Research Report -DURHAM MULTIFAMILY Year End 2017 Multifamily Growth Expected to Continue in 2018, Despite a Moderate Decrease in Permitting Totals Emily Bostic Research Analyst Raleigh-Durham Key Takeaways > > Raleigh was recently ranked No. 2 "Best Place for Business and Careers"in the country in 2017. The Triangle region has one of the nation's most educated labor forces, and with business costs that are reportedly 12% below the national average people and companies continue to flock here. > > Exceptional demographics in the Raleigh-Durham market indicate another successful year in the multifamily sector. Despite an overall decrease in multifamily permit totals at the close of 2017, strong fundamentals, such as job growth create a very positive outlook for the year ahead. > > Raleigh-Durham's suburban markets will continue to outperform the region's core downtown submarkets in 2018. Class B assets throughout the Triangle will offer investors more potential than our core urban Class A properties - a trend this market has been experiencing for several quarters. > > Total occupancy rates across the Triangle multifamily market held steady at the close of 2017. Raleigh reported an occupancy rate of 94.4% at the close of the fourth quarter and the Durham Chapel Hill market reported an occupancy rate of 94.5%. > > Average effective rents held steady with no significant change. Raleigh effective rents were reported at $1,059 per unit per month, providing a 2.6% growth rate per year. The average effective rate per square foot was $1.08 at the close of the fourth quarter. In the Durham-Chapel Hill market average effective rates per square foot held steady at $1.11. > > Annual effective rent growth is forecast to be 3.1% in years 2018-2021 in the Raleigh market. Annual effective rent growth is forecast to be 3.4% in 2018 in the Durham-Chapel Hill market. Market Indicators Relative to prior period VACANCY TOTAL OCCUPANCY CONSTRUCTION RENTAL RATE Summary Statistics Year End 2017 Total Inventory (Units) Raleigh Market Durham- Chapel Hill Market 58,169 26,457 Inventory Growth 4.5% 5.8% Vacancy Rate 5.6% 5.5% Total Occupancy Rate 94.4% 94.5% Year End Total Absorption (Units) Total Units Under Construction (Year End 2017) New Supply (Units) (Year End 2017) Effective Rents Per Unit Per Month Raleigh-Durham Q4 2016 Raleigh-Durham Q4 2017 3,747 2,702 3,545 2,610 3,926 2,601 Average Per Unit $1,059 $1,060 Average Per SF $1.08 $1.11 Annual Rent Growth 2.6% 2.7% Concession Value 0.61% 0.86%
Absorption & Leasing Activity > > Overall occupancy rates in the Raleigh market were reported at 94.4% while the Durham-Chapel Hill overall occupancy rate increased to 94.5% at the close of the fourth quarter. Occupancy percentages in the Raleigh market have remained above 92.0% since the first quarter of 2010. > > Class A properties in Raleigh reported an occupancy rate of 96.1%, the highest of any asset class in both markets. The Durham Chapel Hill's Class A occupancy rate was reported at 93.2%. $1.20 $1.00 $0.80 $0.60 $0. $0.20 Effective Rents vs. Rental Growth Rate: Raleigh 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% > > The Class C multifamily market reported the highest occupancy rate in the Durham Chapel Hill market at 93.5% at the end of the fourth quarter. Comparitively, the Durham Chapel Hill Class B sector reported an occupancy rate of 93.0% at the end of December 2017. $- 4Q 2010 4Q 2011 4Q 2012 4Q 2013 4Q 2014 4Q 2015 4 2016 4Q 2017 Effective