Research & Forecast Report RICHMOND Accelerating success. Q4 2016 | Multifamily Source: AXIOMetrics. RCA, CoStar The Multifamily Market Remains a Good Bet for Property Investors NATINOAL Overall rent growth in 2016 was upward of 4%, still exceeding Nationally, multifamily investment continues to be the hottest product the long-term average. Growth is expected to return to more type for 2017, especially in terms of acquisition, development, and sustainable levels within the next few years, but the sector will valuation. This is based on the Southeast Real Estate Business Jour- remain a secure bet for investors. nal’s sixth annual research forecast survey. The multifamily market is Millennials continue to drive demand throughout the multifam- showing signs of a moderate slowdown nationally this year, with av- ily market. The country’s largest generation remains partial to erage apartment rents decelerating on a national scale, and incoming renting over homeownership and Colliers International does not supply expected to push up vacancy rates. Experts say the sector will foresee that changing in the future. Millennials enter their prime remain strong amidst these challenges, as outlined in AXIOMetrics, renting ages between 20 and 34 years old, and as the gener- Inc. Market Performance Summary. ation ages, roughly 2 million more Millennial renters will enter RICHMOND the market. Axiometeric reports millennial demand isn’t likely to peak until 2024, when 70 million millennial renters are projected In the Richmond metropolitan area (RMA), the effective rent de- to hit the market. creased 1.3% from $1,011 in 3Q16 to $998 in 4Q16, which resulted in an annual growth rate of 2.5% for the RMA. Annual effective rent Heavily concentrated supply in Richmond will have an impact on growth is forecast to be 3.3% in 2017, and average 2.9% from 2018 the surrounding counties. A large amount of apartment supply to 2020. remains at the upper end of the spectrum and will hit high-rent markets, while the demand remains strong for apartments at Out of the 120 markets ranked by AXIOMetrics nationally, the Rich- the middle and lower end of the scale. Roughly 3,206 units are mond, VA Metro Area was 82nd for quarterly effective rent growth expected to come online this year. and 66th for annual effective rent growth for 4Q16. Occupancy levels supply has yet to exceed the number of mul- The market’s occupancy rate decreased from 95.2% in 3Q16 to tifamily households, which increased nationally by 9.3 million 94.9% in 4Q16, which was 94.5% a year ago. The market’s occu- between 2005 and 2015, according to the Census Bureau. As pancy rate exceeded the national average of 94.7% in 4Q16. For the a result, occupancy levels remain stable, with October’s 95.8% forecast period, the market’s occupancy rate is expected to be 95.2% nearly an all-time high. in 2017, and average 94.4% from 2018 to 2020. The market’s occu- pancy rate has averaged 94.5% since 3Q95. MARKET METRICS Market Survey Results and Forecasts Sequential Month Annual 1Q16 2Q16 3Q16 4Q16 Dec-16 2014 2015 2016 2017F 2018F 2019F 2020F Effective Rent Per Unit $979 $1,009 $1,011 $998 $991 $950 $972 $999 $1,032 $1,064 $1,090 $1,123 Per Sq. Ft $1.08 $1.11 $1.11 $1.10 $1.09 $1.04 $1.07 $1.10 $1.14 $1.17 $1.20 $1.24 Effective Rent Growth - Annually 2.8% 3.1% 2.9% 2.5% 2.7% 2.1% 2.3% 2.8% 3.3% 3.1% 2.4% 3.0% Effective Rent Growth - Quarterly 0.5% 3.1% 0.2% -1.3% Occupancy Rate 94.5% 95.2% 95.2% 94.9% 94.7% 94.3% 94.5% 94.9% 95.2% 94.7% 94.1% 94.6% Occupancy Change - Annually 0.5% 0.8% 0.3% 0.4% 0.4% -0.1% 0.2% 0.5% 0.3% -0.6% -0.6% 0.5% Occupancy Change - Quarterly 0.0% 0.8% 0.0% -0.3% Economic Concessions Concession Value $-7.40 $-3.86 $-3.69 $-7.34 $-10.51 $-11.06 $-5.89 As a % of Asking Rent -0.7% -0.4% -0.4% -0.7% -1.0% -1.2% -0.6% SUPPLY AND DEMAND According to the Bureau of Labor Statistics, job growth in Richmond, VA Metro Area was 0.9% in November 2016, reflecting 5,800 jobs added during a 12-month period. Axiometrics forecasts Richmond, VA Metro Area’s job growth to be 