U.S. MULTIFAMILY MARKETVIEW FIGURES Q4 2016
U.S. MULTIFAMILY MARKETVIEW Q4 2016 2016 DELIVERS IMPRESSIVE DEMAND AND NEW SUPPLY TOTALS Vacancy Rate 4.9% Net Absorption* 201,000 Units Rentable Completions* 243,000 Units Annual Acquisitions $158 Billion Arrows indicate change from previous year. *Total past four quarters. Net absorption of multifamily units in 2016 reached a healthy 201,300 units in the 65 markets tracked by CBRE Econometric Advisors. This represents a 4.9% increase from 2015 and is on par with the stellar performance of the past several years. The top five metros for net absorption in 2016 were New York (27,600 units), Dallas/Ft. Worth (13,100), Washington, D.C. (11,600), Seattle (8,200) and Charlotte (7,500). 2 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 1 U.S. MULTIFAMILY COMPLETIONS AND NET ABSORPTION Units (000s) 300 250 200 150 100 50 0-50 111 106 77 31 109-3 127 40 78 254 50 Completions (L) Net Absorption (L) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 87 72 123 126 116 187 238 243 200 192 201 Source: CBRE Research, CBRE Econometric Advisors, Q4 2016. Note that new property completions and net absorption are counted in the quarter when the property reaches occupancy stabilization. Delivery of 71,300 multifamily units in Q4 brought 2016 s total to 242,800 units the highest annual amount in this cycle and a 21.4% gain from 2015. The top five markets for deliveries in 2016 were New York City (31,300 units), Dallas/Ft. Worth (15,500), Houston (13,400), Washington, D.C. (11,200) and South Florida (9,100). Half of all units added in 2016 were in 10 metros. The markets with the highest completions-to-inventory ratio (a risk metric) were Nashville (5.9%), Charlotte (5.7%), Greenville (5.5%), Austin (4.7%) and San Antonio (4.0%). The U.S. average completions-to-inventory ratio was 1.7%. Moderate oversupply is evident in many of the urban core submarkets where the largest portion of recent development has occurred. Conversely, demand in most non-urban core submarkets is outpacing new supply. 3 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 2 HISTORICAL U.S. VACANCY RATES AND CHANGE Y-o-Y Vacancy Change (bps) Y-o-Y Vacancy Change (L) Vacancy Rate (R) Vacancy Rate (%) 250 8 200 150 100 50 0-50 -100-150 Q4 2004 Q4 2006 Q4 2008 Q4 2010 Q4 2012 Q4 2014 Q4 2016 7 6 5 4 3 2 1 0 Source: CBRE Research, CBRE Econometric Advisors, Axiometrics Inc., Q4 2016. The vacancy rate increased by 30 basis points in 2016 to close at 4.9%. Vacancy remained below the 20-year (1996-2016) historical average of 5.3%. However, the upward movement reflects pockets of market softness evident in many metropolitan areas, especially in the urban cores. Minneapolis had the lowest vacancy rate in the country at 2.9% in Q4. Other metros with vacancy at or below 4.0% were New York, Detroit, Orange County, San Diego, Los Angeles and Sacramento. 4 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 3 HISTORICAL US RENTAL RATES AND CHANGE Y-o-Y Change (L) Rent per Unit (R) Y-o-Y Rent Change (%) Monthly Rent per Unit ($) 8 1,800 4 1,600 0 1,400-4 1,200-8 1,000 Q4 2004 Q4 2006 Q4 2008 Q4 2010 Q4 2012 Q4 2014 Q4 2016 Source: CBRE Research, CBRE Econometric Advisors, Axiometrics Inc., Q4 2016. Of the 62 markets tracked by CBRE Econometric Advisors, 51 of them (81%) registered positive effective rent growth in 2016. The average increase for these markets was 3.1%. For all markets, the average 2016 rent growth was 0.2%. The overall average was weighed down by a handful of large metros with rent declines. Rent growth reached 5% or greater in six metros in 2016: Sacramento (9.8%), Colorado Springs (9.7%), Honolulu (6.1%), Salt Lake City (5.1%), Inland Empire (5.1%) and Atlanta (5.0%). 