Steady Detroit Multifamily Report Fall 2018 Rent Growth Falls Below National Rate Development Activity Slows Following 2017 Surge Investors Target Suburban Communities DETROIT MULTIFAMILY Market Analysis Motor City Keeps Its Composure Fall 2018 Detroit is following national trends for rent growth and occupancy, as Contacts rates remained fairly stable against 2017’s surge of new stock. Investment Paul Fiorilla activity has waned, but the focus continues to be on suburban Class B and Associate Director of Research C assets, with acquisition yields going up to double digits. With no deliveries [email protected] in the first nine months, Detroit is bound to have a busier couple of quarters (800) 866-1124 x5764 due to the 4,800 apartments underway as of September. Jack Kern The metro added 28,000 jobs in the 12 months ending in July, more than Director of Research and Publications half of which were in the leisure and hospitality (11,200) and construction [email protected] (4,000) sectors. Both grew more than 5.0% year-over-year, the fastest (800) 866-1124 x2444 expansion across employment sectors. Detroit continues to attract auto suppliers and manufacturers, boosting demand for office and industrial Author space. General Motors is relocating the Cadillac headquarters to the Alexandra Pacurar metro’s suburbs and German auto supplier Kostal Kontakt Systems is Senior Writer planning a $58 million expansion in Rochester Hills. For the first time in the past couple of years, Detroit’s rent growth rate fell below the U.S. average, as the metro absorbed the 2017 supply surge. However, demand is expected to remain healthy during the ongoing resurrection of the city’s core, keeping rent growth roughly on par with the U.S. figure for the foreseeable future. Recent Detroit Transactions Fairlane Town Center Northville Woods City: Dearborn, Mich. City: Northville, Mich. Buyer: Forum Real Estate Group Buyer: M Group Purchase Price: $41 MM Purchase Price: $38 MM Price per Unit: $206,400 Price per Unit: $138,978 Village Green of Waterford Village on the Park City: Waterford, Mich. City: Southgate, Mich. Buyer: RESSCO Buyer: RESSCO Purchase Price: $31 MM Purchase Price: $24 MM Price per Unit: $77,695 Price per Unit: $65,642 On the cover: Photo by ehrlif/iStockphoto.com 2 2010 2011 2010 2012 Transactions: Price Per Unit (Detroit) 3.0% 2011 2013 $160,000 $140,000 2012 Transactions: Price Per Unit (Detroit) 2.5% 2014 $120,000 3.0% $100,000 2013 2015 $160,000 $140,000 2.0% $80,000 2.5% 2014 2016 $120,000$60,000 $100,000$40,000 2015 2017 1.5% $80,000$20,000 2.0% 2016 2018 $60,000 $40,000 1.0% 2017 1.5% $20,000 2018 2010 0.5% 1.0% 2011 2010 2012 0.5% Employment Growth: YoY 6mo-avg2011 (Detroit)Detroit 2013 2012 2014 Supply: Percentage of Stock (Detroit) Employment Growth: YoY 6mo-avg (Detroit)Detroit 2015 2013 National 2014 2016 Jul-16 Supply: Percentage of Stock (Detroit) 2015 2017 3.0% National 2016 2018 2.5% Jul-16 3.0% 2017 2.0% Oct-16 2018 2.5% 1.5% 2.0% Oct-16 1.0% 1.5% Jan-17 0.5% 1.0% Jan-17 0.0% 0.5% Apr-17 Detroit 0.0% Apr-17 Supply: Development Pipeline as of Sep 2018 (Detroit) Detroit Jul-17 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD National Supply: Development Pipeline as of Sep 2018 (Detroit) Jul-17 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD National Oct-17 Oct-17 Rent Trends Jan-18 Jan-18 Detroit rents rose 2.0% year-over-year through September, lagging the 3.0% national average. This is Apr-18 the first time in the last two years that the metro’s growth rate fell below the U.S. figure. The average monthly rent increased to $966, continuing to trail the $1,412 national rate. National Apr-18 The working-class Renter-by-Necessity segment led gains, with rents up 2.3% to $924. Growth in the Jul-18 National LifestyleTransactions: sector decelerated Total Volume (Detroit) quickly in 2018, entering negative territory4,504 Units in July and contracting by 1.3% year-over-year as of September, to $1,540. The drop is mainly due to last year’s supply boom, which Jul-18 $600 Detroit took its tollTransactions: as the Total new Volume stock, (Detroit) mostly upscale, was absorbed. 4,504 Units 4,023 Units Dearborn ($1,327$600 average rent), Bloomfield Hills\Birmingham ($1,343), Downtown Detroit ($1,283) Detroit and Troy ($1,256)$400 remain the metro’s most expensive submarkets. With rents up 13.3% to $1,056, 4,023 Units Detroit-East recorded the highest year-over-year hikePlanned as of September. 