tampa 4q11 apt
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M A R K E T R E P O R T
ApartmentResearch
Tampa-St. Petersburg Metro Area Fourth Quarter 2011
Buyers and Sellers Expectations Converge in Tampa
A solid pace o job growth and limited construction will keep the ampa apartment market on track or an additional de-cline in vacancy in this years nal quarter. enant demand continues to strengthen across the entire market, reducing vacancy orseven consecutive quarters through the third quarter this year. Residents who recently returned to work and ormed new rentalhouseholds continue to occupy Class B/C apartments at a vigorous pace. Nearly two out o three newly occupied rentals this year
were lower-tier units, compared with less than hal in the nal three quarters o 2010. A urther expansion o job opportunities,especially in service-oriented employment sectors such as leisure and hospitality, will augment Class B/C operations in the quartersahead. Over the long term, recently enacted ree-trade agreements with Colombia, Panama and South Korea could potentiallyboost exports through the Port o ampa, expanding employment in trade-related employment sectors.
Investment activity is recovering vigorously across all price points as private capital and large investors intensely pursue assetsto supplement existing portolios. Sales o distressed assets continue to occur, but lenders have stepped up eforts to dispose o trou-bled properties. Large, Class A complexes also remain a target or institutions and other well-capitalized buyer groups, and manytrades are occurring at cap rates averaging in the mid-5-percent range. Demand or Class B properties in inll locations is also pick-ing up. Cap rates or this grade o property have allen rom 50 to 70 basis points since early this year to the mid-7-percent range.Properties built since the 1980s remain a common choice among investors in Class B assets, especially i the asset is located inareas with barriers to adding new supply, such as Clearwater and St. Petersburg. Purchasing properties at current cap rates providesinvestors with attainable upsides based on reasonable expectations o near-term rent growth and additional reductions in vacancy.
2011 Annual Apartment Forecast
Employment: otal employment in the metro will expand 2 percent in 2011 through the creationo 22,800 jobs. Only 600 jobs were added in 2010.
Construction: Only 100 units will come online in the metro this year, a signicant drop rom2,200 new rentals placed into service in 2010. Multiamily permit issuance remains on track to rise20 percent this year to 2,700 units.
Vacancy: Limited construction and steady demand will reduce the vacancy rate 160 basis pointsthis year to 6.3 percent, ollowing a decline o 280 basis points in 2010. Net absorption this year
will total more than 2,400 units.
Rents: Following an increase o 1.5 percent last year, asking rents will gain 2.1 percent in 2011 to$826 per square oot. A 2.5 percent rise in efective rents to $779 per month will reduce concessionsto 5.7 percent o asking rents this year. In 2010, efective rents climbed 2.3 percent.
2.0%increase in
totalemployment
100units
will becompleted
160 basispoint
decrease invacancy
2.1%increase in
askingrents
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Year-over-YearC
hange
Metro Area
United States
Employment Trends
* ForecastSources: Marcus & Millichap Research Services, BLS, Economy.com
08 09 1007 11*
*
*
* -
* -
-6%
-3%
0%
3%
6%
*
Metro Area
United States
*
MedianExistingHomePrice(Y-O-YChg.)
Home Price Trends
*
*
* -
* Trailing 12-Month PeriodSources: Marcus & Millichap Research Services, Economy.com, NAR
08 09 1007 11*-30%
-20%
-10%
0%
10%
NumberofUnits(thousands)
Construction Trends
0
2
4
6
8
08 09 10 11*07* ForecastSources: Marcus & Millichap Research Services, U.S. Census Bureau
*
Apartment Completions
Multifamily Permits
*
*
* -
* -
Economy otal employment in the ampa metro increased 1.9 percent in the rst three
quarters o 2011. Nearly 21,000 positions were added, including 19,900 private-sector jobs. Te year-to-date results mark a turnaround rom the nal three quar-ters o 2010, when employers cut 600 positions.
Job growth in the metro this year has been broad-based, with most private-employment sectors resuming hiring. Additions to payrolls in primarily blue-collarsectors were especially notable. Collectively, manuacturing, construction andtrade employers created 4,600 jobs year to date through the third quarter.
Steady hiring in high-paying sectors is generating demand or Class A apartmentsin the metro. Employers in the proessional and business services sector created4,600 new jobs year to date and nancial services expanded by 3,000 positions.
Outlook: Tis year, employers will add 22,800 jobs in the metro, marking asignicant increase rom the meager 600 positions added in 2010.