5 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 4 U.S. MULTIFAMILY INVESTMENT SALES VOLUME Transaction Volume ($ Billions) 60 Individual Assets Portfolios Entity-Level 50 40 30 20 10 0 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2014 Q4 2014 Q4 2015 Q4 2016 Source: CBRE Research, Real Capital Analytics, Q4 2016. Both Q4 and full-year 2016 statistics reflected robust investment activity. Acquisitions of multifamily assets reached $45 billion in Q4, the second highest quarterly volume since Real Capital Analytics began tracking this metric in 2001. The strong Q4 investment activity brought the year s total to $158.4 billion, a 3.2% increase from 2015 s $153.4 billion. Multifamily was the only property sector to register increased investment activity in 2016. Acquisitions of all commercial real estate sectors combined fell by 10.7% in 2016. 6 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 5 MULTIFAMILY NET ABSORPTION (ROLLING FOUR-QUARTER TOTALS) Units (000s) 300 250 200 150 100 50 0-50 -100 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2014 Q4 2014 Q4 2015 Q4 2016 Source: CBRE Research, CBRE Econometric Advisors, Q4 2016. Most recent data point represents the four quarters ending Q4 2016 (201,283 units). Note that for new product, net absorption is included in the statistics when the property has stabilized. Multifamily demand remains favorable. Net absorption totaled 201,300 units in 2016, one of the higher levels during the current economic cycle. Multifamily demand stabilized in 2016 after declining in 2015. CBRE Econometric Advisors forecasts more robust demand in 2017 (262,700 units) driven by stronger economic performance and increased renter household formation. 7 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 6 LEADING METROS FOR MULTIFAMILY NET ABSORPTION Rank Metro Total Units Absorbed Ratio to Total Inventory (%) 1 New York 27,600 1.4 2 Dallas/Ft. Worth 13,100 2.0 3 Washington, D.C. 11,600 2.1 4 Seattle 8,200 2.3 5 Charlotte 7,500 5.2 6 Austin 6,900 3.5 7 Minneapolis 6,900 2.7 8 Boston 6,400 1.4 9 Denver 6,300 2.2 New York City was the leading metro for net absorption in 2016 with 27,600 units. A recent surge in deliveries contributed significantly to New York s absorption total. Dallas/Ft. Worth moved into second place in the ranking, followed by Washington, D.C. The ratio of net absorption to total inventory provides a sense of how dynamic the market is from a demand standpoint. Markets recording impressive ratios of three or higher were Charlotte (5.2), Nashville (5.0), Austin (3.5), San Antonio (3.6) and Raleigh (3.3). 10 Atlanta 6,300 1.5 11 Nashville 6,200 5.0 Source: CBRE Research, CBRE Econometric Advisors, Q4 2016. Q4 2016 is preliminary. 8 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 7 U.S. HOMEOWNERSHIP RATES AND RENTER HOUSEHOLDS Homeownership Rate (%) 70 68 66 64 62 Renter Households (Mil.) 46 42 38 34 30 Homeownership Rates (L) Occupied Renter Households (R) Source: U.S. Census Bureau (CPS/HVS), Q4 2016. Homeownership rates are seasonally adjusted. Renter households totals are based on data for occupied renter housing units. The national homeownership rate was 63.5% in Q4 (seasonally adjusted), essentially unchanged from the prior quarter and prior year. It appears that the long decline in homeownership rates has ended. Whether rates remain stable or begin to inch up is yet unclear, but many cyclical and secular forces suggest that either outcome is possible. The National Association of Realtors (NAR) attributes the higher velocity of existing home purchases to first-time homebuyers, who represented 32% of all buyers in 2016. While sizeable, this percentage was little changed from 2015. 