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3 q19 us-multifamily-capital-markets-report

The 3Q 2019 Multifamily Capital Markets Report indicates a total sales volume of $46.0 billion, down 7.3% year-over-year, while demand outpaced new supply with an increase in effective rent growth at 3.2%. Cap rates remained stable at 5.34%, and international capital investments rose significantly, with Canada being the top source. Overall, net operating income saw a notable increase to 6.83%, highlighting a resilient multifamily market despite declining sales volume.

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3Q 2019 UNITED STATES MULTIFAMILY CAPITAL MARKETS REPORT
TABLE OF CONTENTS 3 Key Takeaways 4 Sales Volume 5 Sales Volume by Market 6 Yield Spread 7 Total Returns by Market 8 Cap Rates 9 Price Per Unit 10 Top Buyers and Sellers 11 Capital Flow Analysis 12 Hold Times by Market 13 Historical NOI Growth 14 International Capital Buyers 15 International Capital Destinations 16 Effective Rent Growth 17 Effective Rent Growth by Market 18 Employment Growth 19 Supply and Demand 20 Supply and Demand by Market 21 Mortgage Debt Outstanding © NEWMARK KNIGHT FRANK | RESEARCH | 2019 2
KEY TAKEAWAYS SALES VOLUME Sales volume in the third quarter totaled $46.0 billion, down 7.3% year over year, while 12-month sales volume increased 8.8% to $183.7 billion nationally. Non-major markets have been the recipient of 70.0% of total investment sales volume over the past year, with Sunbelt markets such as Charlotte, Tampa and Raleigh-Durham all exceeding 30.0% annual volume growth. CAP RATES Yields compressed 9 basis points year over year to 5.34% nationally, while cap rates expanded 5 basis points in major markets and compressed 12 basis points in non-major markets. Cap rates have remained steady despite a 32-basis-point quarter-over-quarter decline in the 10-year treasury market to 1.68%, the lowest level since the third quarter of 2016. RENT GROWTH Annual effective rental growth increased to 3.2% nationally, up 60 basis points year over year. Las Vegas and Phoenix remain the top markets for effective rental growth year over year at 8.0%. This marks the third consecutive quarter in which these two Southwest markets have led the nation. Strong property level rental growth has also contributed to net operating income accelerating to 6.83%, up 255 basis points year over year. SUPPLY AND DEMAND Year to date, new supply has totaled 189,753 units, while demand has reached 295,738 units, outpacing new supply by 105,985 units. Despite high levels of new supply nationally, 61.1% of new deliveries over the past 12 months have been delivered in the top 20 markets. Charlotte and Dallas have experienced the strongest inventory growth on a percentage basis, whereas demand has been especially strong in New York, with demand outpacing new supply by 10,329 units. INTERNATIONAL CAPITAL Direct acquisitions by international capital sources totaled $17.1 billion over the past 12 months, representing a 44.1% increase year over year. Canada remains the top buyer of U.S. multifamily, accounting for 65.1% of acquisitions by international capital sources, led by Brookfield Asset Management. Additionally, international investors have continued to shift money out of major markets and into non-major markets with higher growth potential. DEBT MARKETS Mortgage debt outstanding for multifamily grew $24.4 billion to $1.5 trillion, a 1.7% quarter-over-quarter increase. The four major lenders (GSEs, banks and thrifts, life insurance companies and CMBS) all increased their holdings quarter over quarter, as debt capital remains resilient. FHFA’s recent announcement allowing Fannie Mae and Freddie Mac to produce $200 billion over the next five quarters is expected to sustain the debt market for the foreseeable future. © NEWMARK KNIGHT FRANK | RESEARCH | 2019 3
SALES VOLUME UNITED STATES; DOLLARS IN BILLIONS Quarterly sales volume totaled $46.0 billion, representing a 7.3% year-over-year decrease compared with third-quarter 2018. Over the trailing 12 months, sales volume rose to $183.7 billion, 8.8% higher than the previous 12-month totals, while portfolio and entity-level transactions have accounted for 23.4% of the overall market. 4© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics $36.1 $38.1 $36.4 $45.9 $49.6 $46.0 $53.8 $0 $40 $80 $120 $160 $200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1Q 2Q 3Q 4Q
SALES VOLUME BY MARKET 12-MONTH TOTALS; DOLLARS IN BILLIONS Capital continues to gravitate toward non-major markets, as 70.0% of acquisition volume over the past 12 months occurred outside of the six major markets. Key Sunbelt markets have experienced a surge in 12-month volume, led by Charlotte with a 47.6% increase—in addition to Tampa (40.8%) and Raleigh-Durham (39.8%). 5© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics 101.2% Year-over-Year Growth 48.5% Year-over-Year Growth 30.6% Year-over-Year Growth Record High First Half Volume ($2.9 Billion) SFL $4.6 ATL $8.5 DEN $5.6 MSP $1.9 NSH $2.1 ORL $3.1 PHI $3.0 PHX $7.6 POR $2.3 RD $3.5 SA $2.4 SAC $1.5 AUS $4.4 DFW $10.6 SF $6.8 DC $8.8 LA $12.6 NYC $17.5 HOU $7.1 $5.0+ $2.6- 4.9 $1.5- $2.5 CHA $3.5 TAM $3.8 SEA $6.0 BOS $3.3 * Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets. CHI $4.2 SD $2.5 LV $2.9 JAX $1.5
