US Apartment Market Trends - July 2009


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US Apartment Market Trends - July 2009

  1. 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. 1
  2. 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 2
  3. 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 3
  4. 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. 4
  5. 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 5
  6. 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 6
  7. 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 7
  8. 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 8
  9. 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. 9
  10. 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. 10
  11. 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). 11
  12. 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 12