9 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 8 ANNUAL CHANGE IN OCCUPIED RENTER HOUSING UNITS Millions 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Occupied Renter Households (R) 2002-2016 Average (715,000) Source: U.S. Census Bureau (CPS/HVS), Q4 2016. The number of renter households (based on U.S. Census Bureau estimates of occupied rental units of all types of housing, including single-family) is rising (setting aside seasonal movement). The U.S. had a total of 43.0 million renter households as of Q4, up 457,000 from the prior year. The level of growth moderated in 2015 and 2016, but show that demand for rental housing is still strong. While the multifamily market has pockets of oversupply impacting performance in the near term, the industry is not building enough housing for renter households over the longer term. 10 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 9 HISTORICAL ANNUAL MULTIFAMILY PERMITS Units (000s) 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: CBRE Research, U.S. Census Bureau, Q4 2016. For buildings with 5+ units including for-sale product (in 2016, >93% rental). Line represents historical average for period displayed (320,100). Building permits were issued for 393,000 multifamily units (5+ units per building) in 2016. At least 93% of this total was for rental product. The 2016 total represented a 14% decline from 2015 s 454,600 units. 2015 marked the highest level since 1985 when 656,600 units received building permit approval. The historical high was in 1972 when 1,037,200 multifamily units were approved. 11 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 10 HISTORICAL U.S. MULTIFAMILY STARTS Units (000s) 120 Quarter Total Moving 3-Quarter Average 90 60 30 0 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Source: CBRE Research, CBRE Econometric Advisors, Q4 2016. Q4 2016 is preliminary. Multifamily starts are also high, but are decelerating. Starts in this cycle peaked in Q3 2015 and have been edging down since then. While the Q4 2016 figure is not final yet, it may be the lowest quarterly total in the past three years. The falling levels of starts bode well for supply-demand balance beginning in 2018. 12 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 11 HISTORICAL U.S. MULTIFAMILY COMPLETIONS Units (000s) 250 Q1 Q2 Q3 Q4 200 150 100 50 0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: CBRE Research, CBRE Econometric Advisors, Q4 2016. Note that deliveries are counted in the quarter in which property is stabilized. The most prominent near-term challenge for the multifamily market is supply. For the first time since the recession, multifamily completions outpaced demand in 2016, and the outlook for 2017 is the same. National completions totaled 71,300 units in Q4, up 6.6% year-over-year. For full-year 2016, completions reached 242,800 units, a 21.4% gain from 2015 and the highest level in at least two decades. Completions are forecast to reach 288,200 units in 2017, and then fall to 142,000 units in 2018. The urban infill neighborhoods are where much of the oversupply is occurring, causing effective rental growth to slow more than the metro averages (or decline). 13 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 12 LEADING METROS FOR 2016 MULTIFAMILY COMPLETIONS Rank Metro Total Units Ratio to Total Inventory (%) 1 New York 31,300 1.7 2 Dallas/Ft. Worth 15,526 2.4 3 Houston 13,442 2.3 4 Washington, D.C. 11,239 2.1 5 Miami/South Florida 9,140 1.6 6 Austin 9,050 4.9 7 Denver 8,660 3.1 8 Seattle 8,265 2.4 9 Charlotte 8,213 6.0 10 Los Angeles 7,755 0.7 11 Boston 7,428 1.6 12 Nashville 7,324 6.2 13 Chicago 6,965 1.0 New York, Dallas/Ft. Worth, Houston and Washington, D.C. led U.S. metro areas in apartment deliveries in 2016. Nashville had the highest constructionto-inventory level at 6.2%. Other metros with high ratios were Charlotte (6.0%), Greenville (5.8%), Austin (4.9%), San Antonio (4.1%) and Raleigh (3.7%). The average for all markets is 1.7%. Oversupply in these markets is an elevated risk, although demand has been very strong. 