2,000+ UNITS COMPLETING BY APRIL 2020 IN THE NATION’S THIRD-RANKED RENT GROWTH MARKET Rental Rates > Annual rent growth has been in the 4-5 percent range over the last 12 months versus 6-8 percent throughout 2017 and 2018 as rent growth continues to moderate with new supply coming to the market. Positive in-migration and younger renters struggling to save enough money to buy a home will continue to lift market occupancy and rents moving forward. > After a significant jump in occupancy over the last 12 months, Central Sacramento’s rents increased 5.3 percent year-over-year, the submarket’s highest annual increase in two years. Central Sacramento also posted the highest quarterly rent increase at 3.3 percent as new supply hitting the market begins to lift the submarket’s average rents. Occupancy > Sacramento’s occupancy rate has remained above 96 percent for 17 of the last 20 quarters. New supply underway should begin to impact the market’s elevated occupancy levels over the next 6 to 12 months. > South Sacramento posted the highest annual occupancy increase at 1.5 percentage points and is one of five submarkets above 97 percent occupancy. Sales Activity > Second quarter’s sales volume (5+ units) more than doubled the first quarter’s total with $407.9 million worth of multifamily properties sold across 44 transactions. > The average price of $158,663 per unit set in the second quarter is an increase of more than $20,000 from the first quarter’s average. > Expect accelerating sales activity through the second half of the year as owners look to dispose of high value assets at this point in the cycle. REGIONAL SUMMARY Sacramento’s apartment market remains one of the top-performing markets in the country with strong renter demand across the region. Market occupancy increased 20 basis points from the first quarter as the total number of units absorbed in the last three months outpaced new supply by 117 units. Annual rent growth has hovered around 5 percent over the last year, well below the record highs of 10-11 percent throughout 2016, but still third in the nation among the top 50 markets. Multifamily development continues to accelerate with 708 units from four new projects starting construction this quarter. There are now 2,470 units under construction with 2,047 units scheduled to deliver over the next 9 months. New supply will put downward pressure on occupancy moving forward, but Sacramento’s demand has tallied 728 units absorbed per year over the last three years. After a slow start to the year, sales activity picked up in the second quarter, recording $245 million more in sales than the first quarter. With strong market fundamentals, a growing population, and an expanding renter generation of Millennials in Sacramento, the multifamily market will continue to see above 96 percent occupancy rates and will remain a sought after market for investors looking to place capital in a vibrant market. SACRAMENTO | MULTIFAMILY Q2 2019 Research & Forecast Report 96.7% Q2 2019 Market Occupancy Rate $1,459 Average Monthly Market Rent 1,183 Units Absorbed Last 12 Months (372 Units in Q2) $407.9M Quarterly Sales Volume ($570.9M 2019 YTD Sales Volume) +0.3% Annual Occupancy Change (+0.2% Quarterly Occupancy Change) +4.9% Annual Rent Change (+1.9% Quarterly Rent Change) 1,101 New Units Completed Last 12 Months (2,479 Units Under Construction) $158,663 Per Unit Quarterly Avg. Sale Price (+6.6% YOY)
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2,000+ UNITS COMPLETING BY APRIL 2020 IN THE NATION’S THIRD-RANKED RENT GROWTH MARKET
Rental Rates
> Annual rent growth has been in the 4-5 percent range over the last 12 months versus 6-8 percent throughout 2017 and 2018 as rent growth continues to moderate with new supply coming to the market. Positive in-migration and younger renters struggling to save enough money to buy a home will continue to lift market occupancy and rents moving forward.
> After a significant jump in occupancy over the last 12 months, Central Sacramento’s rents increased 5.3 percent year-over-year, the submarket’s highest annual increase in two years. Central Sacramento also posted the highest quarterly rent increase at 3.3 percent as new supply hitting the market begins to lift the submarket’s average rents.
Occupancy
> Sacramento’s occupancy rate has remained above 96 percent for 17 of the last 20 quarters. New supply underway should begin to impact the market’s elevated occupancy levels over the next 6 to 12 months.
> South Sacramento posted the highest annual occupancy increase at 1.5 percentage points and is one of five submarkets above 97 percent occupancy.
Sales Activity
> Second quarter’s sales volume (5+ units) more than doubled the first quarter’s total with $407.9 million worth of multifamily properties sold across 44 transactions.
> The average price of $158,663 per unit set in the second quarter is an increase of more than $20,000 from the first quarter’s average.
> Expect accelerating sales activity through the second half of the year as owners look to dispose of high value assets at this point in the cycle.
REGIONAL SUMMARY
Sacramento’s apartment market remains one of the top-performing markets in the country with strong renter demand across the region. Market occupancy increased 20 basis points from the first quarter as the total number of units absorbed in the last three months outpaced new supply by 117 units. Annual rent growth has hovered around 5 percent over the last year, well below the record highs of 10-11 percent throughout 2016, but still third in the nation among the top 50 markets. Multifamily development continues to accelerate with 708 units from four new projects starting construction this quarter. There are now 2,470 units under construction with 2,047 units scheduled to deliver over the next 9 months. New supply will put downward pressure on occupancy moving forward, but Sacramento’s demand has tallied 728 units absorbed per year over the last three years. After a slow start to the year, sales activity picked up in the second quarter, recording $245 million more in sales than the first quarter. With strong market fundamentals, a growing population, and an expanding renter generation of Millennials in Sacramento, the multifamily market will continue to see above 96 percent occupancy rates and will remain a sought after market for investors looking to place capital in a vibrant market.
