep-14

Oakland, CA 7.2% 9.0% 11.5% 96.6% 96.9% 96.8%

San Jose, CA 8.2% 5.7% 11.0% 95.7% 95.8% 96.4%

Denver, CO 6.7% 6.9% 10.1% 95.3% 95.8% 96.2%

San Francisco, CA 10.5% 7.6% 7.9% 96.2% 96.2% 96.4%

Atlanta, GA 3.3% 5.0% 7.8% 92.5% 93.6% 94.3%

Seattle, WA 5.3% 7.2% 6.7% 95.0% 95.4% 95.5%

Miami, FL 4.2% 3.7% 6.4% 95.9% 96.0% 96.0%

Fort Lauderdale, FL 4.7% 3.0% 6.2% 94.7% 95.0% 95.7%

Phoenix, AZ 2.3% 2.5% 5.8% 93.2% 93.5% 94.1%

Houston, TX 6.7% 5.3% 5.4% 93.2% 94.3% 94.7%

National 3.6% 3.0% 4.3% 94.6% 94.8% 95.1%


Annual Effective Rent Growth by Rent Tier

National –Properties priced in the middle of the market (blue line) have been

0.0%

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2.0%

3.0%

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5.0%

6.0%

De

c-1

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Jan

-13

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Ap

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Ap

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Jun

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g-1

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Sep

-14

Top Tier Middle Tier Lower Tier


Where is the majority of your

portfolio located?

Urban Core Suburbs

Where is the majority of your

portfolio located?

Urban Core Suburbs

Where do you think rent growth is

the strongest?

SuburbsUrban Core

Urban and Suburban Performance


-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Ap

r-0

9

Sep

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Jul-

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Dec

-10

May

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Oct

-11

Mar

-12

Au

g-12

Jan

-13

Jun

-13

No

v-1

3

Ap

r-1

4

Sep

-14

Annual Effective Rent Growth

Urban Suburban

89.0%

90.0%

91.0%

92.0%

93.0%

94.0%

95.0%

96.0%

97.0%

Ap

r-0

9

Sep

-09

Feb

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Jul-

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Dec

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May

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Oct

-11

Mar

-12

Au

g-12

Jan

-13

Jun

-13

No

v-1

3

Ap

r-1

4

Sep

-14

Occupancy Rate

Urban Suburban

Annual Rent Growth by Effective Rent Level

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

$500-$699 $700-$999 $1,000-$1,299 $1,300+

Atlanta

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

$500-$899 $900-$1,199 $1,200-$1,499 $1,500+

Denver

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

$400-$799 $800-$999 $1,000+

Raleigh-Cary

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

$700-$999 $1,000-$1,299 $1,300+

Austin


More often than not, top tier rent levels have shown slower annual rent growth

Rent Growth and New Deliveries - Austin

Dots represent individual properties. New properties are defined as those that delivered units between January 2013 and June 2014. Annual effective rent growth rates based on the trailing 12 month average ending June 2014.

Negative Rent Growth


Rent Growth and New Deliveries - Austin


Negative Rent Growth


> 5% Rent Growth

New Deliveries and Rent Growth by Market

Dallas/Fort WorthDenverAtlanta



Properties experiencing >5% rent growth

Rent Growth Forecast

Major markets will perform as well or better than the national average, and will

outperform their long-term average due to strong demand

MetroAnnual Rent Growth Forecast

Average 2015-2020Difference from Long-Term

Average

Atlanta-Sandy Springs-Marietta, GA 3.3% 2.7%

Austin-Round Rock, TX 3.6% 2.2%

Chicago-Naperville-Joliet, IL 3.6% 1.7%

Dallas-Plano-Irving, TX 3.6% 2.3%

Denver-Aurora, CO 3.7% 1.4%

Houston-Baytown-Sugar Land, TX 3.8% 1.9%

Los Angeles-Long Beach-Glendale, CA 3.8% 0.4%

Miami-Miami Beach-Kendall, FL 3.6% 0.3%

New York-Wayne-White Plains, NY-NJ 3.4% 0.4%

Phoenix-Mesa-Scottsdale, AZ 3.5% 2.5%

San Francisco-San Mateo-Redwood City, CA 4.0% 0.2%

San Jose-Sunnyvale-Santa Clara, CA 4.2% 1.3%

Seattle-Bellevue-Everett, WA 3.8% 0.9%

National Average 3.3% 1.3%


Apartment Market Summary

• Apartment performance in 2014 is exceeding expectations.

• Supply is not having a major impact at the macro level.

• Suburbs and properties with affordable price points are outperforming

• Rent growth and occupancy will moderate in the short term, but the apartmentmarket will remain strong due to limited availability, demographics, steady jobgrowth and total residential supply remaining in check

Apartment Market Predictions: A Look at 2014 and Beyond

Real Estate

Transcript of Apartment Market Predictions: A Look at 2014 and Beyond