Research & Forecast Report ATLANTA Q4 2016 | Multifamily Strong Rental Demand Drives Market Indicators ATL ATL Relative to prior period Q4 2016 Q1 2017* Construction in Atlanta VACANCY Key Takeaways RENTS CONCESSIONS > Annual rent growth : Atlanta, 6.6%; National, 3.8% TRANSACTIONS > Occupancy: 95.3% in 4thQtr 2016 (7 pts higher than post 2009 recession low) > 2017 Annual Supply: Forecasted at 15,300 units PRICE PER UNIT > Atlanta: Home to 15 Fortune 500 Companies CAP RATES > Unemployment: 4.9% as of October 2016 (Lowest level since The Great *Projected Recession) Atlanta Multifamily Market Historical Apartment Rents & Occupancy The Atlanta apartment market continues to thrive due to strong economic $1400 fundamentals. The metro area benefits from a well–educated workforce and strong $1300 business community. Job growth, strengthened in part by numerous corporate $1200 relocations, has pushed rents to historic levels while new supply satisfies the $1100 demand of a higher paying workforce. While there still remains bifurcation between $1000 inner-perimeter submarkets and outside the perimeter, economic drivers such $900 as the trend of corporate relocations and vast transportation and manufacturing $800 infrastructure position Atlanta among the top major U.S. metros for rent growth in $700 Rent Mo Effective recent quarters. The Atlanta Metro is home to 15 Fortune 500 companies, most of $600 which are located inside the Perimeter near Downtown, Midtown and Buckhead. $500 Unemployment has fallen from double digits experienced throughout most of 2009, 2010 and 2011, to 4.9% as of October 2016. With low unemployment 96% and renters with more spending power, the demand for multifamily housing 95% near in-town amenities will continue to sustain pressure on market rents in the 94% short-term. The question then becomes what is a sustainable pace of growth for 93% Atlanta’s sizzling rental market in the long-term when the economy slows down? 92% DEMAND 91% % Occupany Atlanta continued to maintain strong demand over the past year. Annual 90% demand was 8,864 which topped annual supply by 128 units. In the 4thQtr 2016, 89% demand reported a net move out of 751 units while new supply registered a net inventory of 1,512 units. Demand in Atlanta’s highly sought after areas inside US ATLANTA Source: AXIOMetrics the perimeter continue to trend upward but competition for more affordable options poses a threat. Going forward, this trend will continue while demand in other submarkets south and outside the perimeter will remain less attractive. Atlanta Multifamily Market (continued) SUPPLY OCCUPANCY Supply remains elevated in Atlanta as developers continue to experience Atlanta occupancy has remained strong due to strong demand. In the rent growth, particularly in Midtown and Northern submarkets. Inventory 4th quarter 2016, occupancy posted 95.3%, up 0.3 points year over year expanded at an average annual rate of 1.6% over the past year as and up 7.0 points from the post-recession low recorded in 4th quarter completions ranged from roughly 5,000 units to 10,300 units. Inventory 2009. Occupancy rates are highest in central and northern submarkets is expected to remain elevated in 2017 with roughly 15,300 units, mostly as other areas outside the perimeter remained challenged from a lack in the Midtown and Buckhead submarkets, while outside the Perimeter of employment. Over the next year, new completions will test the core will largely remained unchanged submarkets located inside the Perimeter as the prospect of overbuilding becomes more eminent. RENT OUTLOOK FOR 2017 Annual rent levels remain well above the historical norms, averaging 6% to 8% over the last several quarters. The 6.6% increase in 2016 With rising construction costs and some submarkets at risk of was well above the five-year average of 4.9% and the national average overbuilding, Atlanta’s late cycle recovery has peaked and begun to of 3.8% during the same period. Higher rents are mostly being realized stabilize. Rent growth will be more traditional and modest, at 3% to in the Midtown and northern submarkets where new class A product 4% and occupancy around 94% to 95%. Better located assets in the is in high demand. Class B and C apartments will experience some Midtown and Buckhead submarkets are best positioned to do well as movement in rent as construction begins to slow but the market is likely long as inventory levels remain balanced. Things to look for in the next to remain reliant on top-tier apartments in well-located areas. year as rent growth tapers is the increasing pressure of single-family housing and apartment overbuilding, particularly inside the Perimeter. UPDATE - Recent Transactions in the Market Notable Sales Activity PROPERTY SUBMARKET SALES DATE SALE PRICE SIZE (UNITS) PRICE / UNIT BUYER Post Atlanta Portfolio Metro Atlanta 12/1/2016 $1,091,466,969* 5,999 $181,941* MAA The Row at Twenty-Sixth Midtown 12/2/2016 $85,500,000 453 $188,741 Mesirow Financial Park Pointe North Decatur 12/1/2016 $78,750,000 770 $102,272 Flowers GA Partners LLC Roswell City Walk North Fulton 12/7/2016 $76,000,000 320 $237,500 Carroll Organization Savannah at Park Place Central Perimeter 11/18/2016 $74,500,000 416 $179,086 PRP Real Estate Mgmt. 4000 Dunwoody Park Central Perimeter 10/31/2016 $72,000,000 400 $180,000 PASSCO Companies Nevadan Apartments Central Perimeter 10/13/2016 $68,250,000 480 $142,188 Bluerock Residential Growth White Provision Midtown 10/20/2016 $67,520,000 100 $675,200 Westside Atlanta Retail LLC Woodhaven at Park Bridge North Fulton 11/10/2016 $65,500,000 352 $186,080 Stockbridge Capital Group Radius Sandy Springs Central Perimeter 12/20/2016 $60,250,000 532 $113,252 The RADCO Companies Source: CoStar Comps *allocated Historical Investment Volume & Cap Rates ATLANTA MULTIFAMILY 10 8.0% Atlanta apartment investment 9 7.5% volume reached a record Billions 8 $8.7 billion in 2016 thanks to a 7 7.0% strong fourth quarter of 6 activity. The average price 5 6.5% per unit is also at its highest 4 level ever at $105,732 3 6.0% according to Real Capital Analytics. Year-over-year, 2 5.5% 1 Atlanta’s average cap rate for 0 5.0% apartments dropped 33 basis points to 6.07%. 2011 2013 2015 2012 2014 2010 2007 2009 2006 2008 YTD 16 YTD Sales Volume AVG Cap Rate Source: Real Capital Analytics 2 Research & Forecast Report | Q4 2016 | Atlanta Multifamily | Colliers International Metro Atlanta Housing Permit Activity Notable Atlanta Job Relocations 18,000 Georgia’s Own Relocating 16,000 > Georgia’s Own Credit Union is moving its headquarters 14,000 downtown, and put its name atop an Atlanta landmark 12,000 on Peachtree Street — The Equitable Building.Georgia’s Issued 10,000 Own is relocating from Midtown’s Campanile Building at Permits the heart of Peachtree and 14th street. By next summer, 8,000 it plans to begin transitioning employees to 100 Peachtree, 6,000 Multifamily the 32-story downtown tower with the Equitable name 4,000 across its top.The building has been a fixture in downtown’s 2,000 Fairlie Poplar Historic District — and a familiar sight on the 0 Atlanta skyline — for decades.Georgia’s Own Credit Union, 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD16 which has about 375 full-time employees, would relocate Source: U.S. Census Bureau all its main office staff to The Equitable Building by the end of 2020. > Georgia’s Own will lease about 100,000 square feet at the Equitable Building, which was bought a few years ago by Metro Atlanta Employment Overview America’s Capital Partners and renamed 100 Peachtree. 150.0 Honeywell to put 800-job software center and division HQ in Midtown’s 715 Peachtree 100.0 89.0 82.4 69.4 74.5 66.2 59.9 > Midtown’s 715 Peachtree is expected to land Honeywell 48.9 42.4 50.0 30.2 35.6 International Inc.’s (NYSE: HON) $20 million North (thousands) American software development center and division 0.0 headquarters.In its third quarter office market report, real estate services firm Colliers International cited Honeywell ‐23.0 ‐26.8 ‐20.9 ‐50.0 Added/Lost ‐42.2 taking 80,000-square-foot at the 318,000-square-foot Jobs building near The Fox Theatre. ‐100.0 UPS to invest $460 million, create 1,250 jobs at Atlanta ‐150.0 ‐136.6 Mega Hub > United Parcel Service Inc. (NYSE: UPS) will invest $460 Source: US Dept. of Labor Statistics/Moody’s Analytics million and create about 1,250 jobs at a new logistics hub near Charlie-Brown Airport on the city’s Westside. Wework to Bring Up to 1,000 Workers to Colony Square > WeWork Cos., the New-York based co-working juggernaut Metro Atlanta Employment Comparison on a mission to recreate the American office, is joining Y-O-Y Y-O-Y UNEMPLOYMENT METRO AREA RANK another transformation — Midtown’s Colony Square. EMPLOYMENT PERCENT RATE WeWork will occupy the 9th, 10th and 11th floors of Colony New York/NNJ 1 120,600 1.3% 5.2% Square’s Building 100, potentially bringing almost 1,000 Dallas-Fort Worth 2 113,500 3.3% 4.1% workers to the mixed-use project at 14th and Peachtree Los Angeles/OC 3 90,000 1.9% 5.1% streets. Atlanta 4 70,800 2.7% 4.0% Seattle 5 64,600 3.4% 5.0% Ponce City Market Lands San Francisco-Based Software DC-Arlington 6 61,600 2.1% 4.5% Firm Pivotal Miami 7 60,800 2.4% 5.4% > Software company, Pivotal, will relocate its Atlanta office Boston 8 53,200 2.0% 5.7% to Ponce City Market as part of a broader expansion.