YIELD SPREAD UNITED STATES The 10-year treasury rate declined 32 basis points quarter over quarter to 1.68%, the lowest level since the third quarter of 2016. The yield spread between cap rates and the 10-year treasury rate increased to 366 basis points, up from 238 basis points in the third quarter of 2018. 6© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Federal Reserve Bank of St. Louis, Real Capital Analytics (Transactions $10 million and greater) 366 5.34% 1.68% 0 100 200 300 400 500 0% 2% 4% 6% 8% 10% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Yield Spread US Multifamily Average Cap Rate 10-Year Treasury Rate
TOTAL RETURNS BY MARKET ANNUALIZED TOTALS Over the past 12 months, total returns nationally have averaged 5.4%. Strong fundamentals and above-average effective rental growth have propelled several Sunbelt markets such as Phoenix, Tampa, Orlando and Austin to outperform the national average. 7© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, NCREIF 12.7% 10.6% 9.8% 9.3% 7.6% 7.5% 7.4% 7.3% 7.1% 6.3% 5.9% 5.9% 5.5% 5.5% 5.5% 5.4% 5.3% 5.0% 5.0% 4.2% 3.7% 2.1% 1.8% 0% 3% 6% 9% 12% 15% Phoenix Tampa Orlando Austin Denver Atlanta Charlotte Boston OrangeCounty SanJose SanDiego Seattle Washington,D.C. Oakland Minneapolis Miami SanFrancisco Houston LosAngeles Portland Dallas Chicago NewYork US Multifamily Total Return Average = 5.4%
CAP RATES UNITED STATES; 12-MONTH AVERAGE Cap rates compressed marginally, falling 9 basis points year over year to 5.34% nationally. Over the past 12 months, cap rates in major markets expanded 5 basis points, while yields in non-major markets have compressed 12 basis points, as investors continue to seek out suburban garden deals in non-major markets. 8© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater) 5.34% 4.77% 5.50% 0% 2% 4% 6% 8% 10% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 United States Major Markets Non-Major Markets * Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.
PRICE PER UNIT UNITED STATES; 12-MONTH AVERAGE; DOLLARS IN THOUSANDS The average price per unit increased nationally 8.1% year over year to $181,762 in third-quarter 2019. Average price per unit increased 13.8% in major markets and 6.2% in non-major markets. Although major markets have outperformed non-major markets recently, over the past five years, non-major market pricing has increased 48.5% compared with 27.3% in major markets. 9© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater) $182 $315 $151 $0 $75 $150 $225 $300 $375 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 United States Major Markets Non-Major Markets * Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.
TOP BUYERS AND SELLERS UNITED STATES; 12-MONTH TOTALS; DOLLARS IN MILLIONS Portfolio and entity-level transactions continue to be substantial drivers of the market, including the top buyers and sellers over the past 12 months. Year to date, there have been four portfolio trades in excess of $1.0 billion. The largest trade in the third quarter was Cortland’s entity-level acquisition of a 7,085-unit core-plus portfolio with assets in the major Texas markets and Phoenix for $1.2 billion from Pure-Multifamily REIT. 10© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics $0 $1,500 $3,000 $4,500 $6,000 Brookfield BREIT Blackstone Cortland Nuveen Harbor Group Bridge Inv Group Investcorp American Landmark Tricon Kushner Companies Greystar UDR Morgan Properties Equity Residential Top Buyers $0 $1,500 $3,000 $4,500 $6,000 Forest City Lone Star Blackstone Fairfield Residential Greystar PGIM Starlight Investments Holland Partners JP Morgan Pure Multi- Family REIT Sekisui House Alliance Residential TruAmerica Multifamily Guardian Life Berkshire Group Top Sellers Single Asset Portfolio & Entity
CAPITAL FLOW ANALYSIS 12-MONTH TOTALS; DOLLARS IN BILLIONS 61.2% of all U.S. multifamily capital flows have in the past year have come from private companies, inclusive of developers-owners-operators. Institutional/equity funds and Listed/REITs have been net sellers over the last 12 months, whereas all other investor types have been net buyers. 11© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics $112 $39 $17 $7 $8 $111 $44 $13 $11 $5 -$125 -$75 -$25 $25 $75 $125 Private Institutional/Equity Funds International Listed/REIT User/Other Acquisitions Dispositions
HOLD TIME BY MARKET NUMBER OF MONTHS; TRADES OVER THE PAST 12 MONTHS Based on trades over the past 12 months, Atlanta, Charlotte and Raleigh-Durham have seen the highest turnover, as investors cycle out of value-add properties. Conversely, multifamily assets in safe haven markets such as New York, Seattle and Washington, DC, have lower cap rates and therefore tend to require longer hold times to achieve returns. 12© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics 44.7 47.5 50.1 50.7 51.5 51.9 52.1 53.8 55.4 56.1 56.5 57.6 58.1 58.1 58.4 59.1 59.2 59.3 59.9 60.1 62.2 63.1 63.9 64.5 65.0 68.2 68.8 76.6 76.9 0 10 20 30 40 50 60 70 80 90 Atlanta Charlotte Raleigh-Durham Minneapolis Phoenix Denver Orlando Columbus SouthFlorida Portland Boston Dallas Houston Sacramento LosAngeles Austin Tampa SanFrancisco Nashville SanAntonio LasVegas Memphis Chicago SanDiego NewYork KansasCity Seattle Philadelphia Washington,D.C.