14 Atlanta 6,903 1.7 Source: CBRE Research, CBRE Econometric Advisors, Q4 2016. Note that deliveries are counted in the quarter in which property reaches stabilization. 14 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 13 VACANCY RATE CHANGE IN MAJOR MARKETS Y-o-Y Change (bps) Minneapolis Orange County Cleveland Washington, D.C. San Diego Seattle Philadelphia Detroit New York Atlanta Dallas/Ft. Worth Los Angeles Chicago Boston U.S. San Francisco Orlando Oakland Phoenix Denver Miami/South Florida Portland Baltimore Austin Tampa Houston -150-100 -50 0 50 100 150 200 Of the 62 markets tracked, 22 recorded vacancy rate decreases in 2016, led by Minneapolis s 110-bp decline. Minneapolis also had the nation s lowest Q4 vacancy rate at 2.9%. Other metros with low vacancy rates (under 4%) included New York, Detroit, Los Angeles, San Diego and Orange County. Thirty-two markets posted increases in vacancy in 2016, the largest of which were in Houston (+180 bps), Tampa (+100), Austin (+90) and Baltimore (+90). Source: CBRE Research, CBRE Econometric Advisors, Axiometrics Inc., Q4 2016. For 25 largest metros with 175,000+unit inventory. 15 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 14 RENT GROWTH FOR LARGEST MULTIFAMILY MARKETS Rank Metro 2016 Change (%) Average Monthly Rent, Q4 2016 1 Atlanta 5.0 1,053 2 Phoenix 4.8 899 3 Detroit 4.8 924 4 Seattle 4.4 1,577 5 Tampa 4.1 1,065 6 Orlando 4.1 1,111 7 Dallas/Ft. Worth 4.1 1,044 8 Los Angeles 3.5 2,148 9 Chicago 3.5 1,450 10 San Diego 3.3 1,838 11 Minneapolis 3.0 1,221 Multifamily rent appreciation has slowed in nearly every U.S. metropolitan area, but there remain many markets with above-average levels of rent growth. Atlanta achieved the largest 2016 rent growth rate among the larger markets with 5.0% and was closely followed by Phoenix and Detroit. Sacramento had the highest rent growth in 2016 (9.8%), followed by Honolulu (6.1%), Inland Empire (6.5%), Salt Lake City (5.1%) and Raleigh (4.7%). The larger markets that experienced modest effective rent declines included New York, San Francisco Bay Area (including San Jose and Oakland) and Houston. Source: CBRE Research, CBRE Econometric Advisors, Q4 2016. Note that for new product, net absorption is included in the statistics when the property has stabilized. 16 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 15 MULTIFAMILY MARKET FUNDAMENTALS FOR 45 LARGEST U.S. MARKETS, Q4 2016 Metro Market Total Inventory Q4 2016 (Units) New Supply 2016 Net Absorption 2016 Vacancy Rate Q4 2016 (%) Y-o-Y (bps) U.S.* 14,389,100 242,800 201,300 4.9 30 1,542 0.2 1 New York 1,901,700 31,300 27,600 3.5 10 2,995-6.0 2 Los Angeles 1,065,700 7,800 5,700 4.0 20 2,148 3.5 3 Chicago 704,800 7,000 5,500 5.4 20 1,450 3.5 4 Dallas/Ft. Worth 660,100 15,500 13,100 5.8 60 1,044 4.1 5 Houston 595,600 13,400 2,100 7.9 180 1,079-2.8 6 Miami/South Florida 562,200 9,100 4,400 4.7 70 1,554 2.7 7 Washington, D.C. 556,100 11,200 11,600 4.8-20 1,638 2.5 8 Boston 464,100 7,400 6,400 4.3 20 2,125 1.4 9 Atlanta 415,500 6,900 6,300 5.6 10 1,053 5.0 10 Seattle 352,700 8,300 8,200 4.6-10 1,577 4.4 11 Phoenix 338,600 6,300 4,500 5.7 50 899 4.8 12 Philadelphia 295,200 3,200 3,300 4.8-10 1,290-0.5 13 San Diego 292,200 2,400 2,700 3.9-20 1,838 3.3 14 Denver 290,800 8,700 6,300 3.6-10 1,359 2.1 15 Minneapolis 255,200 4,200 6,900 2.9-110 1,221 3.0 16 Detroit 249,800 1,700 1,800 4.8 20 924 4.8 17 Orange County 234,700 3,000 4,000 3.8-50 1,953 2.3 18 Tampa 227,200 3,400 1,000 5.3 100 1,065 4.1 19 San Francisco 219,900 2,900 2,200 4.3 30 3,281-1.6 20 Cleveland 200,300 800 1,500 4.7-30 879 1.9 21 Oakland 198,800 1,100 200 4.5 40 2,313-1.4 Rank by Inventory Rental Rates Mo. Rent Q4 ($ Per Unit) Y-o-Y Change (%) Source: CBRE Research, CBRE Econometric Advisors, Axiometrics Inc., Q4 2016. Markets ranked by inventory size. *U.S. represents sum of all markets tracked by CBRE Econometric Advisors. 