SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Multifamily Markets to Watch. Not the largest or the most actively contested markets, the 2016 Multifamily Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.
Top Multifamily Market to Watch: Tampa, FL
Tampa has recovered significantly after experiencing deep impacts from the recession and is now growing jobs at an annualized pace of 3.6% with an unemployment rate of 4.8% as of January ‘16, according to the Bureau of Labor Statistics. Job growth also helped sustain population growth of 6.8% from 2010 to 2014, according to the Census Bureau. This growth has caused the multifamily sector in Tampa to expand with growing rents, falling occupancies, and lots of new supply. 2016 should bring approximately 5% rent growth with stable occupancy levels. The city is approximately 50% rental housing based and should demand more units as economic expansion continues. Top sectors for employment growth include Construction, Professional and Business Services, Leisure and Hospitality, and Financial Activities which have annualized growth rates of 7.1%, 7.1%, 6.6%, 3.4%, respectively.
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Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.
To read more on other top multifamily markets, download the full version of the 2016 Multifamily Market Outlook report here.
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Seattle is one of the fastest growing cities on the West Coast, with a population that grew 9.8% from 2010 to 2014, according the Census Bureau. Job growth continues at an annualized pace of 3.0% while unemployment has been stable with the latest reading in January ‘16 of 5.6%, according to the Bureau of Labor Statistics. Seattle is an expensive city to live in and as such approximately 54% of the housing units are rentals, according to the Census Bureau. The need for ample housing is real and multifamily assets should perform well for 2016 and beyond. Rents are expected grow over 5% as new supply hits record highs to fill new demand. The best sectors for job creation include Information, Leisure and Hospitality, Trade, Transportation, and Utilities, and Financial Activities, which are growing at 8.1%, 5.0%, 4.2%, and 4.1% annualized rates, respectively.
San Jose is one of the hottest cities in the Bay Area and thus has experienced very strong employment growth since 2011 which has brought the unemployment rate down to 3.9% as of January ‘16 while jobs are still being created at the robust pace of 3.8% annualized according to the Bureau of Labor Statistics. Population growth is also significant at 6.6% from 2010 to 2014 as people find this market relatively more affordable. The San Jose housing stock is traditionally owner oriented with only 43% used for rentals. Given the rate of regional growth, local multifamily assets are very well positioned to pick up demand from surrounding areas a well as localized growth. Rent growth is expected to exceed 5% with relatively low new supply in 2016. Top sectors in job creation include Construction, Information, and Professional and Business Services with annualized growth rates of 10.3%, 8.4%, and 6.8%, respectively.
Reno is experiencing sustained gains in employment with a 4.4% annualized rate after being severely impacted by the past recession; unemployment has improved dramatically and now sits at a still relatively high 6.2% as of January ‘16, according to the Bureau of Labor Statistics. Population has grown robustly with a 4.9% increase from 2010 to 2014, according to the Census Bureau. As is common with tourist market economies, the percentage of city housing used for rental purposes is high at 53% meaning that job growth will quickly mean growth for the multifamily sector. The city’s economy is rapidly diversifying with the biggest gains coming from Construction, Professional and Business Services, Financial Activities, and Education and Health Services with annualized growth rates of 9.6%, 9.5%, 5.2%, and 5.0%, respectively.
Portland has experienced rapid employment growth in 2015, bringing the unemployment rate down to 4.7% as of January ‘16 while sustaining new job creation at a rate of 3.1%, according to the Bureau of Labor Statistics. Population in the city grew by 6.1% between 2010 and 2014 according to the Census Bureau who also reports that approximately 47% of the housing stock is used for rentals. Portland is a relatively high priced market for the nation but still affordable for a major West Coast metro with an excellent quality of life. Leading employment sectors include Information, Leisure and Hospitality, and Education and Health Services growing at 9.4%, 4.6%, and 4.5% respective annualized rates. These dynamics should lead to strong performance of the multifamily sector in 2016 and beyond with rents growing over 10% this year as new supply remains relatively moderate.
