San Antonio Multifamily Report 2Q 2018
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Multifamily Research Market Report Second Quarter 2018 San Antonio Metro Area Downtown Employment Growth Encourages Apartment Development Multifamily 2018 Outlook Shift in new supply on the horizon. Downtown San Antonio is 6,200 units Construction: ripe with new development as city leaders focus on bringing jobs will be completed Deliveries fall to a four-year back to the area. Several companies have announced expansion low during 2018, following the plans in the core, and a number of mixed-use projects are planned delivery of more than 7,300 units or underway to revitalize the nearby area. Apartment developers last year, a 15-year high. have focused on northern submarkets for the past few years, adding nearly 17,000 units to stock in the outer northern and western submarkets since 2012, compared with approximately Vacancy: 40 basis point 4,300 in downtown and the area just north of downtown during decrease in vacancy The absorption of more than the span. Limited new supply and healthy demand for housing 6,500 apartments this year have resulted in these submarkets recording the lowest vacancy outweighs deliveries during the rates in the metro at close to 6 percent. While new units coming span, pushing down vacancy to online this year remain heavily concentrated in the far northwest 7.0 percent. and far west submarkets, deliveries are shifting as Central San Antonio is slated to receive an additional 2,400 units over the Rents: 3.4% increase next two years. Demand for these units will remain strong as in effective rents Rent growth strengthens from employers continue to create jobs downtown. last year’s 2.4 percent rise, with the average reaching $965 per Apartment rents keep rising at a steady pace. San Antonio month during 2018. boasts the most affordable rents of Texas’ four largest metros, despite the average rising at an average pace of 3.6 percent over the past five years. While other markets have averaged stronger gains, a dramatic slowdown is occurring in some metros. As rents continue to rise at a healthy clip in San Antonio, investors are provided with a stable stream of cash flow. Investment Trends • Employers are moving back downtown and several mixed-use Employment Trends Local Apartment Yield Trends projects are breaking ground or underway, reviving the area. Apartments nearby will be in high demand, and those with Metro United States Apartment Cap Rate 10-Year Treasury Rate upside potential will be highly sought after. 8% 12% • A highly competitive bidding environment in other major Texas 6% markets could prompt additional buyers to seek assets in San 9% Antonio, where cap rates are typically higher and average in the 4% 6% high-6 percent area. Rate 2% • Sales were bifurcated over the past 12 months, with 3% transactions rising sharply for properties priced between $1 Year-over-Year Change 0% 0% million and $10 million, or over $20 million. While the largest 14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18* share of trades occurred in Northwest San Antonio during the period, several submarkets garnered stronger interest than the previous annual period, such as West, North Central and Completions and Absorption Sales Trends Southwest San Antonio. Completions Absorption Sales Price Growth * Cap rate trailing 12-month average through 1Q; Treasury rate as of March 29th Sources: CoStar$100 Group, Inc.; Real Capital Analytics 12% 12 Growth Year-over-Year ) $75 9% 9 000s $50 6% 6 Units ( 3 $25 3% 0 Average Price per Unit (000s) $0 0% 14 15 16 17 18* 14 15 16 17 18* Vacancy Rate Trends Metro United States 8% 7% 6% Vacancy Rate 5% 4% 14 15 16 17 18* Rent Trends Monthly Rent Y-O-Y Rent Change $1,100 6% Year-over-Year Change $975 5% $850 4% $725 3% Monthly Effective Rent $600 2% 14 15 16 17 18* San Antonio 1Q18 – 12-MONTH PERIOD Employment Trends Local Apartment EMPLOYMENT: Yield Trends Metro United States Apartment Cap Rate 10-Year Treasury Rate 1.9% increase in total employment Y-O-Y 8% •12% Approximately 19,700 positions were created over the 6% past 12 months, led by 4,300 jobs generated in the 9% construction sector and an additional 3,700 workers in 4% 6%trade, transportation and utilities. Rate 2% • Unemployment in the metro declined 50 basis points to 3% 3.4 percent during the first quarter of 2018, remaining Year-over-Year Change 0% 0%below the national rate by 70 basis points. 