17 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 15 MULTIFAMILY MARKET FUNDAMENTALS FOR 45 LARGEST U.S. MARKETS, Q4 2016 Rank by Inventory U.S.* 14,389,100 242,800 201,300 4.9 30 1,542 0.2 22 Baltimore 198,400 2,500 600 5.9 90 1,234 0.7 23 Austin 194,500 9,100 6,900 5.7 90 1,174 2.4 24 Orlando 190,300 5,600 4,700 4.5 30 1,111 4.1 25 Portland 183,300 3,800 2,100 5.3 80 1,328 2.8 26 Las Vegas 169,200 1,800 2,400 5.8-40 874 3.8 27 Newark 166,500 2,200 1,800 3.3 20 1,713 2.5 28 Riverside 162,900 900 1,500 4.3-40 1,384 5.1 29 San Antonio 153,200 6,100 5,500 6.5 10 904 2.1 30 Columbus 151,800 4,300 4,100 4.4 0 837 3.5 31 San Jose 151,600 1,300 1,000 5.1 20 2,694-2.4 32 Cincinnati 151,500 2,500 2,300 4.8 10 882 1.6 33 Charlotte 144,700 8,200 7,500 4.6 20 991 3.5 34 Indianapolis 140,500 3,000 3,400 6.5-40 786 3.0 35 Raleigh 128,900 4,600 4,300 5.1 0 985 4.7 36 Kansas City 128,900 2,900 2,100 5.2 50 902 4.2 37 St. Louis 128,600 1,200 1,800 6.4-50 906 1.3 38 Sacramento 126,600 0 100 4.0 0 1,248 9.8 39 Nashville 124,700 7,300 6,200 4.5 70 1,077 3.9 40 Norfolk 114,300 1,500 2,300 6.0-80 1,000 2.4 41 Pittsburgh 107,600 2,200 1,500 7.1 60 1,166-5.7 42 Providence 99,500 500-800 3.9 130 1,389 2.8 43 Jacksonville 89,200 1,700 1,600 5.7 0 930 1.5 44 Salt Lake City 87,100 1,000 1,100 4.1-20 989 5.1 45 Memphis 85,400 600 900 6.7-30 784 4.3 Metro Market Total Inventory Q4 2016 (Units) New Supply 2016 Net Absorption 2016 Rate Q4 2016 (%) Vacancy Y-o-Y (bps) Rental Rates Mo. Rent Q4 ($ Per Unit) Y-o-Y Change (%) Source: CBRE Research, CBRE Econometric Advisors, Axiometrics Inc., Q4 2016. Markets ranked by inventory size. *U.S. represents sum of all markets tracked by CBRE Econometric Advisors. 18 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 16 U.S. MULTIFAMILY 2017 OUTLOOK Units (000s) 350 300 250 200 150 100 50 0-50 Completions (L) Net Absorption (L) 288 254 243 263 238 187 200 192 201 123 126 116 78 87 72 50 2010 2011 2012 2013 2014 2015 2016 2017 Source: CBRE Research, CBRE Econometric Advisors, Q4 2016. Note that new property completions and net absorption are counted in the quarter when the property reaches occupancy stabilization. The 2017 outlook for multifamily demand is favorable at 263,000 units. If the national economy expands at a higher rate, then net absorption could reach 279,000 units. Construction deliveries are expected to rise and outpace demand in 2017, especially in urban infill submarkets where modest rent declines may occur. Solid positive market performance is expected for most suburban markets in 2017. Overall, vacancy is expected to inch up by approximately 30 bps to 4.9% in 2017. Rents are forecast to rise by 2.7% to 3.3%. 19 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 17 BUYER VALUATION UNDERWRITING SURVEY FOR PRIME CLASS A MULTIFAMILY ASSETS: RANKED BY IRR TARGET AND CAP RATE Market Submarket Multifamily Subtype Asking Rent ($/SF/PM) Average Annual Rent Growth Underwriting First 3 Years (%) Unlevered IRR Target (%) Going-in Cap Rate (%) Exit Cap Rate (%) Holding Period (Years) San Francisco South of Market Mid Rise 5.00 2.0 5.50 3.75 4.75 10 Boston Downtown High Rise 4.85 3.0 5.75 4.00 4.75 7-10 Los Angeles West Los Angeles Mid Rise 4.53 5.0 6.00 3.50 4.50-4.75 5-7 Washington, D.C. West End High Rise 4.50 4.1 6.00 4.25 4.50-4.75 5-7 Miami Downtown/Brickell High Rise 3.00 3.0 6.00-6.25 4.00-4.50 5.00-5.25 7-10 Austin Downtown High Rise 3.40 3.5 6.00-6.25 4.25 5.00-5.25 10 Dallas Intown Dallas High Rise 3.10 3.5 6.00-6.25 4.25-4.75 5.00-5.50 5-7 Chicago River North High