Job growth in Philadelphia has brought the city back above pre-recession employment levels as unemployment stays steady at 4.8% as of January ‘16 with modest annualized employment growth of 2.1%, according to the Bureau of Labor Statistics. Population growth has been below the national average as the city only gained 2.2% from 2010 to 2014, according to the Census Bureau. Accordingly, demand for new apartment units is modest compared to other metros of similar size; yet the city does have a relatively high use of housing units as rentals at approximately 47%. Philadelphia does have an advantage in affordability, especially compared with other East Coast metros, and thus has growth potential with rents forecast to grow by over 3% in 2016. The city’s top sectors for job growth include Mining, Logging, and Construction as well as Professional and Business Services where are expanding at annualized rates of 8.2% and 3.7%, respectively.
The multifamily market in Charlotte has experienced strong growth in demand as the city has gained 10.1% in population from 2010 to 2014, according to the Census Bureau. This has been fueled by significant job growth that has set new records substantially above pre-recession peaks, leading the present unemployment rate to sit at 5.3% as of January ‘16 with new job creation occurring at an annualized rate of 2.8%, according to the Bureau of Labor Statistics. Approximately 45% of the city’s housing stock is renter occupied. Thus, a good deal of the new population is likely to demand an apartment. Further, gross rents are below national averages, making Charlotte affordable and capable of seeing meaningful rent growth. New supply has grown approximately 4% in 2015 which will lower rent growth slightly in 2016, but still likely to be robust and above 4%. Many sectors are adding jobs at annualized rates above 4%, including Financial Activities, Professional and Business Services, and Leisure and Hospitality. However, this city does face a unique risk to continued growth from the new “bathroom” law, perceived very negatively by many; this could jeopardize new job growth and thus the market if firms choose to relocate or otherwise curtail operations in the state.
The Denver multifamily market has experienced significant additions of new supply as its population has grown 10.6% from 2010 to 2014, according to the Census Bureau. Further, the employment market is outstanding with 3.0% unemployment as of January ‘16 and annualized job growth of 2.5%, according to the Bureau of Labor Statistics. Denver features a larger renter population with approximately 50% of its metro’s housing units used for rental purposes; still rental rates are relatively affordable for a metro of its size, giving it room to grow. Top sectors for employment growth include Leisure and Hospitality, Financial Activities, Manufacturing, and Professional and Business Services growing at annualized rates of 6.0%, 3.9%, 3.5%, and 3.2%, respectively. As such, rent growth could hit 7% in 2016.
A similar story regarding the aging of America can also be made using Census data which shows that the percentage of the population over 65 will go from less than 14% in 2010 to almost 22% by 2030. Now, consider the prototypical 65-year-old household; it will likely be childless (at least under the age of 18) with just one to two adults with potentially limited income. With a little creative analysis, it is apparent that the prototypical Millennial household (i.e., a single person or two adult individuals with limited income) is actually quite economically similar to the Baby Boomer household. Further, while not identical, both will have somewhat similar demands for real estate. Thus, the ever insatiable demand for multifamily, certain types of retail, and other properties seems far more logical when all sources of demand are considered. In short, apartments are doing well today, in both fundamentals and pricing, because they benefit from solid demand drivers; meaning those not likely to deteriorate in the short term and most likely to persist for the long term.
Boston’s economy has experienced significant job growth such that its unemployment rate is now 4.0% as of January ‘16 and new jobs are being created at a 1.4% annualized rate, according to the Bureau of Labor Statistics. Further, population has grown 6.2% from 2010 to 2014, according to the Census Bureau, and has thus significantly increased the demand for rental housing in the metropolitan region. Bostonians are highly predisposed to renting as over 65% of the housing units in the city are rentals according to Census data; thus prolonged population and job growth will place great pressure on rents which could grow over 6% in 2016 and keep occupancies above 97% while new supply is likely to remain less than 2% . The top sectors for job growth include Financial Activities and Education and Health Services which are growing at 3.1% and 2.9% annualized rates, respectively.
