Colliers multifamily market report (q4 2012)

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Colliers multifamily market report (q4 2012)

  1. 1. Dave SchumacherSr. Vice President206 382 8555dave.schumacher@colliers.comDavid W. MortensenSr. Associate206 382 8554david.mortensen@colliers.comDylan P. SimonAssociate206 624 7413dylan.simon@colliers.comFOURTH QUARTER 2012Research &Knowledge ReportSeattle MultifamilyColliers International601 Union St., Ste 5300 | Seattle, WA 98101 www.colliers.com
  2. 2. Q4 2012 | MultiFamilyColliers International | Seattleresearch & forecast Report Strong Demand Means Rent Growth and New Development Average vacancy is below 5% throughout the Puget Sound. King County is down to 4.2% and Seattle CBD vacancy is a surprisingly low 2.3%. This exceptionally strong demand has naturally led to robust rent growth, with the strongest starting at the urban centers and spreading out to the suburbs. Devel- opers have responded to this demand with a very full pipeline. New development and employment, the key indicators of supply and demand, are the questions on everyone’s mind at the moment and we explore them in depth in this report. Key Indicators Supply and Demandmarket indicators • Gross sales volume ($) in Puget Sound is • A total of 5,628 units were added in 2012 up 126% over the last year. • We project 24,000 more units will be 2012 2013 • Cap rates have fallen to a 5.6% average in added 2013-2016. 2012, coming off a 6.2% peak in 2010, yet • Over 46,000 jobs were added to Seattle-VACANCY nearly 100 bp off a record low of 4.8% in Bellevue-Everett in 2012. 2007. • The Seattle-Tacoma-Bellevue unemploy-Cap Rates • Record setting pricing with Aspira ment rate is 6.9% while the national unem- obtaining >$500k/door, with average ployment rate is 7.9%.construction price per door at $152k in King County, up • Economicforecaster.com projects a steadyrents 16% year-over-year. decline in the Puget Sound unemployment • Tri-county vacancy remained flat year- rate from 7.4% in 2013 to 7.0% in 2014, over-year at 4.7%, yet the King County 6.6% in 2015 and 6.4% by the end of 2016 vacancy rate dropped to 4.2%. with nearly 210,000 jobs added in that • 32% of properties are offering conces- time. sions, down from the 2010 peak of 61.1%.Number of Sales Sales Volume ($) 180 180 $2,500,000,000 $2,500,000,000 160 160 Sales 140 140 $2,000,000,000 $2,000,000,000 120 120 volume $1,500,000,000 $1,500,000,000 100 100 80 80 $1,000,000,000 $1,000,000,000 60 60 40 40 $500,000,000 $500,000,000 20 20 0 0 $0 $0 KingKingSnohomish SnohomishPierce Pierce KingKingSnohomish SnohomishPierce Pierce King King Snohomish Snohomish Pierce Piercewww.colliers.com/seattle
  3. 3. research & forecast report | Q4 2012 | MultiFamilyA Shift in Demand puget sound market vacancy vs. unemployment rate Puget Sound Market Vacancy Vs. Unemployment RateNationally, the vacancy rate is 4.6% as of Q3 2012, an extremely 10.0%healthy rate considering peak vacancy of 8.0% in June 2009. 9.0%The national vacancy rate has only dropped below 5% three 8.0%times in the last 30 years, according to REIS. Average vacancy 7.0%in the Puget Sound area is 4.7%, but the Seattle area rental 6.0% 5.0%market is even tighter. King County vacancy has compressed 4.0%to 4.2% and Seattle CDB vacancy is at a surprisingly low 2.3%. 