HISTORICAL NOI GROWTH ANNUALIZED TOTALS Robust demand and rental growth have contributed to net operating income accelerating to 6.83% in third-quarter 2019, up 255 basis points versus the previous year. In addition to recent outperformance, multifamily net operating income growth since 2000 has averaged 4.97%, while all property types have lagged at 3.05%. 13© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, NCREIF 6.83% 6.22% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Multifamily All Property Types
INTERNATIONAL CAPITAL BUYERS UNITED STATES; 12-MONTH TOTALS 14© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics BY COUNTRY Canada 65.1% Bahrain 8.5% Israel 5.8% Netherlands 3.1% Switzerland 2.2% Japan 2.2% Qatar 2.1% UK 2.0% China 1.4% Other 7.5% Direct acquisitions by international capital sources totaled $17.1 billion over the past 12 months, representing a 44.1% increase year over year. Canada remains the top buyer of U.S. multifamily, accounting for 65.1% of acquisitions by international capital sources, led by Brookfield ($5.7 billion) and Tricon ($1.4 billion). TOP BUYERS (DOLLARS IN MILLIONS) $222 $238 $254 $282 $305 $311 $365 $428 $441 $479 $555 $915 $1,447 $1,400 $5,650 H&R REIT (Canada) KIH (South Korea) BentallGreenOak (Canada) Aegon (Netherlands) OMERS (Canada) Low Tide Properties (Canada) QIA (Qatar) Western Wealth Capital (Canada) Global Holdings (Israel) Delek Group (Israel) Starlight Investments (Canada) PSP Investments (Canada) Investcorp (Bahrain) Tricon (Canada) Brookfield (Canada)
INTERNATIONAL CAPITAL DESTINATIONS 12-MONTH TOTALS 15© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics MAJOR MARKETS 39.3% BY MARKET TIER As a % of Cross-Border Capital BY REGION As a % of Cross-Border Capital NON-MAJOR MARKETS 60.7% MID-ATLANTIC 13.5% MIDWEST 8.0% NORTHEAST 19.7% SOUTHEAST 23.3% SOUTHWEST 18.2% WEST 17.3% * Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets. ATL $918M BOS $551M CHI $609M DFW $571M DC $1.1B DEN $565M HOU $751M LA $953M NYC $2.5B ORL $545M PHX $335M RD $485M SF $745M SEA $491M TAM $611M CHA $329M AUS $668M LV $376M POR $180M SD $142M PHI $336M Over the past 12 months, international investors have continued to shift money out of major markets and into non-major markets with higher growth potential. Markets in the Southeast have continued to attract multifamily investment because of their growing numbers of workers and lower costs of living.
EFFECTIVE RENT GROWTH UNITED STATES; ANNUALIZED Annual effective rental growth increased to 3.2% nationally, for an increase of 60 basis points year over year. Furthermore, annual effective rental growth is 70 basis points higher than the long-term average of 2.5%. 16© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, RealPage $835 $867 $855 $846 $862 $886 $931 $967 $989 $959 $946 $984 $1,020 $1,055 $1,100 $1,164 $1,226 $1,269 $1,319 $1,382 3.2% -5.0% -2.5% 0.0% 2.5% 5.0% 7.5% $0 $300 $600 $900 $1,200 $1,500 3Q00 3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18 3Q19 Effective Rent Effective Rental Growth Long-Term Effective Rent Growth Average US Long-Term Effective Rent Growth Average = 2.5%
EFFECTIVE RENT GROWTH BY MARKET ANNUALIZED; SELECT MARKETS Las Vegas and Phoenix remain the top markets for effective rental growth year over year at 8.0%. This marks the third consecutive quarter in which these two Southwest markets have led the nation. 17© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, RealPage, Costar 8.0% 8.0% 4.9% 4.8% 4.6% 4.5% 4.4% 4.2% 3.9% 3.8% 3.7% 3.7% 3.6% 3.6% 3.5% 3.4% 3.3% 3.2% 3.1% 3.1% 3.0% 3.0% 2.8% 2.8% 2.7% 2.6% 2.5% 2.5% 2.5% 2.3% 2.3% 2.1% 0.8% 0% 2% 4% 6% 8% 10% LasVegas Phoenix Sacramento Atlanta Austin Memphis Raleigh-Durham Charlotte SaltLakeCity Jacksonville Nashville Tampa Boston Orlando Minneapolis SanFrancisco Denver SanDiego LosAngeles SanAntonio Columbus Philadelphia Seattle WashingtonD.C. SanJose Portland Dallas Miami NewYork Chicago OklahomaCity KansasCity Houston US Annual Average Effective Rent Growth = 3.2% Effective rental growth is expected to rise 100 basis points over the next 12 months.