14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18* Completions and Absorption SalesCONSTRUCTION: Trends Completions Absorption Sales Price Growth 7,400 units completed Y-O-Y $100 12% Year-over-Year Growth Year-over-Year 12 • Of the 1,600 apartments completed during the first ) $75quarter of 2018, approximately 770 were9% brought online 9 000s in the area near Interstate 10 and Loop 1604. $50 6% 6 • Nearly 8,300 units were underway at the end of March, Units ( and though deliveries will remain concentrated in Far 3 $25 3% Northwest and West San Antonio this year, construction 0 Average Price per Unit (000s) is$0 rising in Southwest and Central San 0%Antonio. 14 15 16 17 18* 14 15 16 17 18* Vacancy Rate Trends VACANCY: Metro United States 8% 70 basis point increase in vacancy Y-O-Y 7% • Apartment vacancy has been on the rise for the past two years, reaching 7.6 percent in the first quarter of 2018. 6% One year ago, the rate increased 50 basis points. • Vacancy is highest in Class C properties, resting at 7.7 Vacancy Rate 5% percent in March. The rate rose nearly 200 basis points over the past two years, for the largest advance among 4% property classes. 14 15 16 17 18* Rent Trends RENTS: Monthly Rent Y-O-Y Rent Change 2.9% increase in effective rents Y-O-Y $1,100 6% Year-over-Year Change • Rent growth remained steady over the past year, with the average effective rent rising to $936 per month in the first $975 5% quarter of 2018. $850 4% • Class C rent growth during the past 12 months was the strongest among property classes, with the average rate $725 3% rising 8.1 percent year over year to $789 per month. Monthly Effective Rent $600 2% 14 15 16 17 18* * Forecast Multifamily Research | Market Report DEMOGRAPHIC HIGHLIGHTS 1Q18 MEDIAN HOUSEHOLD INCOME 1Q18 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS Metro $58,563 Renting is $661 Per Month Lower 5,333 2H 2017 U.S. Median $60,686 Average Effective Rent vs. Mortgage Payment* Compared with 2H g 36% 2014-2016 1Q18 MEDIAN HOME PRICE FIVE-YEAR HOUSEHOLD GROWTH** SINGLE-FAMILY PERMITS Metro $225,207 80,000 or 1.7% Annual Growth 7,669 2H 2017 U.S. Median $257,628 U.S. 1.1% Annual Growth Compared with 2H g 23% 2014-2016 *Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate Lowest Vacancy Rates 1Q18 Sales Surge As Class A Properties Attract Buyers Y-O-Y Vacancy Effective Y-O-Y % Submarket EmploymentBasis Point Trends Local Apartment Yield Trends Rate Rents Change • Transaction velocity grew 18 percent over the past Change Metro United States four quarters,Apartment boosted Cap Rate by sales10-Year of TreasuryClass ARate assets 8% priced over $20 million. These properties traded at an average12% cap rate in the high-5 percent area during North Central San Antonio 6.1% 100 $961 0.3% 6% the year. 9% Central San Antonio4% 6.3% 70 $1,131 0.0% • The average price per unit advanced at the strongest 6% paceRate this decade over the past year, rising 10 percent Airport Area 2% 6.5% -40 $864 0.2% to approximately $92,100 per door. 3% Year-over-Year Change Outlook: Several mixed-used developments in East San Far West San Antonio0% 6.8% 40 $971 3.5% Antonio0% are helping transform the area. Investors will 14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18* Far Northwest San Antonio 7.0% 40 $1,105 4.0% seek apartment properties nearby. Southwest San Antonio 7.1% 90 $812 6.0% Completions and Absorption Sales Trends Northwest San Antonio 7.4% 80 $903 2.1% Completions Absorption Sales Price Growth SALES TRENDS $100 12% Far N Central San Antonio 7.6% -40 $1,176 2.3% Growth Year-over-Year 12 SUBMARKET TRENDS ) New Braunfels/Schertz/ $75 9% 9 7.6% 180 $1,010 4.9% Universal City 000s $50 6% 6 South San AntonioUnits ( 7.7% -20 $814 4.8% 3 $25 3% Overall Metro 7.6% 70 $936 2.9% 0 Average Price per Unit (000s) $0 0% 14 15 16 17 18* 14 15 16 17 18* * Trailing 12 months through 1Q18 Vacancy Rate Trends Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics Metro United States 8% 7% 6% Vacancy Rate 5% 4% 14 15 16 17 18* Rent Trends Monthly Rent Y-O-Y Rent Change $1,100 6% Year-over-Year Change $975 5% $850 4% $725 3% Monthly Effective Rent $600 2% 14 15 16 17 18* Multifamily Research | Market Report Multifamily Research | Market Report 1Q18 Apartment Acquisitions By Buyer Type By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation Other, 1% Cross-Border, 8% • Fed raises benchmark interest rate, plots path for additional increases. The Federal Reserve increased the Equity Fund federal funds rate by 25 basis points, lifting the overnight & Institutions, 24% lending rate to 1.5 percent.