3.0%In the past, the vacancy rate tracked almost exactly with the 2.0% 1.0%unemployment rate in this area, illustrating the strong correla- 0.0%tion between employment and apartment demand. However, 1996.1 2001.1 2010.1 1993.1 2007.1 1987.1 1990.1 2005.1 2008.1 2004.1 1989.1 1991.1 1992.1 1994.1 1997.1 1986.1 1988.1 1995.1 2009.1 2000.1 2002.1 2012.1 1998.1 1999.1 2003.1 2006.1 2011.1it appears that a fundamental shift is taking place in the rental Market Vacancy Unemployment Ratemarket at the moment. With unemployment now at 6.9%, onewould expect vacancy to be between 6.4% and 7.4% since the Vacancy and Unemployment were nearly in lockstep until 2009. Since 2009, the spread has increased from an average ½ point to 3 percentage pointstwo metrics have typically been within half a point of onepercentage of renters in the seattle MSA another in the past. Instead, vacancy is below 5% in the Puget Sound and the spread between unemployment and vacancy has averaged 3 basis42% points since 2009. That is a huge shift in renter behavior. As indicated40% by the chart above, vacancy is surprisingly low right now compared to where it would normally be given the current unemployment. That indi-38% cates extraordinarily high demand by historical standards. The chart below is another sign post indicating a shift in renter behavior. In 1999,36% 33.1% of households in the Seattle Bellevue Everett MSA were renters.34% Today, that figure is 40.5%. These figures are further bolstered by O’Conner Consulting research concluding that measureable apartment32% demand implies 60% of new Seattle residents are renters compared to a 50/50 historical norm.30% Demographic shifts certainly account for some of this shift. Baby boomers’ lifestyles are changing, and many thousands of “Generation Y” are coming of renter age in this market. It is still more difficult than it wasThe percentage of renters in the Seattle MSA has increased to 40.5%, the highest levelever recorded. to buy a home, and many former home owners are opting to be renters or have been forced to rent after foreclosures. It remains to be seen how permanent this shift in renter demand will prove to be. Colliers International | p. 3
  4. 4. research & forecast report | Q4 2012 | MultiFamilyEmployment Puget Sound Unemployment and Population Forecasts forecasts puget sound unemployment and populationIn the development community there is no better medi- 10.0 2,150,000cine for concerns with inventory than job creation. In 9.0 2,050,000this region, the rule of thumb is 8 new jobs adds 8.0 1,950,000demand for one new apartment unit. For example, 7.0 1,850,00052,722 jobs were added to the tri-county area in 2012 6.0 1,750,000which translates to demand for 6,590 units. Conway & 5.0 1,650,000Pedersen (economicforecaster.com) predicts 46,000 4.0 1,550,000jobs have been added to the Seattle-Everett-Bellevue 3.0MSA in 2012; compared with 30,000 new jobs in 2011. 2.0 1,450,000In the next five years, Conway Pedersen predicts nearly 1.0 1,350,000210,000 new jobs added in the region. 0.0 1,250,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Our local employment market is on a tear and may wellexceed those projections. Amazon hired 22,500 Unemployment Rate Populationpeople worldwide last year and has an estimated 2,300local positions available. Boeing hired about 8,000 source: economicforecaster.com Around 49,000 new jobs are forecast for 2013 in this region; quite a lot by historicalworkers last year in the Seattle area and apparel standards. At the same time, population is expected to increase by 54,000; 22% moreretailer Nordstrom added 7,500 people nationally in than the 20-year average population growth.2011.Projected Deliveries in King and Snohomish Counties Predicting Supply Over the past 20 years, developers have added an 12,000 average 3,200 market rate apartments per year in the King, Snohomish and Pierce Counties – the “tri- 10,000 county” region. 