Housing and Demographics Low prices supported a 17 percent increase in the number o existing single-
amily homes sold during the 12 months ending in the third quarter. Residencessold during the period carried a median price o $124,400, marking a decline o4 percent rom one year earlier.
Single-amily home construction trends remain benign. Permit issuance tickedup 3 percent over the past year to about 4,500 units, while construction startedon 4,400 new residences, roughly the same number as the preceding year.
Housing demand should remain strong this year, as a re-invigorated job markewill spur the creation o 9,200 new households, a 0.8 percent increase.
Outlook: Te single-amily housing market continues to stabilize, but low pricesalone may not encourage renters to make the jump to homeownership. Lendingcriteria remains tight and down payment requirements are high, which will com-pel many renters to deer home purchases.
Construction No market-rate projects were completed in the third quarter this year. Over the
past 12 months, only the 325-unit Fusion 1560 in St. Petersburg came online.
Projects containing about 1,100 units are under construction and scheduled odelivery in 2012. Tree developments in the North Hillsborough market accountor nearly all o the new rentals slated to come online next year.
Approximately 4,500 units are planned, including 1,200 rentals in the Centraampa submarket. Permits or multiamily housing, an indicator o uture con-struction, rose 9 percent year over year in the third quarter to 3,000 units.
Outlook: Developers will complete only 100 units this year. An average 2,500units were completed annually over the past decade.
page 2 Marcus & MillichapuApartment Research Repor
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*
VacancyR
ate
Metro Area
United States
5%
7%
9%
11%
13%
Vacancy Rate Trends
* ForecastSources: Marcus & Millichap Research Services, Reis
08 09 1007 11*
*
* -
* -
*
*
Asking Rent
Effective Rent
*
Year-over-YearChange
Rent Trends
* ForecastSources: Marcus & Millichap Research Services, Reis
08 09 1007 11*
* -
* -
-6%
-3%
0%
3%
6%
*
* *
*
MedianPriceper
Unit(thousands)
Sales Trends
$0
$20
$40
$60
$80
08 09 10 11*07
* Trailing 12-Month PeriodSources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA
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Vacancy Marketwide vacancy ticked down 20 basis points in the third quarter to 6.7 percent
on net absorption o approximately 300 units, marking the seventh consecutive quar-ter o demand growth. Year to date, vacancy has declined 120 basis points.
In the Class A tier, vacancy was 5.4 percent at the end o the third quarter. Nearly 700
additional high-end rentals were occupied during the rst nine months o the year.Nonetheless, demand growth has eased, as more than 2,800 units were absorbed inthe preceding three quarters.
Te Class B/C vacancy rate slid 20 basis points in the third quarter to 7.6 percent.New rental households lled an additional 1,100 lower-tier units in the rst threequarters, reducing the vacancy rate 130 basis points.
Outlook: Metrowide, vacancy will decrease 160 basis points this year to 6.3 percent.Vacancy plunged 280 basis points in 2010.
Rents
At $820 per month at the end o the third quarter, average asking rents in the metrohave increased 1.4 percent so ar this year. Asking rents surged 0.7 percent rom Julyto September.
Despite minimal competition rom new projects, leasing incentives were unchangedat 5.9 percent o asking rents in the third quarter. Efective rents rose 0.8 percent to$772 per month during the period and have advanced 1.6 percent year to date.
So ar this year, Class B/C asking rents have increased 1.0 percent to $700 per month,an improvement rom a 0.4 percent uptick in the nal three quarters o 2010. In theClass A sector, asking rents surged 1.7 percent year to date through the third quarterto $9,992 per month, slightly more than the rate o increase posted in the precedingnine months.
Outlook: Asking rents will advance 2.1 percent in 2011 to $826 per square oot.Concessions will tick down to 5.7 percent o asking rents as efective rents rise 2.5percent to $779 per month.
Sales Trends** Te number o apartment complexes sold nearly tripled in the past year as investors
gained greater access to nancing and buyers and sellers pricing expectations nar-rowed. More than 12,000 units traded in deals pricing at more than $10 million.
Prices appear to be stabilizing. Te median price o properties sold in the past yeardeclined 4 percent $40,100 per unit. In the last year beore the recession, the medianprice was $65,600 per unit.
Cap rates or the newest Class A properties have settled in the mid-5-percent range,while heightened interest in Class B properties in inll locations has reduced cap ratesto the mid-7-percent range. Class C apartments trade at approximately 8 percent.