Rise 3.50 2.5 6.00-6.25 4.25-4.75 5.25 10 Atlanta Midtown High Rise 2.80 3.0 6.25 4.50 5.25 7-10 Denver Downtown High Rise 2.60 2.0 6.25 4.50 5.00 7-10 Seattle Downtown Mid Rise 3.75 3.0 6.50 4.25-4.50 5.00 10 New York Manhattan High Rise 5.80 3.0 6.50 4.50 4.75 10 Phoenix South Scottsdale Mid Rise 2.30 4.0 6.50 4.75 5.50 10 Houston Inner Loop W/Greenway Plaza High Rise 2.44 3.0 6.50-7.00 4.75-5.00 5.25-5.75 7-10 Average 3.68 3.2 6.18 4.32 5.02 8.61 Source: CBRE Research, Q4 2016. The "prime" statistics displayed above are estimates of current buyer underwriting assumptions for the highest quality asset in the best location of a particular market. The quoted prime rents reflect the level at which top-tier relevant transactions are being completed. Estimates are based on the expert opinion of CBRE investment professionals that handle transactions in these particular markets. CBRE Research s Q4 2016 Buyer Underwriting Survey found relatively stable underwriting and expectations. The Q4 average rent growth assumptions edged down 7 bps from Q3 to 3.2%. However, the expected IRRs used in underwriting were unchanged from the prior quarter, reflecting continued confidence in market conditions and a willingness to accept lower returns for high-end, mid- and high-rise assets in the best submarkets. The average 4.32% cap rate was essentially unchanged from previous surveys. CBRE investment professionals noted, however, that while Q4 pricing held up for prime Class A multifamily assets, the bidding velocity has dropped in recent quarters, partly due to institutional capital s more cautious approach to core buying. 20 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 18 U.S. MULTIFAMILY ACQUISITIONS VOLUME Total ($ billions) Change (%) Q4 2015 Q4 2016 Individual Assets 34.9 31.3-10.2 Portfolios 10.5 10.0-4.8 Entity-Level 7.6 3.8-50.4 Total 52.9 45.0-14.9 Full-Year 2015 2016 Individual Assets 110.9 117.2 5.7 Portfolios 28.8 34.2 18.8 Entity-Level 13.7 7.0-49.1 Total 153.4 158.4 3.2 Source: CBRE Research, Real Capital Analytics, Q4 2016. Some numbers may not total due to rounding. Multifamily investment volume of $45 billion in Q4 brought the annual total to $158.4 billion, up 3.2% from 2015. For individual asset purchases, 2016 investment volume grew 5.7% despite a 10.2% decrease in the year-overyear Q4 level. Multifamily was the only property sector to register increased acquisitions activity in 2016. 21 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 19 HISTORICAL CROSS-BORDER MULTIFAMILY SALES VOLUME Transaction Volume ($ Billions) 25 20 15 10 5 0 06 07 08 09 10 11 12 13 14 15 16 Source: CBRE Research, Real Capital Analytics, Q4 2016. Foreign buyers accounted for $9.1 billion in multifamily investment in 2016 and, while sizeable, represented only 5.7% of all multifamily investment for the year. Other investment avenues include development, debt financing, REIT stock purchasing and indirect investment via funds and equity capital for companies. For direct investment in the U.S., Canada was the largest foreign capital source in 2016, followed by Singapore and Israel. 22 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 20 LEADING METROS FOR MULTIFAMILY INVESTMENT, 2016 Rank Metro Acquisitions ($ billions) Metro Market Share (%) Cumulative 1 New York City 13.8 8.7 8.7 2 Dallas/Ft. Worth 9.4 5.9 14.6 3 Atlanta 8.7 5.5 20.1 4 Los Angeles* 8.1 5.1 25.2 5 Denver 6.7 4.2 29.5 6 Seattle 5.6 3.5 33.0 7 Miami/South Florida 5.2 3.3 36.3 8 Phoenix 5.2 3.3 39.6 9 Houston 5.1 3.2 42.8 10 Chicago 4.4 2.8 45.6 11 Austin 4.3 2.7 48.3 The New York City metropolitan area continued to attract the most multifamily investment capital (domestic and international) among U.S. metros, with a total of $14 billion in 2016. Sales activity in the San Francisco Bay Area tapered off, and the city s ranking slipped to 12th from seventh last quarter. The Dallas/Ft. Worth market rose to second place in Q4 and Atlanta moved up to third place. Seattle jumped from 11th place last quarter to sixth in the 2016 ranking. Source: Real Capital Analytics, CBRE Research, Q4 2016. *Los Angeles includes Orange County and Inland Empire. 