EMPLOYMENT GROWTH YEAR-OVER-YEAR; SELECT MARKETS With 117,300 non-farm jobs added over the past 12 months, Dallas has added more new jobs than any other market in the country in nominal terms. In addition to Dallas, Raleigh-Durham (3.2%), Seattle (3.3%) and Orlando (3.7%) were the fastest-growing employment markets over the past 12 months. 18© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, U.S. Bureau of Labor Statistics (September release) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 0 25,000 50,000 75,000 100,000 125,000 Dallas NewYork Houston LosAngeles Seattle SanFrancisco Miami Atlanta Phoenix Orlando Chicago Washington,D.C. Boston SanJose Philadelphia SanDiego Charlotte SanAntonio Tampa Denver LasVegas Portland Raleigh-Durham Austin Nashville Employment Growth (#) Employment Growth (%)
SUPPLY AND DEMAND UNITED STATES Year to date, new supply has totaled 189,753 units, while demand has reached 295,738 units, outpacing new supply by 105,985 units. A strong economy and positive demographic trends have pushed annual occupancy to 95.7%, the highest level this cycle. 19© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, RealPage 267,891 189,753 307,233 295,738 1.5% 1.3% 1.2% 0.9% 0.6% 0.1% 0.7% 0.7% 1.1% 1.1% 0.7% 0.4% 1.0% 1.3% 1.5% 1.6% 1.9% 1.8% 1.4% 1.1% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 0 100,000 200,000 300,000 400,000 500,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD New Supply Demand Inventory Growth
SUPPLY AND DEMAND BY MARKET Despite high levels of new supply nationally, 61.1% of new deliveries over the past 12 months have been delivered in the top 20 markets. Charlotte (3.7%) and Dallas (2.8%) have experienced the strongest inventory growth on a percentage basis, whereas demand has been especially strong in New York, with 23,415 units absorbed in the past 12 months, outpacing supply by 10,329 units. 20© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, RealPage 12-MONTH TOTALS; SELECT MARKETS 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 0 5,000 10,000 15,000 20,000 25,000 Dallas NewYork Washington,D.C. Seattle Chicago LosAngeles Denver Atlanta Phoenix Houston Charlotte Orlando Austin Miami Philadelphia Boston Tampa Raleigh-Durham Minneapolis Portland Nashville Columbus SanAntonio Jacksonville SanDiego KansasCity SaltLakeCity LasVegas SanFrancisco OklahomaCity SanJose Sacramento Memphis New Supply Demand Inventory Growth
MORTGAGE DEBT OUTSTANDING UNITED STATES Mortgage debt outstanding for multifamily grew $24.4 billion to $1.5 trillion, a 1.7% quarter-over-quarter increase. GSEs, banks and thrifts, life insurance companies and CMBS lenders all increased their holdings quarter-over-quarter, as debt capital remains plentiful for well-positioned multifamily assets. 21© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Mortgage Bankers Association DEBT OUTSTANDING BY GROUP AS A PERCENTAGE DEBT OUTSTANDING BY GROUP IN BILLIONS $703.1 $444.9 $143.5 $91.4 $41.8 $31.8 $0 $150 $300 $450 $600 $750 GSEs Bank & Thrifts Life Co State & Local Gov't CMBS Other GSEs 48.3% Banks & Thrifts 30.5% Government 9.9% Insurance Companies 6.3% CMBS 2.9% Other 2.2%
NEW YORK CITY HEADQUARTERS 125 Park Avenue New York, NY 10017 212.372.2000 Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are also available at www.ngkf.com/research All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains. Jeff Day President Head of Multifamily CapitalMarkets jeff.day@ngkf.com Blake Okland Vice Chairman Head of Multifamily Investment Sales bokland@ngkf.com Sharon Karaffa Senior Managing Director Head of Multifamily Strategy sharon.karaffa@ngkf.com Jonathan Mazur Senior Managing Director National Research jmazur@ngkf.com Mike Wolfson Director Capital Markets Research mwolfson@ngkf.com Sean Marmora Research Analyst Multifamily Research sean.marmora@ngkf.com

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3 q19 us-multifamily-capital-markets-report

  • 1.