Outlook: Te market continues to ride a wave o positive trends, as employment isexpanding and property operations are strengthening. Further reductions in vacancyand the easing o concessions will continue to encourage investors and sustain anintense bidding climate.
Marcus & Millichapu Apartment Research Report
** Data reect a ull 12-month period, calculated oa trailing 12-month basis by quarter
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Capital MarketsBy WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation
Increased Fed intervention, such as Operation wist, should keep interest raterelatively low over the near term. As o late-October, the yield on the 10-yearreasury was hovering around 2.3 percent, approximately 175 basis points belowthe 10-year average.
Apartment mortgage originations more than doubled in the rst hal o 201when compared with the same period last year, driven largely by agency lenderFannie Mae and Freddie Mac, lie insurance companies and local/regional banks
While agency originations increased over past year, the re-emergence o lie com-panies and banks caused their market share to drop rom 62 percent in 2010 to44 percent in the rst hal.
Lenders view apartments as preerred assets and are moving down the qualitychain to nance Class B properties in strong locations, encouraged by healthyoccupancy gains and rming values. Nonetheless, nancing lower-tier propertiesin secondary and tertiary markets remains a challenge.
Portolio lenders generally originate new loans at 55 percent to 75 percent LVswhile agency lenders provide up to 80 percent leverage on high-quality assets in
core metros. All-in rates or $3 million-plus mortgages start around 3.75 percentor a ve-year term, with seven-year loans pricing in the low- to mid-4-percentrange, and 10-year notes averaging 4.5 percent to 5.0 percent. All-in rates orsmaller loans are typically 10 to 25 basis points higher.
Submarket Overview In the North Hillsborough submarket, a total o 1,040 rentals will be delivered
next year, expanding rental stock 5 percent. Te largest o the projects underwayis the 486-unit Colonial Grand at Hampton Preserve, which is slated or deliveryin the ourth quarter.
Although multiamily permit issuance rose over the past year, uture construction
in Pinellas County will be limited. Approximately 30 units were permitted in thethird quarter, down rom a similarly small 83 units during the correspondingperiod in 2010.
Outside o the metro, vacancy in Manatee and Sarasota counties declined 110basis points in the third quarter to 5.6 percent. Year to date, however, the vacancyrate has ticked up 50 basis points. Average rents ticked up 2.1 percent rom Julyto September, to $883 per month.
Submarket Vacancy RankingVacancy Y-O-Y Basis Effective Y-O-Y
Rank Submarket Rate Point Change Rents % Change
1 Brandon/Plant City 4.0% -210 $859 3.5%
2 North Hillsborough 4.4% -150 $830 2.3%
3 North St. Petersburg 5.3% -250 $789 3.7%
4 Clearwater 5.6% -160 $763 0.3%
5 North Pinellas 5.6% -190 $797 3.0%
6 Sulphur Springs 5.8% -340 $708 1.4%
7 MacDill Air Force Base 6.1% -190 $902 3.4%
8 Westshore 6.1% -160 $817 3.2%
9 University North 7.1% -250 $646 1.4%
10 Pinellas Park/Seminole 7.5% -190 $728 6.0%
Te inormation contained in this report was obtained rom sources deemed to be reliable. Every eort was made to obtain accurate and complete inormation; however, no representation, warranty or guarantee, express or implied, may be made as tthe accuracy or reliability o the inormation contained herein. Note: Metro-level employment growth is calculated using seasonally adjusted quarterly averages. Sales data includes transactions valued at $500,000 and greater unless otherwise notedSources: Marcus & Millichap Research Services, Bureau o Labor Statistics, CoStar Group, Inc., Economy.com, National Association o Realtors, Real Capital Analytics, Reis, WR/Dodge Pipeline, U.S. Census Bureau.
Visit www.NationalMultiHousingGroup.com or call:
John SebreeNational DirectorNational Multi Housing Groupel: (925) 953-1700
Prepared and edited by
Art GeringSenior Market Analyst
Research Services
For inormation on nationalapartment trends, contact
John ChangVice President, Research Services
el: (602) 687-6700 ext. [email protected]
ampa Ofce:Bryn Merrey
Regional [email protected]
7600 Courtney Campbell CausewaySuite 920ampa, Florida 33607
el: (813) 387-4700Fax: (813) 387-4710
Price: $150
Marcus & Millichap 2010www.MarcusMillichap.com