Rents PSF Effective Rental Growth Rate MARKET: ASSET CLASS SUMMARY 0.00% > > Year end total absorption across both markets increased to 6,449 units, with 58% of total net demand occuring in the Raleigh market. Total number of units absorbed in the Durham Chapel Hill market reached 2,702 at the close of the fourth quarter. EFFECTIVE OCCUPANCY RENT PER SF CLASS A $1,175 $1.04 96.1% Vacancy & Availability CLASS B $979 $1.03 94.9% > > Overall vacancy in the Raleigh multifamily market increased to 4.5%, only a 0.5% jump from Q4 2016. Vacancy in the Durham Chapel Hill market increased to 5.8%. > > The submarkets reporting the lowest vacancy rates in the Triangle region include Franklin County, West Durham and Northwest Raleigh. Franklin County's vacancy rate was the lowest of the quarter at 1.4%. This vacancy rate is a direct result of an unusually low inventory of units in comparison with other larger Triangle submarkets. CLASS C $829 $0.95 94.3% DURHAM CHAPEL HILL: ASSET CLASS SUMMARY EFFECTIVE RENT PER SF OCCUPANCY CLASS A $1,233 $1.11 93.2% > > The Chapel Hill and Central Raleigh submarkets closed the fourth quarter with a 7.2% vacancy rate, the highest among the overall Triangle market. The North Durham submarket had the second highest vacancy rate of the fourth quarter at 6.9%. CLASS B $974 $1.03 93.0% CLASS C $815 $0.98 93.5% Rental Rates Effective Rents vs. Rental Growth Rate: Durham Chapel Hill > > The Central Raleigh submarket posted the highest effective rents per unit per month in the fourth quarter. Effective rents in this submarket were reported at $1.47 per square foot and $1,271 per unit. $1.20 $1.00 $0.80 7.00% 6.00% 5.00% > > The West Durham submarket reported the second highest effective rents at the close of the quarter at $1,264 per unit. > > Average Class A effective rents in Raleigh were $1,175 per unit and were reported at $1,233 per unit in the Durham Chapel Hill market. Concession values as a percentage of asking rents were higher in Durham Chapel Hill than in Raleigh. $0.60 $0. $0.20 $- 4Q 2010 4Q 2011 4Q 2012 4Q 2013 4Q 2014 4Q 2015 4Q 2016 4Q 2017 Effective Rents PSF Effective Rental Growth Rate 4.00% 3.00% 2.00% 1.00% 0.00% 2 Raleigh-Durham Research Report Year End 2017 Multifamily Colliers International
SUBMARKET COMPARISONS Q4 2017 MARKET EXISTING INVENTORY (UNITS) AVG. SIZE (SF) ASKING RENT GROWTH CURRENT OCCUPANCY CONCESSION VALUE (% OF ASKING RENT) UNDER CONSTRUCTION (UNITS) Cary 13,831 1,015 $1,087 $1,082 0.86 94.8-0.51 1,873 Central Raleigh 4,770 862 $1,277 $1,271 1.46 92.8-0.51 567 Franklin County 75 1,063 $1,034 $1,034 7.03 98.6 0.00 0 Garner 1,754 961 $979 $979 2.18 95.1 0.00 412 Hillsborough 7,102 983 $1,066 $1,056 2.52 94.2-0.94 0 Johnston County 608 1,060 $1,066 $1,066 1.73 94.2 0.00 288 North Central Raleigh 10,2 948 $1,019 $1,014 1.19 94.0-0.49 0 Northeast Raleigh 6,669 962 $972 $957 1.93 94.3-1.47 5 Northwest Raleigh 13,120 1,016 $1,059 $1,056 2.32 94.9-0.34 0 Market Total 58,169 980 $1,065 $1,059 1.66 94.4-0.60 3,545 DURHAM-CHAPEL HILL MARKET Carrboro 2,382 894 $993 $972 3.84 94.1-2.08 0 Chapel Hill 2,750 986 $1,087 $1,061-2.69 92.8-2.41 484 Chatham County 242 1,046 $1,122 $1,222 5.44 94.3 0.00 0 North Durham 2,692 958 $927 $924-2.00 93.1-0.28 320 Orange County/Other 741 1,046 $932 $899 1.11 93.1-3.60 114 South Durham 13,418 973 $1,054 $1,046 1.53 94.3-0.81 1,235 West Durham 4,232 901 $1,278 $1,264 3.78 96.4-1.09 457 Market Total 26,457 957 $1,072 $1,060 1.93 94.5-1.15 2,610 NOTABLE SALES