2012 is ending with 5,628 new units, according to Dupre+Scott (duprescott.com). As many 8,000 as 8,220 new units are under construction or planned 6,000 for 2013, 10,887 units in 2014, 8,069 units in 2015 and 3,093 units in 2016 for a total potential of 30,269 new 8,898 units in the next four years; 137% higher than the his- 4,000 8,033 5,628 torical average for that period. For our supply projec- 5,075 2,000 tions, we assume that 100% of units “Under Construc- 2,010 tion” will be completed. Projects that have not yet - broken ground and have not locked financing are much less certain, so we handicap projects in Planning. We 2012 2013 2014 2015 2016 assert that 75% of those projects in planning for 2013 Completed Under Construction Planned Projected and 2014 will be built, and 65% of those in Planning for 2015 and 2016 will be built. Our adjusted total newIn the tri-county area, 5,628 units were completed in 2012 and 30,269 units supply for 2013-2016 is 24,016.are under construction or planned for 2013-2016 according to Dupre+Scott Wespeculate that 24,016 of those will actually be completed in that time. Colliers International | p. 4
  5. 5. 250,000 14,000 12,000200,000 10,000 research & forecast report | Q4 2012 |150,000 MultiFamily 8,000100,000 6,000 4,000 50,000 2,000 0 0Examining Supply: Where, When & WhoLooking at the raw numbers in the previous section, there is certainly reason for some oversupply concern in the near term. However, we contend that the West Seattleanalysis is much more complex. The impact of oversupply must be based in the questions of where, when & who. Ballard5,000 4,000Where4,500 3,5004,000 3,000When3,500 you break it down, it appears that most of the new supply seems to be focused in urban locations. Some of these areas had only small rental markets 2,5003,000before this cycle and are really creating brand new urban villages, such as Ballard, South Lake Union and Downtown Bellevue. This suggests that an2,500 2,000analysis of oversupply must be conducted at the submarket or even micro-market level.2,000 1,5001,500 1,0001,000 500 500 0 0projected new supply over 20 years Bellevue West bellevue west Bellevue West Bellevue East bellevue east18,000 9,000 9,00016,000 8,000 8,00014,000 7,000 7,00012,000 6,000 6,00010,000 5,000 5,000 8,000 4,000 4,000 6,000 3,000 3,000 4,000 2,000 2,000 2,000 1,000 1,000 0 0 0 245% increase over 20 years. 20 years ago, no one lived in downtown Bellevue. 1% increase over 20 years. With the condo conversions that took place in the last That is changing this cycle and dramatically. Urban living in Bellevue is all new and cycle and the lack of developable land, rental supply in Bellevue east of 405 has been welcome. essentially flat. Puget Sound Puget Sound PUGET SOUND Belltown, downtown, south Lk. Union belltown, Downtown, S. lake union Belltown, Downtown, S. Lk. Union 300,000300,000 16,000 16,000 250,000 14,000 14,000250,000 12,000 12,000 200,000200,000 10,000 10,000 150,000150,000 Puget Sound Puget Sound 8,000 8,000 Belltown, Downtown, S. S. Lk. Union Belltown, Downtown, Lk. Union 300,000 300,000 100,000 6,000 6,000 16,000 16,000100,000 4,000 4,000 14,000 14,000 250,000 250,000 50,000 50,000 2,000 2,000 12,000 12,000 200,000 0 200,000 0 10,000 0 0 10,000 150,000 150,000 8,0008,000 100,000 100,000 6,0006,000 32% increase over 20 years (avg 1.5%/yr). The region will take this cycle’s new sup- 4,000 increase over 20 years. Downtown highrises and rentals 280% in South Lake Union 50,000 stride. ply50,000 in West Seattle West Seattle 4,000 Ballard Ballard are 2,000 phenomena resulting in two essentially new markets. new 2,000 5,0005,000 0 0 4,000 4,000 0 0 4,5004,500 3,500 3,500 4,0004,000 3,000 3,000 3,5003,500 3,0003,000 2,500 