    3Q 2019 UNITED STATES MULTIFAMILYCAPITAL MARKETS REPORT
  • 2.
    TABLE OF CONTENTS 3Key Takeaways 4 Sales Volume 5 Sales Volume by Market 6 Yield Spread 7 Total Returns by Market 8 Cap Rates 9 Price Per Unit 10 Top Buyers and Sellers 11 Capital Flow Analysis 12 Hold Times by Market 13 Historical NOI Growth 14 International Capital Buyers 15 International Capital Destinations 16 Effective Rent Growth 17 Effective Rent Growth by Market 18 Employment Growth 19 Supply and Demand 20 Supply and Demand by Market 21 Mortgage Debt Outstanding © NEWMARK KNIGHT FRANK | RESEARCH | 2019 2
  • 3.
    KEY TAKEAWAYS SALES VOLUME Salesvolume in the third quarter totaled $46.0 billion, down 7.3% year over year, while 12-month sales volume increased 8.8% to $183.7 billion nationally. Non-major markets have been the recipient of 70.0% of total investment sales volume over the past year, with Sunbelt markets such as Charlotte, Tampa and Raleigh-Durham all exceeding 30.0% annual volume growth. CAP RATES Yields compressed 9 basis points year over year to 5.34% nationally, while cap rates expanded 5 basis points in major markets and compressed 12 basis points in non-major markets. Cap rates have remained steady despite a 32-basis-point quarter-over-quarter decline in the 10-year treasury market to 1.68%, the lowest level since the third quarter of 2016. RENT GROWTH Annual effective rental growth increased to 3.2% nationally, up 60 basis points year over year. Las Vegas and Phoenix remain the top markets for effective rental growth year over year at 8.0%. This marks the third consecutive quarter in which these two Southwest markets have led the nation. Strong property level rental growth has also contributed to net operating income accelerating to 6.83%, up 255 basis points year over year. SUPPLY AND DEMAND Year to date, new supply has totaled 189,753 units, while demand has reached 295,738 units, outpacing new supply by 105,985 units. Despite high levels of new supply nationally, 61.1% of new deliveries over the past 12 months have been delivered in the top 20 markets. Charlotte and Dallas have experienced the strongest inventory growth on a percentage basis, whereas demand has been especially strong in New York, with demand outpacing new supply by 10,329 units. INTERNATIONAL CAPITAL Direct acquisitions by international capital sources totaled $17.1 billion over the past 12 months, representing a 44.1% increase year over year. Canada remains the top buyer of U.S. multifamily, accounting for 65.1% of acquisitions by international capital sources, led by Brookfield Asset Management. Additionally, international investors have continued to shift money out of major markets and into non-major markets with higher growth potential. DEBT MARKETS Mortgage debt outstanding for multifamily grew $24.4 billion to $1.5 trillion, a 1.7% quarter-over-quarter increase. The four major lenders (GSEs, banks and thrifts, life insurance companies and CMBS) all increased their holdings quarter over quarter, as debt capital remains resilient. FHFA’s recent announcement allowing Fannie Mae and Freddie Mac to produce $200 billion over the next five quarters is expected to sustain the debt market for the foreseeable future. © NEWMARK KNIGHT FRANK | RESEARCH | 2019 3
  • 4.
    SALES VOLUME UNITED STATES;DOLLARS IN BILLIONS Quarterly sales volume totaled $46.0 billion, representing a 7.3% year-over-year decrease compared with third-quarter 2018. Over the trailing 12 months, sales volume rose to $183.7 billion, 8.8% higher than the previous 12-month totals, while portfolio and entity-level transactions have accounted for 23.4% of the overall market. 4© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics $36.1 $38.1 $36.4 $45.9 $49.6 $46.0 $53.8 $0 $40 $80 $120 $160 $200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1Q 2Q 3Q 4Q
  • 5.
    SALES VOLUME BYMARKET 12-MONTH TOTALS; DOLLARS IN BILLIONS Capital continues to gravitate toward non-major markets, as 70.0% of acquisition volume over the past 12 months occurred outside of the six major markets. Key Sunbelt markets have experienced a surge in 12-month volume, led by Charlotte with a 47.6% increase—in addition to Tampa (40.8%) and Raleigh-Durham (39.8%). 5© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics 101.2% Year-over-Year Growth 48.5% Year-over-Year Growth 30.6% Year-over-Year Growth Record High First Half Volume ($2.9 Billion) SFL $4.6 ATL $8.5 DEN $5.6 MSP $1.9 NSH $2.1 ORL $3.1 PHI $3.0 PHX $7.6 POR $2.3 RD $3.5 SA $2.4 SAC $1.5 AUS $4.4 DFW $10.6 SF $6.8 DC $8.8 LA $12.6 NYC $17.5 HOU $7.1 $5.0+ $2.6- 4.9 $1.5- $2.5 CHA $3.5 TAM $3.8 SEA $6.0 BOS $3.3 * Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets. CHI $4.2 SD $2.5 LV $2.9 JAX $1.5
  • 6.