2 Sacramento Research & Forecast Report | Q2 2019 | Sacramento | Multifamily | Colliers International
SACRAMENTO | MULTIFAMILYQ2 2019
1,493
349 438
1,009
556
698
257
586
297
618
1,069
481
7.2%
9.7%10.4%
6.3%
4.7%4.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
-
200
400
600
800
1,000
1,200
1,400
1,600
2014 2015 2016 2017 2018 2019 YTD
Annu
al R
ent G
row
th
Units
Annual Absorption Annual New Supply Annual Rent Growth
$1,8
89
$1,8
22
$1,6
61
$1,5
99
$1,5
37
$1,4
38
$1,3
17
$1,3
22
$1,3
13
$1,2
25
$1,2
16
$1,2
581.0%
4.2%3.9%
4.3%3.9%
2.9%
4.1%
3.3% 3.3%2.9% 2.8%
1.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
$0
$500
$1,000
$1,500
$2,000
Avg. Monthly Rent Vacancy Rate
$1,283 $1,285
$1,512
$2,037
96.0%
96.7%
96.8%
95.9%
95.8%
95.9%
96.0%
96.1%
96.2%
96.3%
96.4%
96.5%
96.6%
96.7%
96.8%
96.9%
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
$2,200
Studio 1 BR 2 BR 3 BR
Avg. Market Rent Market Occupancy
95.9
%
95.7
%
96.1%
96.0
%
96.5
%
96.1%
96.0
%
95.9
%
96.4
%
96.6
%
96.1%
95.9
%
96.5
%
96.5
%
96.5
%
96.3
%
96.4
%
96.7
%
96.4
%
96.5
%
96.7
%
$1,022
$1,108
$1,222
$1,332
$1,395
$1,459
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
95.0%
95.2%
95.4%
95.6%
95.8%
96.0%
96.2%
96.4%
96.6%
96.8%
Q22014
Q22015
Q22016
Q22017
Q22018
Q22019
Avg.
Mar
ket R
ent (
All U
nit T
ypes
)
Mar
ket O
ccup
ancy
Rat
e
Market Occupancy Market Rent
APARTMENT MARKET FUNDAMENTALS Market Occupancy & Average Market Rents
Annual Supply/Demand & Annual Rent Growth
Monthly Rent & Vacancy Rate by Submarket Market Rent & Occupancy by Unit Type
Q2 2019 NOTABLE NEWS
About a year ago, AG Spanos Companies completed its 199-unit BDX at Capital Village in Rancho Cordova at 3175 Data Drive. By late December 2018, Spanos sold the property to Oakmont Properties for $57.5 million, or
$289,000 per unit.
But AG Spanos is far from done in our market. This quarter, the
Stockton-based developer started construction on 293 units in
North Natomas at 3949 Truxel Road, due to complete early 2021, and 214 units at El Dorado Hills Town Center, set to complete by
summer 2021. Both projects (507 total units) are in submarkets that have historically seen mild levels
of apartment development.
Source: RealPage/MPF Research
3 Sacramento Research & Forecast Report | Q2 2019 | Sacramento | Multifamily | Colliers International
Though construction activity has expanded in recent months, Sacramento’s new supply over the last five years has been well below the previous cycle’s peak. There are more than 2,000 units scheduled to deliver in the next 12 months across the region with 42 percent of those units completing in Central Sacramento. With annual absorption hovering around 900 units over the last two years, expect the market occupancy rate to drop closer to 96 percent by this time next year. However, renter demand continues to exceed expectations with pricey new developments leasing up quite well.
Renters will have a greater selection of new housing choices with all the multifamily development underway. In order to attract renters, developers are differentiating themselves from the competition. This is resulting in a number of increasingly standard amenities for new apartment projects to meet the needs of today’s tenants, including, rooftop decks, swimming pools, pet spas, dog parks, bocce ball courts, bike storage facilities, and ground floor restaurants or retail. The GIO Apartments under construction just off of Highway 50 at Stockton Blvd, for example, is a five-story project with a rooftop deck swimming pool and westward-facing views of Downtown Sacramento’s skyline. Other amenities and features at GIO include ground floor retail, a bike lounge, bike parking, a pet grooming center, a dog park, and a 251-space parking garage. The 213-unit project should be completed by October 2019.
Limited new supply and significant population growth in the last five years created a tight apartment market in Sacramento. As a result, rents increased significantly. This notable supply/demand imbalance is evidenced by the Sacramento market averaging 336 more units absorbed per year versus new units completed each year over the last five years (579 new units completed, 915 units absorbed on average since 2014). Annual rent growth has moderated from its double-digit pace set in 2016, but the Sacramento market still finished third in the nation among the top 50 markets. Going forward, annual rent growth should continue to moderate closer to 4 percent after averaging 7.6 percent per year over the last five years. Despite rising levels of new supply hitting the market for the foreseeable future, Sacramento’s strong job growth and expanding population should support one of the top-performing multifamily markets in the country.
Sacramento Apartment Development Pipeline - New Units Completed Per Quarter
The Press under construction at 20th & Q will be the largest multifamily development in Midtown at 277 units once completed next spring. SKK Developments and DeBartolo are the owner/developer team behind the project.