2.6% in 2017, with 17,538 jobs added. Job growth is expected to average 1.4% from 2018 to 2020, with an average of 9,681 jobs added each year. On the supply side, permits for 1,096 multifamily units were issued in the 12 months ending in November 2016, down -58 units from the prior year’s sum. In terms of total residential housing, 5,162 units were permitted in the 12 months ending November 2016, an increase of 304 units from the prior year’s total. Market Employment and Permitting Annual November-16 Annual Forecast 2013 2014 2015 Market National 2016 2017F 2018F 2019F 2020F Employment (000s) 622.6 633.4 651.5 677.1 146,399.0 671.6 689.2 701.3 709.3 718.2 Job Gain (000s) 9.6 10.8 18.1 5.8 2,277.0 20.2 17.5 12.1 8.0 8.9 Job Growth (%) 1.6% 1.7% 2.9% 0.9% 1.6% 3.1% 2.6% 1.8% 1.1% 1.3% Total Residential Permitting 4,832 4,330 4,858 4,893 1,087,532 5,174 6,387 8,087 6,722 6,431 Relative Change 18.4% -10.4% 12.2% 17.8% 1.9% 6.5% 23.4% 26.6% -16.9% -4.3% Single Family Units Permitted 3,386 3,199 3,602 3,699 686,576 Relative Change 27.8% -5.5% 12.6% 8.9% 8.7% Multifamily Units Permitted 1,362 1,006 1,154 1,077 371,009 Relative Change 8.3% -26.1% 14.7% 63.9% -8.6% Multifamily as a % of Total 28.2% 23.2% 23.8% 22.0% 34.1% Demand/Supply Ratio Job Gain / Total Residential Units Permitted 2.4 2.2 4.2 1.4 2.1 4.2 3.4 1.9 1.0 1.3 Job Gain / Single Family Units Permitted 3.6 3.2 5.7 1.7 3.6 Job Gain / Multifamily Units Permitted 7.7 7.9 18.0 8.8 5.6 Multifamily Absorption and Supply Annual 4Q16 Annual Forecast 2013 2014 2015 Market National 2016 2017F 2018F 2019F 2020F Total Units Absorbed 980 745 2,332 2,542 336,518 2,542 1,392 447 882 2,002 New Supply 1,130 1,224 1,865 2,109 365,032 2,109 1,271 1,305 1,488 1,110 Inventory Growth 0.9% 1.5% 1.9% 2.2% 1.5% 2.2% 1.9% 1.3% 1.5% 1.3% COLLIERS INTERNATIONAL www.ColliersMultifamilyEast.com MULTIFAMILY ADVISORY GROUP P. 3 THE DEMAND SIDE • The most consistent winners are in areas that are subject to stiffer barriers to entry for new development. Hanover County is the most restrictive and affordability to will continue to be an issue there. Demand remains high in Hanover and the west end of Henrico. Demand remains high in northern Chesterfield. Petersburg has experienced a sudden bump due to the repositioning of a huge number of low income properties. Effective Rent Growth Ranking by Submarket Submarket Rank 4Q16 LTA* 2016 2017-2020 North Chesterfield 1 5.4% 2.1% 3.6% 3.0% Far West End 2 3.6% 2.5% 3.3% 3.0% South Chesterfield 3 3.5% 2.2% 3.9% 3.0% Near West End 4 3.4% 2.2% 4.5% 3.2% Chesterfield County/Other 5 2.8% 1.8% 2.6% 2.9% Downtown/The Fan 6 2.5% 1.8% 1.1% 3.2% Hanover County 7 1.8% 2.6% 1.5% 3.2% Petersburg 8 1.2% 0.5% 4.0% 1.8% Southside/Westover Hills 9 1.1% 1.3% 3.3% 2.1% Southside/Broadrock 10 -0.4% 1.6% 2.0% 2.8% Airport 11 -0.5% 1.1% -0.2% 2.2% Northside/Laburnum 12 -1.3% 3.4% 2.2% -0.7% Market Average 1.9% 1.9% 2.7% 2.5% • It’s not surprising that the submarket “Downtown/The Fan”-- which includes the booming districts of Manchester and Scotts Addition -- leads the region in occupancy despite the influx of so many new apartments. The Millennials are flocking to the urban core. The next four communities on the list are the beneficiaries of very restrictive land use controls in Henrico and Hanover County. Occupancy by Submarket Submarket Rank 4Q16 LTA* 2016 2017-2020 Downtown/The Fan 1 97.7% 96.6% 96.8% 96.3% Hanover County 2 96.8% 95.0% 96.6% 95.9% Far West End 3 95.9% 95.6% 96.0% 95.5% Near West End 4 95.7% 96.5% 96.1% 95.8% Airport 5 95.5% 95.1% 94.9% 94.6% Southside/Westover Hills 6 94.9% 96.4% 95.3% 95.4% Southside/Broadrock 7 94.9% 90.4% 94.9% 93.9% Chesterfield County/Other 8 94.8% 92.3% 93.8% 93.2% North Chesterfield 9 94.0% 93.1% 94.8% 95.2% Petersburg 10 92.3% 95.4% 93.5% 94.8% South Chesterfield 11 92.2% 93.6% 92.2% 91.4% Northside/Laburnum 12 91.3% 90.8% 91.7% 92.5% Market Average 94.7% 94.2% 94.7% 94.5% *LTA - Long term average 1996 (or available) to current COLLIERS INTERNATIONAL www.ColliersMultifamilyEast.com MULTIFAMILY ADVISORY GROUP P.