9,154 Units $400 The metro’s$200 growing economy is expected to attractPlanned more talent looking for modern units in urban areas, with good transit connections and attractive amenities. At the same time,9,154 Units company relocations Prospective and expansions$200 in suburban areas are likely to further fuel housing demand across Detroit’s outer submarkets. We expect rent growth to stay close to the U.S. average in the foreseeable future. $0 Prospective Detroit vs. National Rent Growth $0 Under Construction Rent: YoY vs National (Detroit) 2009 2010 2011 2012 2013 2014 2015 2016Under 2017 Construction 2018 Rent: YoY5.0% vs National (Detroit) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 4.0% 5.0% 3.0% 4.0% 2.0% 3.0% 1.0% 2.0% 0.0% Volume in Millions 1.0% 0.0% Volume(Sequential in Millions 3 Month, Year-Over-Year) Source: YardiMatrix Detroit Rent:Rent Lifestyle Growth vs RBN (Detroit) by Asset Class Number of Properties Rent: Lifestyle6.0% vs RBN (Detroit) Number of Properties 6.0%4.0% 60 4.0%2.0% 60 2.0%0.0% 40 -2.0% 0.0% 40 20 -2.0% Detroit 20 0 Source: YardiMatrix (SequentialDetroit 3 Month, Year-Over-Year) 0 National National Lifestyle Lifestyle Renter-by-Necessity Renter-by-Necessity Detroit Multifamily | Fall 2018 3 Economic Snapshot Detroit added 28,000 jobs in the 12 months ending in July for a 1.0% expansion, trailing the 1.9% national average. The employment growth rate remained flat throughout the year, with variations in the 10-basis-point range. Leisure and hospitality (11,200 jobs added) and manufacturing (7,900) accounted for more than two-thirds of total gains, followed by education and health services (4,200), construction (4,000) and trade, transportation and utilities (4,000). Fueling the city’s staple sector, auto companies continue to relocate or expand in Detroit. GeneralTransactions: Motors Price is Per moving Unit (Detroit) the Cadillac headquarters to the metro, while German auto supplier Kostal Kontakt$160,000 Systems is planning a $57.8 million expansion in Rochester Hills. $140,000 $120,000 Although professional and business services$100,000 and information lost a collective 3,600 jobs in the 12 $80,000 months ending in July, the city continues$60,000 to have a solid office pipeline. Detroit had 2.3 million square feet of office space underway as of mid-November,$40,000 almost three-quarters of it located in or very near $20,000 0 1 2 3 4 5 6 7 8 1 1 1 1 to downtown. This resurgence of the city core is closely01 mirrored01 01 by the multifamily pipeline: Almost 20 20 2 201 20 2 2 201 20 1,600 units came online within three miles of downtown since the beginning of 2016, with an additional Detroit National 1,550 units under construction. Although downtown Detroit’s rebound has been more of a mixed bag 0 1 2 3 4 5 6 7 8 during the1 past1 couple of years, the area remains one of the metro’s strong economic points. 01 01 01 01 01 01 2 20 2 20 2 201 2 2 2 Detroit vs. National Employment Growth (Year-Over-Year) Employment Growth: YoY 6mo-avg (Detroit) 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 6 7 7 8 8 -1 -16 -17 1 -1 -17 -1 1 -18 n r- n r- ct a ct a Jul O J Ap Jul O J Ap Jul Detroit National Sources: YardiMatrix, Bureau of Labor Statistics (not seasonally adjusted) Supply: Percentage of Stock (Detroit) 3.0% Detroit Employment Growth by Sector (Year-Over-Year) 2.5% Current Employment Year Change Code2.0% Employment Sector (000) % Share Employment % 701.5%Leisure and Hospitality 219 10.8% 11,200 5.4% 30 Manufacturing 253 12.5% 7,900 3.2% 1.0% 65 Education and Health Services 315 15.6% 4,200 1.4% 400.5%Trade, Transportation and Utilities 372 18.4% 4,000 1.1% 150.0%Mining, Logging and Construction 82 4.1% 4,000 5.2% 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD 55 Financial Activities 117 5.8% 400 0.3% 80 Other Services National 77 Detroit 3.8% - 0.0% 90 Government 174 8.6% -100 -0.1% Supply:50 DevelopmentInformation Pipeline as of Sep 2018 (Detroit) 27 1.3% -900 -3.2% 60 Professional and Business Services 389 19.2% -2,700 -0.7% Sources: YardiMatrix, Bureau of Labor Statistics 4,504 Units 4,023 Units Detroit Multifamily | Fall 2018 4 9,154 Units Planned Prospective Under Construction Transactions: Total Volume (Detroit) $600 60 $400 40 $200 20 $0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Volume in Millions Number of Properties Rent: YoY vs National (Detroit) 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Detroit National Rent: Lifestyle vs RBN (Detroit) 6.0% 4.0% 2.0% 0.0% -2.0% Lifestyle Renter-by-Necessity Demographics Affordability The median home price in Detroit peaked this year at $156,720, up 7.0% over 2017 and roughly double the values of 2009 and 2010, when the market bottomed out.