    YIELD SPREAD UNITED STATES The10-year treasury rate declined 32 basis points quarter over quarter to 1.68%, the lowest level since the third quarter of 2016. The yield spread between cap rates and the 10-year treasury rate increased to 366 basis points, up from 238 basis points in the third quarter of 2018. 6© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Federal Reserve Bank of St. Louis, Real Capital Analytics (Transactions $10 million and greater) 366 5.34% 1.68% 0 100 200 300 400 500 0% 2% 4% 6% 8% 10% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Yield Spread US Multifamily Average Cap Rate 10-Year Treasury Rate
  • 7.
    TOTAL RETURNS BYMARKET ANNUALIZED TOTALS Over the past 12 months, total returns nationally have averaged 5.4%. Strong fundamentals and above-average effective rental growth have propelled several Sunbelt markets such as Phoenix, Tampa, Orlando and Austin to outperform the national average. 7© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, NCREIF 12.7% 10.6% 9.8% 9.3% 7.6% 7.5% 7.4% 7.3% 7.1% 6.3% 5.9% 5.9% 5.5% 5.5% 5.5% 5.4% 5.3% 5.0% 5.0% 4.2% 3.7% 2.1% 1.8% 0% 3% 6% 9% 12% 15% Phoenix Tampa Orlando Austin Denver Atlanta Charlotte Boston OrangeCounty SanJose SanDiego Seattle Washington,D.C. Oakland Minneapolis Miami SanFrancisco Houston LosAngeles Portland Dallas Chicago NewYork US Multifamily Total Return Average = 5.4%
  • 8.
    CAP RATES UNITED STATES;12-MONTH AVERAGE Cap rates compressed marginally, falling 9 basis points year over year to 5.34% nationally. Over the past 12 months, cap rates in major markets expanded 5 basis points, while yields in non-major markets have compressed 12 basis points, as investors continue to seek out suburban garden deals in non-major markets. 8© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater) 5.34% 4.77% 5.50% 0% 2% 4% 6% 8% 10% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 United States Major Markets Non-Major Markets * Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.
  • 9.
    PRICE PER UNIT UNITEDSTATES; 12-MONTH AVERAGE; DOLLARS IN THOUSANDS The average price per unit increased nationally 8.1% year over year to $181,762 in third-quarter 2019. Average price per unit increased 13.8% in major markets and 6.2% in non-major markets. Although major markets have outperformed non-major markets recently, over the past five years, non-major market pricing has increased 48.5% compared with 27.3% in major markets. 9© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater) $182 $315 $151 $0 $75 $150 $225 $300 $375 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 United States Major Markets Non-Major Markets * Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.
  • 10.
    TOP BUYERS ANDSELLERS UNITED STATES; 12-MONTH TOTALS; DOLLARS IN MILLIONS Portfolio and entity-level transactions continue to be substantial drivers of the market, including the top buyers and sellers over the past 12 months. Year to date, there have been four portfolio trades in excess of $1.0 billion. The largest trade in the third quarter was Cortland’s entity-level acquisition of a 7,085-unit core-plus portfolio with assets in the major Texas markets and Phoenix for $1.2 billion from Pure-Multifamily REIT. 10© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics $0 $1,500 $3,000 $4,500 $6,000 Brookfield BREIT Blackstone Cortland Nuveen Harbor Group Bridge Inv Group Investcorp American Landmark Tricon Kushner Companies Greystar UDR Morgan Properties Equity Residential Top Buyers $0 $1,500 $3,000 $4,500 $6,000 Forest City Lone Star Blackstone Fairfield Residential Greystar PGIM Starlight Investments Holland Partners JP Morgan Pure Multi- Family REIT Sekisui House Alliance Residential TruAmerica Multifamily Guardian Life Berkshire Group Top Sellers Single Asset Portfolio & Entity
  • 11.
    CAPITAL FLOW ANALYSIS 12-MONTHTOTALS; DOLLARS IN BILLIONS 61.2% of all U.S. multifamily capital flows have in the past year have come from private companies, inclusive of developers-owners-operators. Institutional/equity funds and Listed/REITs have been net sellers over the last 12 months, whereas all other investor types have been net buyers. 11© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics $112 $39 $17 $7 $8 $111 $44 $13 $11 $5 -$125 -$75 -$25 $25 $75 $125 Private Institutional/Equity Funds International Listed/REIT User/Other Acquisitions Dispositions
  • 12.