TRANSACTIONS YEAR END 2017 MARKET PROPERTY SUBMARKET PROPERTY TYPE SALES PRICE (MIL.) TOTAL UNITS PRICE CURRENT OCCUPANCY CAP RATE Park and Market N Central Raleigh Mid-High $88.0 9 $215,159 $1,383 91.0 NA The Edison Lofts Central Raleigh Mid-High $61.0 223 $273,543 $1,713 96.0 4.4 Bell Preston View Cary Garden $59.5 382 $155,759 $1,092 93.0 5.0 The Apartments of Stonehenge NW Raleigh Garden $56.7 452 $125,498 $1,106 94.0 5.6 Brook Arbor Apartments Cary Garden $54.5 302 $180,464 $1,166 94.0 4.8 Cary Greens at Preston Cary Mid-High $52.5 292 $179,795 $1,150 95.0 4.8 Harrison Grande Cary Garden $50.5 319 $158,307 $1,109 93.0 NA Alta at Legacy Oaks NE Raleigh Garden $49.5 330 $162,829 $1,068 92.0 NA Crest at Briar Creek NW Raleigh Mid-High $47.9 291 $164,605 $1,136 96.0 5.4 Bells Falls River N Central Raleigh Garden $45.7 284 $160,915 $1,100 94.4 4.9 DURHAM-CHAPEL HILL MARKET Berkshire Chapel Hill Chapel Hill Mid-High $72.7 265 $274,528 $1,509.0 NA Liberty Warehouse South Durham Mid-High $69.3 247 $280,364 $1,682 92.6 4.7 LUX at Central Park Chapel Hill Mid-High; SH $67.5 197 $347,938 $937 96.4 NA Bell Meadowmont South Durham Garden $51.0 258 $197,760 $1,578 89.1 5.9 South Terrace South Durham Garden $43.0 328 $130,945 $1,260 89.3 NA 3 Raleigh-Durham Research Report Year End 2017 Multifamily Colliers International
Construction & Investment Activity > > At the close of the fourth quarter, the total number of units scheduled to deliver in the Raleigh market reached 3,545 and 2,610 units in the Durham Chapel Hill market. Total units delivered reached 3,926 in the Raleigh market and 2,601units in the Durham Chapel Hill market. > > The Cary submarket led the region in development activity for the fourth consecutive quarter. There are 1,873 units in the pipeline scheduled to deliver in this submarket. Not far behind was South Durham where there are 1,235 total units currently under construction. > > Twelve-month rolling residential permit totals in the Raleigh market reached 13,947 at the end of December 2017. The Durham Chapel Hill market reported a total of 4,995 residential permits over the same time period. > > The apartment sector in the Raleigh-Durham region remains the most attractive property type among investors, with sales volume exceeding $573M at the close of the fourth quarter. Prior twelve-month sales through the end of 2017 topped $1.9B with an average price per unit of $131,966. The most notable transaction of the quarter was the sale of Park and Market, a 9 unit mid-highrise development in the North Hills submarket. The Raleigh property sold for $88.0 million and $215,159 per unit. > > Other notable multifamily sales include the Berkshire Chapel Hill and The Edison Lofts. The Berkshire Chapel Hill asset sold for $72.7 million and $274,528 per unit. The Edison Lofts, located in the Central Raleigh submarket, sold for $61.0M at a 4.4% cap rate. Total Residential Permits vs. MF Permits: Total Residential Permits vs. MF Permits: DURHAM CHAPEL HILL 16,000 6,000 14,000 5,000 12,000 10,000 4,000 8,000 3,000 6,000 2,000 4,000 2,000 1,000-4Q 2010 4Q 2011 4Q 2012 4Q 2013 4Q 2014 4Q 2015 4Q 2016 4Q 2017-4Q 2010 4Q 2011 4Q 2012 4Q 2013 4Q 2014 4Q 2015 4Q 2016 4Q 2017 Multifamily Permits Total Residential Permits Multifamily Permits Total Residential Permits President Trump's Tax Plan How Does it Effect the Triangle CRE Market? Jim Anthony CEO, Colliers Raleigh-Durham > > Prior to the Trump tax plan passage, the U.S. had the highest corporate