Cities & Suburbs. What Research Tells Us About Performance and Investor Returns NMHC Research Forum / April 1, 2015 Jay Parsons / MPF Research

Transcription

1 Cities & Suburbs What Research Tells Us About Performance and Investor Returns 2015 NMHC Research Forum / April 1, 2015 Jay Parsons / MPF Research

2 Has suburb become a bad word in real estate? Actual, recent headlines: America s Urban Future See Ya Suburbs: More Want to Live in the Big City Why Suburbs Are Losing Their Appeal Suburbs Dying and Cities Are Back Millennials Prefer Cities to Suburbs, Subways to Driveways The Suburbs Are Dead Suburbs: The New Slums The Suburbs Still Suck, All Signs Indicate

3 Aging, bland architecture housing generic chains

4 Speculative real estate far from anything

5 But now is suburbia making a comeback? Actual, recent headlines: Suburbs Come Roaring Back Americans Love Big Hot Suburbs Generation Y Prefers Suburban Home Over City Condo Young Americans: Yearning for the Suburbs, Stuck in the City Millennials: A Powerful, Suburban Living Generation America s Newest Hipster Hot Spot: The Suburbs? Think Millennials Prefer The City? Think Again. Vibrant Suburbs Versus CBD? It's a Toss Up

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7 U.S. In-Migration By Geography and Age, Urban Areas Non-Urban Areas 0 Total Source: Lyman Stone, George Washington University

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9 Traditional Apartment Fundamentals

10 Apartment development in CBDs is at record highs 250, ,000 New Supply in CBDs Share of Total Supply 30% 24% 150,000 18% 100,000 12% 50,000 6% s 1950s 1960s 1970s 1980s 1990s 2000s 2010+* 0% Source: MPF Research / Census *Includes completions since 2010 plus units physically under construction as of 1/1/2015 Analysis includes the nation s top 50 markets, excluding NYC/NNJ MPF Research/RealPage

11 Suburbs top CBDs for rent growth at this point, but 8% 6% Year-over-year change in new leases, same-store sample CBDs Suburbs 4% 2% 0% -2% -4% -6% 4Q 06 2Q 07 4Q 07 2Q 08 4Q 08 2Q 09 4Q 09 2Q 10 4Q 10 2Q 11 4Q 11 2Q 12 4Q 12 2Q 13 4Q 13 2Q 14 4Q 14 Source: MPF Research Analysis includes the nation s top 50 markets, excluding NYC/NNJ MPF Research/RealPage

12 What are common denominators of good suburbs? Characteristics of Good Suburbs Located in economically healthy metros More jobs Higher home values Higher household incomes Higher rents More urban-ish Parent metros rank in top half (among 50 largest metros) for net job change since Q (>3.0% net growth) 18% more jobs per household (physically located within these submarkets) above the mean 29% above mean 27% above mean 16% above mean Generally not bedroom communities and not sprawl Source: MPF Research / Census Analysis includes the nation s top 50 markets, excluding NYC/NNJ MPF Research/RealPage

13 Good suburbs perform in line with CBDs long term Rent Growth 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% High-Rent CBDs in Stronger Metros High-Rent Suburbs in Stronger Metros Low-Rent Suburbs in Stronger Metros 8-Year Average YOY Rent Change 4-Year Average YOY Rent Change High-Rent CBDs in Weaker Metros High-Rent Suburbs in Weaker Metros Low-Rent Suburbs in Weaker Metros Source: MPF Research Stronger metro defined as markets with at least 3.0% net job growth since Q Analysis includes the nation s top 50 markets, excluding NYC/NNJ MPF Research/RealPage

14 Good suburbs perform in line with CBDs long term Occupancy 96.0% 95.5% 95.0% 94.5% 94.0% 93.5% 93.0% 92.5% 92.0% 91.5% 91.0% High-Rent CBDs in Stronger Metros High-Rent Suburbs in Stronger Metros Low-Rent Suburbs in Stronger Metros High-Rent CBDs in Weaker Metros 8-Year Average Occupancy 4-Year Average Occupancy High-Rent Suburbs in Weaker Metros Low-Rent Suburbs in Weaker Metros Source: MPF Research Stronger metro defined as markets with at least 3.0% net job growth since Q Analysis includes the nation s top 50 markets, excluding NYC/NNJ MPF Research/RealPage

15 Lease Transactional Data (Actual Rent Rolls)

16 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Resident retention is higher in good suburbs 56% 54% 52% 50% 48% 46% CBDs Good Suburbs 44% 42% share of expiring leases being renewed Source: RealPage Performance Analytics Analysis includes 25 metros with net job growth exceeding U.S. average since Q MPF Research/RealPage

17 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Lease trade-out spreads are narrowing 9% 8% CBDs Good Suburbs U.S. Average 7% 6% 5% 4% 3% 2% 1% 0% effective rent change on the same units (true same-store) Source: RealPage Performance Analytics CBDs and Good Suburbs limited to 25 metros with net job growth exceeding U.S. average since Q U.S. average covers all markets and is comprised of professionally managed, institutional-quality assets. MPF Research/RealPage

18 CBDs maintain a large rent roll/revenue premium $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 Revenue/Occupied Square Foot Revenue/Available Square Foot $1.00 CBDs Good Suburbs U.S. Average Source: RealPage Performance Analytics CBDs and Good Suburbs limited to 25 metros with net job growth exceeding U.S. average since Q U.S. average covers all markets and is comprised of professionally managed, institutional-quality assets. MPF Research/RealPage

19 CBDs now lag the U.S. average for rent roll growth 8% 7% CBDs Good Suburbs U.S. Average 6% 5% 4% 3% 2% 1% 0% year-over-year change in Revenue/Occupied Square Foot (Rent Roll) Source: RealPage Performance Analytics CBDs and Good Suburbs limited to 25 metros with net job growth exceeding U.S. average since Q U.S. average covers all markets and is comprised of professionally managed, institutional-quality assets. MPF Research/RealPage

20 CBDs trail further behind in rental revenue growth 8% 7% CBDs Good Suburbs U.S. Average 6% 5% 4% 3% 2% 1% 0% year-over-year change in Revenue/Available Square Foot (Revenue) Source: RealPage Performance Analytics CBDs and Good Suburbs limited to 25 metros with net job growth exceeding U.S. average since Q U.S. average covers all markets and is comprised of professionally managed, institutional-quality assets. MPF Research/RealPage

21 NCREIF

22 CBDs and good suburbs log similar NCREIF returns Source: MPF Research analysis of NCREIF apartment data MPF Research/RealPage

23 Good suburbs bring better risk-adjusted returns Source: MPF Research analysis of NCREIF apartment data MPF Research/RealPage

24 8-Year NCREIF Returns/Volatility Source: MPF Research analysis of NCREIF data MPF Research/RealPage

25 Next Steps

26 Questions? Jay Parsons Director of Analytics & Forecasting, MPF Research A Division of RealPage, Inc. jay.parsons@realpage.com Phone