    HOLD TIME BYMARKET NUMBER OF MONTHS; TRADES OVER THE PAST 12 MONTHS Based on trades over the past 12 months, Atlanta, Charlotte and Raleigh-Durham have seen the highest turnover, as investors cycle out of value-add properties. Conversely, multifamily assets in safe haven markets such as New York, Seattle and Washington, DC, have lower cap rates and therefore tend to require longer hold times to achieve returns. 12© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics 44.7 47.5 50.1 50.7 51.5 51.9 52.1 53.8 55.4 56.1 56.5 57.6 58.1 58.1 58.4 59.1 59.2 59.3 59.9 60.1 62.2 63.1 63.9 64.5 65.0 68.2 68.8 76.6 76.9 0 10 20 30 40 50 60 70 80 90 Atlanta Charlotte Raleigh-Durham Minneapolis Phoenix Denver Orlando Columbus SouthFlorida Portland Boston Dallas Houston Sacramento LosAngeles Austin Tampa SanFrancisco Nashville SanAntonio LasVegas Memphis Chicago SanDiego NewYork KansasCity Seattle Philadelphia Washington,D.C.
  • 13.
    HISTORICAL NOI GROWTH ANNUALIZEDTOTALS Robust demand and rental growth have contributed to net operating income accelerating to 6.83% in third-quarter 2019, up 255 basis points versus the previous year. In addition to recent outperformance, multifamily net operating income growth since 2000 has averaged 4.97%, while all property types have lagged at 3.05%. 13© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, NCREIF 6.83% 6.22% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Multifamily All Property Types
  • 14.
    INTERNATIONAL CAPITAL BUYERS UNITEDSTATES; 12-MONTH TOTALS 14© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics BY COUNTRY Canada 65.1% Bahrain 8.5% Israel 5.8% Netherlands 3.1% Switzerland 2.2% Japan 2.2% Qatar 2.1% UK 2.0% China 1.4% Other 7.5% Direct acquisitions by international capital sources totaled $17.1 billion over the past 12 months, representing a 44.1% increase year over year. Canada remains the top buyer of U.S. multifamily, accounting for 65.1% of acquisitions by international capital sources, led by Brookfield ($5.7 billion) and Tricon ($1.4 billion). TOP BUYERS (DOLLARS IN MILLIONS) $222 $238 $254 $282 $305 $311 $365 $428 $441 $479 $555 $915 $1,447 $1,400 $5,650 H&R REIT (Canada) KIH (South Korea) BentallGreenOak (Canada) Aegon (Netherlands) OMERS (Canada) Low Tide Properties (Canada) QIA (Qatar) Western Wealth Capital (Canada) Global Holdings (Israel) Delek Group (Israel) Starlight Investments (Canada) PSP Investments (Canada) Investcorp (Bahrain) Tricon (Canada) Brookfield (Canada)
  • 15.
    INTERNATIONAL CAPITAL DESTINATIONS 12-MONTHTOTALS 15© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Real Capital Analytics MAJOR MARKETS 39.3% BY MARKET TIER As a % of Cross-Border Capital BY REGION As a % of Cross-Border Capital NON-MAJOR MARKETS 60.7% MID-ATLANTIC 13.5% MIDWEST 8.0% NORTHEAST 19.7% SOUTHEAST 23.3% SOUTHWEST 18.2% WEST 17.3% * Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets. ATL $918M BOS $551M CHI $609M DFW $571M DC $1.1B DEN $565M HOU $751M LA $953M NYC $2.5B ORL $545M PHX $335M RD $485M SF $745M SEA $491M TAM $611M CHA $329M AUS $668M LV $376M POR $180M SD $142M PHI $336M Over the past 12 months, international investors have continued to shift money out of major markets and into non-major markets with higher growth potential. Markets in the Southeast have continued to attract multifamily investment because of their growing numbers of workers and lower costs of living.
  • 16.
    EFFECTIVE RENT GROWTH UNITEDSTATES; ANNUALIZED Annual effective rental growth increased to 3.2% nationally, for an increase of 60 basis points year over year. Furthermore, annual effective rental growth is 70 basis points higher than the long-term average of 2.5%. 16© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, RealPage $835 $867 $855 $846 $862 $886 $931 $967 $989 $959 $946 $984 $1,020 $1,055 $1,100 $1,164 $1,226 $1,269 $1,319 $1,382 3.2% -5.0% -2.5% 0.0% 2.5% 5.0% 7.5% $0 $300 $600 $900 $1,200 $1,500 3Q00 3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18 3Q19 Effective Rent Effective Rental Growth Long-Term Effective Rent Growth Average US Long-Term Effective Rent Growth Average = 2.5%
  • 17.