2,500 2,5002,500 West Seattle West Seattle west seattle 2,000 2,000 Ballard Ballard ballard 2,0002,000 5,000 1,500 1,500 4,000 5,000 4,000 1,5001,500 4,500 4,500 1,000 1,000 3,500 3,500 1,0001,000 4,000 4,000 500 500 3,000 500 500 3,500 3,000 3,500 0 0 3,000 2,500 0 0 2,500 3,000 2,500 2,500 2,000 2,000 2,000 2,000 1,500 1,500 1,500 1,500 1,000 1,000 Bellevue West Bellevue West 1,000 1,000 Bellevue East Bellevue East 500 500 500 500 18,00018,000 9,000 9,000 0 0 0 0 16,00016,000 8,000 8,000 14,00014,000 7,000 7,000 12,00012,000 6,000 6,000 10,000 increase 87% over 20 years. Rental housing development has hit its stride in this 5,000 increase over 20 years. With only 1,000 rental units in Ballard just a few years 243%10,000 8,000 but it is cycle, Bellevue West Bellevue West not especially outsized in West Seattle. 5,000 Bellevue East Bellevue East 4,000 Ballard is clearly creating a brand new urban village. back, 8,000 4,000 18,00018,000 6,000 6,000 3,000 9,000 9,000 3,000 16,00016,000 4,000 4,000 2,000 8,000 8,000 2,000 14,00014,000 2,000 2,000 1,000 7,000 7,000 1,000 12,000 0 012,000 6,000 0 0 6,000 10,00010,000 5,000 5,000 Colliers International | p. 5 8,0008,000 4,000 4,000
  6. 6. research & forecast report | Q4 2012 | MultiFamilyWhenWith demand as high as it is, when might oversupply become a concern? Regionally, we are quite comfortable with 4.7% vacancy at the tri-county level, 4.2%in King County and 3.3% in Seattle. As far as predictions, we agree with Dupre+Scott. We expect to see an upward trend in vacancy starting around Q2 2014,peaking from Q4 2014 through Q1 2015 and then trending down again.Interestingly, Dupre+Scott forecasts no rent decreases in this period, with rent growth merely slowing for the period between Q4 2014 to Q1 2015. Conces-sions are predicted to peak just below 2.5% in Q1 2015, steadily declining thereafter as owners work through lease-up to stabilization.WhoThe shift in demand we spoke of before is being affected by “Generation Y”, born 1982 to the early 2000’s. A lot of the new supply is designed to attractthis demographic, and the tremendous growth of this market will have impact the degree of oversupply. In the Puget Sound region alone, 60,000 to 100,000Gen Y’ers will enter the region’s housing market between 2012 and 2016. Gen y (number of people 20-34 years old; tri-county) 900,000 850,000 Population 20-34 years old 800,000 750,000 700,000 650,000 600,000 1984 1988 1992 1996 2000 2004 2008 2012 2016 Source: Dupre+ScottGen Y’s desire for an urban lifestyle translates to apartments; at least until “condo” is no longer a dirty word (we will discuss that in our next report). BabyBoomers are also flocking to the cities in increasing numbers. Then comes the question of affordability. Dupre+Scott reports that in the current environ-ment, it could be up to 40% cheaper to own a median-price condo versus rent the average two-bedroom, two-bath apartment in King County. ConwayPedersen cites that housing affordability is now at a five-year high. A contrary report by Interest.com concludes that Seattle is the 17th least affordablemarket in US even though the Seattle area has the fifth highest median household income in the nation at $64,025. Colliers International | p. 6