12 San Francisco Bay Area 4.1 2.6 50.8 23 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 21 U.S. MULTIFAMILY SALES PRICE INDEX 300 Multifamily All Property 250 200 150 100 50 0 Nov-06 Nov-08 Nov-10 Jul-05 Nov-14 Nov-16 Source: Real Capital Analytics, Moody's Investors Services, CBRE Research, Q4 2016. Monthly data. Index = December 2000. The Moody s/rca Commercial Property Price Index, based on repeat property sales, reached a new high of 277 for multifamily in November 2016, up 12.7% year-over-year. Multifamily registered the largest year-to-date price gain of all major asset classes. For all real estate, the yearover-year gain was 9.3% The large increase in long-term interest rates in the latter half of Q4 2016 led to some changes in the multifamily investment arena. Based on a December 2016 survey of CBRE multifamily transactions in the pipeline before and after the sharp rise in interest rates, 26% had modest price adjustments. The average adjustment was 2.9%. 24 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 22 U.S. MULTIFAMILY CAP RATES, H2 2016 Sector Class H2 2016 (%) Change from H1 2015 (bps) Spread Over 10-Year Treasury* ALL 5.32 6 532 Infill A 4.67 8 467 B 5.20 5 520 C 6.12 6 612 ALL 5.74 7 574 Suburban A 5.10 10 510 B 5.61 8 561 C 6.50 2 650 Source: CBRE North America Cap Rate Survey H2 2016. Cap rates for stabilized assets at end of period. *10-year Treasury at end of H2 2016 (2.45%). Multifamily cap rates widened slightly in H2 2016. Even with the small increases, cap rates generally maintained historically low levels. All classifications of multifamily cap rates rose modestly in H2 2016, but most were only single-digit increases and not considered significant. Slightly larger increases were recorded in the Class A and the Tier I metros groups, partly due to new supply. Cap rates are expected to stabilize in H1 2017 for about half of the markets, and increase modestly (most by less than 25 bps) for the remainder. Returns on cost for value-add product are expected to have more pricing stability than stabilized product. 25 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 23 INSTITUTIONAL MULTIFAMILY RETURNS (%) 30 Appreciation Income Total 20 10 14.6 11.4-7.3-17.5 18.2 15.5 11.2 10.4 10.3 12.0 7.3 0-10 -20-30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: CBRE Research, NCREIF, Q4 2016. All returns are reported on an unlevered basis. Investment performance by institutionally-owned multifamily properties fell under the sector s long-term average (9.7%) in Q4, and was the lowest annual return in more than six years. NCREIF reported a 7.3% total return for the year (appreciation 2.6%, income 4.6%), down more than 5 percentage points from 2015 s 12% and largely due to lower appreciation. Income return changed little in 2016. Appreciation peaked at 11.8% in 2010. 26 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 24 U.S. MULTIFAMILY MORTGAGE PRODUCTION Lending Total ($ Billions) Source Period 2015 2016 Current Quarter CMBS Q3 3.1 2.3-28.1 Fannie Mae Q4 10.1 14.6 44.6 Freddie Mac Q4 13.2 17.6 33.3 Life Insurance Companies Q3 4.8 4.1-13.9 Banks* Q3 13.9 9.0-35.3 Total 31.9 30.7-3.6 Year-to-Date CMBS Q3 10.4 8.4-19.1 Fannie Mae Q4 42.3 55.3 30.7 Freddie Mac Q4 47.3 56.8 20.1 Life Insurance Companies Q3 11.1 14.4 29.5 Banks* Q3 31.7 30.1-5.0 Total 90.1 101.3 12.4 Change (%) Fannie Mae and Freddie Mac continue to dominate multifamily lending. Their