tax rate in the developed world (at 35% previously). President Trump's Tax bill is creating a pro-growth environment. This is being reflected in higher equity markets, stronger real estate development and investment fundamentals, as well as higher interest rates. The plan has already ushered in an economic recovery (3% plus GDP growth) and combined with rolling back regulations at the federal level, has unleashed even more economic growth forces which are pressing up CRE activity and values." > > On the negative side, we are in a severe labor shortage in construction nationally, and material pricing increases are busting many budgets. Rents have to be repriced for new construction and they are in every product type, from single family to multi-family, office, retail and industrial. Rents are rising out of necessity on the cost side and by demand on the remaining short supplies in our local NC markets. 4 Raleigh-Durham Research Report Year End 2017 Multifamily Colliers International
TRIANGLE SUBMARKET MAP Reidsville Henderson RO BURLINGTON Graham ORANGE COUNTY/ OTHER NORTH DURHAM 85 85 GRANVILLE CO. W. DURHAM FRANKLIN CO. CHAPEL HILL CARRBORO ORANGE CO. DURHAM CO. 501 147 SOUTH DURHAM RESEARCH TRIANGLE PARK RDU International Airport DURHAM CO. NORTH WEST NORTH CENTRAL 5 4 Wake Forest NORTH EAST Tarboro 64 CHATHAM COUNTY 1 CHATHAM CO. 5 CARY Apex 1 64 Holly Springs Cary HILLSBOROUGH CENTRAL Garner West Raleigh GARNER 70 264 Clayton East Raleigh JOHNSTON COUNTY Wilson Fuquay-Varina. JOHNSON CO. 95 Smithfield Sanford Goldsboro SOURCES/METHODOLOGY METHODOLOGY The Raleigh-Durham Multifamily reports calculate apartment statistics using AXIOmetrics database of existing and under construction properties at market and submarket levels. Included in our pool of data are Class A, B, and C apartment properties with all unit mixes (studio-4 bedrooms) containing 25+ units that report market rents only. (it does not include affordable rent types or market/affordable rent types). ASKING RENTS Asking rents are the monthly costs of occupancy for a particular space quoted on a per unit basis. The asking rent for each unit excludes any concessions or rent specials. S Effective rent is the asking rent adjusted downward for concessions or rent specials. VACANCY Vacancy is reported as space that is not currently physically occupied by a tenant Available units do not include employee units and model apartments. Vacancy percentage is a measurement conveyed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations. 5 Raleigh-Durham Research Report Year End 2017 Multifamily Colliers International
396 offices in 68 countries United States: 153 Canada: 29 Latin America: 24 Asia: 36 EMEA: 111 ANZ: 43 MULTIFAMILY SERVICES CONTACT: Steven Peden Senior Vice President Raleigh +1 919 582 3122 Steven.Peden@colliers.com John Manning Associate Raleigh +1 919 582 3154 John.Manning@colliers.com Eric Leath Financial Analyst Raleigh +1 919 582 3119 Eric.Leath@colliers.com $105 billion in annual revenue REGIONAL AUTHOR: Emily W. Bostic Research Analyst, CPRC +1 919 582 3136 Emily.Bostic@colliers.com 2.0 billion square feet under management 15,000 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Colliers International has been recognized and ranked by the International Association of Outsourcing Professionals Global Outsourcing 100 for 10 consecutive years, more than any other real estate services firm. colliers.com Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.