  7. 7. EVERETT Snohmish County Top Employers > The Boeing Company > Zumiez > Naval Station Everett > Aviation Technical Services SNOHOMISH > Providence Regional Medical Center > Rinker Materials NW > Premera Blue Cross > Fluke Corp > Tulalip Tribes > Intermec MILL CREEK > Philips Medical Systems MONROE LYNNWOOD Snohomish County EDMONDS Greater Seattle Top Employers> University of Washington > Starbucks Corp> Amazon.com > Perkins Coie BOTHELL WOODINVILLE> King County Government > Expeditors International> Group Health Cooperative > Real Networks Inc> Nordstrom Inc > Bill & Melinda Gates Foundation> Swedish Medical Center > Russell Investments Eastside Greater Seattle REDMOND Eastside Top Employers > Microsoft > Symetra Financial > Nintendo > Data I/O Corp SEATTLE BELLEVUE > Costco Wholesale > Concur Technologies > Expedia Inc > Clearwire Corp > Esterline Technologies > Google ISSAQUAH RENTON BURIEN TUKWILA SEATAC Southend KENT GIG HARBOR Southend Top Employers FEDERAL WAY > The Boeing Company > Paccar Inc / Kenworth AUBURN > Port of Seattle > Alaska Air Group > Providence Health > IKEA > Valley Medical Center > REI > Weyerhaeuser > Mikron Industries TACOMA Pierce County PUYALLUP
  8. 8. research & forecast report | Q4 2012 | MultiFamily Vacancy Cap Rates Construction Rents 2012 Greater Seattle 2013 • Averagerents in the Greater Seattle submarket are up 6.5% year Greater Seattle Average Rent greater seattle average rent over year to $1,248. Greater Seattle has the lowest average $1,300 $1,450 vacancy in the region at 3.16%. Average rents have remained $1,250 $1,400 below 4% since Q3 2010. $1,200 $1,350 • Seattle ranked 7th in the nation for private-sector job growth in $1,150 $1,300 2012. The city has added 49,100 private-sector jobs between $1,100 $1,250 October 2011 to October 2012. (Puget Sound Business Journal, $1,050 $1,200 12/14/12) $1,000 $1,150 • Seattle’srecovery is outpacing much of the U.S., according to $950 $1,100 Matthew Gardner with Gardner Economics, Seattle is second only $900 $1,050 Q3 07 Q1 08 Q3 08 Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 Q3 12 to Silicon Valley as the strongest market on the West Coast. (Seattle Daily Journal of Commerce, 12/13/12) • Ina recent report conducted by PayScale Inc., Seattle ranked No. 1 Snohomish County Avg Rent for Generation Y workers (ages 18 to 29), because of its strong wage growth and abundance of tech firms. (Puget Sound Business $1,050 Gr Seattle Market Vacancy greater seattle market vacancy $1,000 Journal, 8/21/12) 8.00% $1,000 8.0% $950 Snoho Southend • According to a recent study by the Bay Area Council Economic 7.00% 7.0% 1200 1000 Institute, Washington has the highest concentration of technology $950 6.00% $900 6.0% jobs in the U.S., more than double the national average at 11.4%. 1000 800 5.00% 5.0% $900 $850 Each high-tech job has a multiplier of four more jobs. (Geekwire. 4.00% 4.0% 800 com 12/7/12) 600 3.00% $850 3.0% $800 600 • Technology’s impact in Seattle continues to manifest itself in the 2.00% 2.0% 400 $800 $750 South Lake Union submarket where Amazon’s growth has 400 1.00% 1.0% Q3 07 Q1 08 Q3 08 Q3 04 Q1 09 Q3 05 Q3 09 Q3 06 Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 Q3 12 Q3 12 spawned activity in office, retail and residential. 0.00% 0.0% 200 Q3 00 Q3 01 Q3 02 Q3 03 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 200 0 0 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 Snohomish Co Market Vacancy Completed Under Construction Planned Completed Under Construction Planned 10.00% 9.0% Eastside 9.00% greater Seattle seattle market development 8.0% 2,500 9,000 8.00% 7.0% 8,000 7.00% 6.0% 2,000 6.00% 7,000 5.0% 5.00% 6,000 4.0% 4.00% 1,500 3.0% 5,000 3.00% 4,000 2.00% 2.0% 1,000 1.0% 3,000 1.00% 0.00% 0.0% 500 2,000 Q3 02 Q3 00 Q3 01 Q3 03 Q3 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 12 1,000 0 0 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 Completed Under Construction Planned Completed Under Construction Planned Colliers International | p. 8

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