    EFFECTIVE RENT GROWTHBY MARKET ANNUALIZED; SELECT MARKETS Las Vegas and Phoenix remain the top markets for effective rental growth year over year at 8.0%. This marks the third consecutive quarter in which these two Southwest markets have led the nation. 17© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, RealPage, Costar 8.0% 8.0% 4.9% 4.8% 4.6% 4.5% 4.4% 4.2% 3.9% 3.8% 3.7% 3.7% 3.6% 3.6% 3.5% 3.4% 3.3% 3.2% 3.1% 3.1% 3.0% 3.0% 2.8% 2.8% 2.7% 2.6% 2.5% 2.5% 2.5% 2.3% 2.3% 2.1% 0.8% 0% 2% 4% 6% 8% 10% LasVegas Phoenix Sacramento Atlanta Austin Memphis Raleigh-Durham Charlotte SaltLakeCity Jacksonville Nashville Tampa Boston Orlando Minneapolis SanFrancisco Denver SanDiego LosAngeles SanAntonio Columbus Philadelphia Seattle WashingtonD.C. SanJose Portland Dallas Miami NewYork Chicago OklahomaCity KansasCity Houston US Annual Average Effective Rent Growth = 3.2% Effective rental growth is expected to rise 100 basis points over the next 12 months.
  • 18.
    EMPLOYMENT GROWTH YEAR-OVER-YEAR; SELECTMARKETS With 117,300 non-farm jobs added over the past 12 months, Dallas has added more new jobs than any other market in the country in nominal terms. In addition to Dallas, Raleigh-Durham (3.2%), Seattle (3.3%) and Orlando (3.7%) were the fastest-growing employment markets over the past 12 months. 18© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, U.S. Bureau of Labor Statistics (September release) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 0 25,000 50,000 75,000 100,000 125,000 Dallas NewYork Houston LosAngeles Seattle SanFrancisco Miami Atlanta Phoenix Orlando Chicago Washington,D.C. Boston SanJose Philadelphia SanDiego Charlotte SanAntonio Tampa Denver LasVegas Portland Raleigh-Durham Austin Nashville Employment Growth (#) Employment Growth (%)
  • 19.
    SUPPLY AND DEMAND UNITEDSTATES Year to date, new supply has totaled 189,753 units, while demand has reached 295,738 units, outpacing new supply by 105,985 units. A strong economy and positive demographic trends have pushed annual occupancy to 95.7%, the highest level this cycle. 19© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, RealPage 267,891 189,753 307,233 295,738 1.5% 1.3% 1.2% 0.9% 0.6% 0.1% 0.7% 0.7% 1.1% 1.1% 0.7% 0.4% 1.0% 1.3% 1.5% 1.6% 1.9% 1.8% 1.4% 1.1% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 0 100,000 200,000 300,000 400,000 500,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD New Supply Demand Inventory Growth
  • 20.
    SUPPLY AND DEMANDBY MARKET Despite high levels of new supply nationally, 61.1% of new deliveries over the past 12 months have been delivered in the top 20 markets. Charlotte (3.7%) and Dallas (2.8%) have experienced the strongest inventory growth on a percentage basis, whereas demand has been especially strong in New York, with 23,415 units absorbed in the past 12 months, outpacing supply by 10,329 units. 20© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, RealPage 12-MONTH TOTALS; SELECT MARKETS 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 0 5,000 10,000 15,000 20,000 25,000 Dallas NewYork Washington,D.C. Seattle Chicago LosAngeles Denver Atlanta Phoenix Houston Charlotte Orlando Austin Miami Philadelphia Boston Tampa Raleigh-Durham Minneapolis Portland Nashville Columbus SanAntonio Jacksonville SanDiego KansasCity SaltLakeCity LasVegas SanFrancisco OklahomaCity SanJose Sacramento Memphis New Supply Demand Inventory Growth
  • 21.
    MORTGAGE DEBT OUTSTANDING UNITEDSTATES Mortgage debt outstanding for multifamily grew $24.4 billion to $1.5 trillion, a 1.7% quarter-over-quarter increase. GSEs, banks and thrifts, life insurance companies and CMBS lenders all increased their holdings quarter-over-quarter, as debt capital remains plentiful for well-positioned multifamily assets. 21© NEWMARK KNIGHT FRANK | RESEARCH | 2019 Source: NKF Research, Mortgage Bankers Association DEBT OUTSTANDING BY GROUP AS A PERCENTAGE DEBT OUTSTANDING BY GROUP IN BILLIONS $703.1 $444.9 $143.5 $91.4 $41.8 $31.8 $0 $150 $300 $450 $600 $750 GSEs Bank & Thrifts Life Co State & Local Gov't CMBS Other GSEs 48.3% Banks & Thrifts 30.5% Government 9.9% Insurance Companies 6.3% CMBS 2.9% Other 2.2%
  • 22.
    NEW YORK CITY HEADQUARTERS 125Park Avenue New York, NY 10017 212.372.2000 Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are also available at www.ngkf.com/research All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains. Jeff Day President Head of Multifamily CapitalMarkets [email protected] Blake Okland Vice Chairman Head of Multifamily Investment Sales [email protected] Sharon Karaffa Senior Managing Director Head of Multifamily Strategy [email protected] Jonathan Mazur Senior Managing Director National Research [email protected] Mike Wolfson Director Capital Markets Research [email protected] Sean Marmora Research Analyst Multifamily Research [email protected]