combined mortgage production totaled $32 billion in Q4 and $112 billion for the year. Both totals were substantially higher than in 2015. Final Q4 and 2016 totals are not yet available for the other major sources of multifamily financing capital. In Q3, CMBS lending for multifamily assets totaled $2.3 billion, down 28% from 2015 s Q3 total. The year-to-date figure was $8.4 billion, down 19% from the prior year. However, other property sectors experienced much larger year-over-year declines. For all real estate, 2016 U.S. CMBS issuance reached $76 billion, 25% below 2015 s $101 billion. For life insurance companies, Q3 multifamily mortgage production fell 14% compared with the prior year. However, the year-to-date total is up 29% from last year s level. Year-to-date, the multifamily sector had the largest market share, slightly ahead of office. Source: CBRE Research, Commercial Mortgage Alert, Fannie Mae, Freddie Mac, American Council for Life Insurers, Federal Deposit Insurance Corporation, Q4 2016. *Bank data are net changes in total existing multifamily loan holdings and thereby underrepresent new mortgage production. Some numbers may not total due to rounding. 27 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FIGURE 25 HISTORICAL U.S. MULTIFAMILY CMBS MORTGAGE DELINQUENCY RATES % 12 10 8 6 4 2 0 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Source: CBRE Research, Morningstar Credit Ratings LLC, December 2016. Note that the sharp drop in January 2016 was due to the acquisition of Stuyvesant Town and Peter Cooper Village (and resolution of its mortgage). Mortgage delinquency rates remain very low and favorable for multifamily loans. As of December 2016, the multifamily 60+ day delinquency rates for Fannie Mae and Freddie Mac were 0.05% and 0.03%, respectively. Both rates are essentially stable. Life insurance companies experienced a very low delinquency of 0.08% for all property types in Q3 (Q4 data and multifamily data alone are not yet available). For banks, the FDIC reported that the Q3 2016 30+ day delinquency rates on multifamily loans represented only 0.31% of the total loan balance a 13-bps improvement from the prior year (Q4 data are not yet available). For CMBS, the 30+ day multifamily delinquency rate fell 1.32 percentage points in 2016 to end the year at only 0.44%. Multifamily, by far, has the lowest CMBS delinquency rate among major property types and is not considered at any particular risk from the wall of maturities the 2006-2007 vintage loans maturing this year. 28 U.S. MULTIFAMILY MARKETVIEW Q4 2016 FIGURES
FOR MORE INFORMATION, PLEASE CONTACT: CAPITAL MARKETS Brian McAuliffe President Capital Markets, Institutional Properties +1 312 935 1891 brian.mcauliffe@cbre.com Jeff Majewski Executive Managing Director Head of Production, Americas Capital Markets +1 713 787 1994 jeff.majewski@cbre.com CAPITAL MARKETS - MULTIFAMILY Chris Akins Senior Managing Director Capital Markets, Multifamily Investment Sales +1 321 861 7852 chris.akins@cbre.com Peter Donovan Executive Managing Director Capital Markets, Multifamily +1 617 217 6035 peter.donovan@cbre.com Spencer G. Levy Americas Head of Research +1 617 912 5236 spencer.levy@cbre.com Follow Spencer on Twitter: @SpencerGLevy Follow Spencer on LinkedIn Revathi Greenwood Americas Head of Investment Research +1 202 585 5662 revathi.greenwood@cbre.com Follow Revathi on Twitter: @RevuGreenwood Jeanette I. Rice, CRE Americas Head of Multifamily Research +1 214 979 6169 jeanette.rice@cbre.com Follow Jeanette on Twitter: @RiceJeanette Matt Vance Economist +1 303 628 7450 matthew.vance@cbre.com Colleen Pentland Lally Director, Capital Markets Operations Capital Markets, Multifamily +1 617 217 6041 colleen.pentlandlally@cbre.com Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.