Multifamily Research

Market Report Third Quarter 2017

South Florida

Rent Growth Holds Upward Momentum

As New Supply Peaks in South Florida Multifamily 2017 Outlook
High homeownership cost keeps rental demand elevated.
Rising employment numbers and surging in-migration are boding
Y-O-Y
well for apartment performance across South Florida. Multifamily Effective Y-O-Y
Metro Vacancy Basis Point
Rent Change
deliveries will hit a cycle high in all three counties this year as de- Change

velopers work to keep up with tenant demand. More than 15,900

apartments are slated for completion this year, with the greatest
amount coming to Miami. As each countys growth in the median
Miami 3.8% 160 $1,491 7.6%
home price outpaces advances made in median household in-
come, the homeownership rate remains on a downward trend, en-
suring demand for newly built apartments from incoming house- Fort Lauderdale 5.1% 120 $1,498 3.7%
holds and current residents as many are renting for longer periods.
West Palm
5.5% 110 $1,537 6.5%
New supply pushes past demand this year. Construction Beach
is most concentrated in the downtown corridors of Miami, Fort
Lauderdale and West Palm Beach. The pipeline is immense as
70 projects are underway totaling just over 21,700 apartments,
with some complexes exceeding 400 units. Due to the volume of
new apartments opening within months of each other, lease-up
for these properties will stretch into next year, lifting the metros Investment Trends
average vacancy rate in the short term. This rise will match some
of the largest vacancy rate changes of the current cycle. Even Miami
with a large number of properties in lease-up, the overall average Revitalization efforts underway in the Little Haiti and Little Ha-
vacancy for each county remains low, allowing tenant demand to vana neighborhoods will spur buyer interest for older properties
support annual rental increases for the eighth straight year. with value-add opportunities.
Class B and C properties outside the urban core where rents
are more affordable remain highly in demand and have going-in
cap rates that fall in the high-6 to low-9 percent range.

Local Apartment Yield Trends

Apartment Cap Rate 10-Year Treasury Rate
Fort Lauderdale
Transit improvements that will be complete soon will further spur
12% buyer attention to downtown and Flagler Village in particular.

9%
Value-add opportunities are prevalent in Hollywood, Dania
Average Rate

Beach, Pompano Beach and Deerfield Beach where cap rates

6% can reach the low-8 percent area based on quality and location.

3%
West Palm Beach
0%
01 03 05 07 09 11 13 15 17* Investors will focus on Boynton Beach and Delray Beach, where
development has been elevated. Garden-style complexes with
value-add components remain highly sought after.
Pricing Trends Cap rates in Palm Beach County average 40 basis points high-
er than those of similar assets in Miami-Dade, fueling demand
* Trailing 12 months through 2Q17
from buyers in search of larger yields.
rice per Unit (000s)

$160
Sources: CoStar Group, Inc.; Real Capital Analytics

$135

$110
Miami

Employment Trends EMPLOYMENT:

Local Apartment Yield Trends
Apartment Cap Rate 10-Year Treasury Rate
Metro United States
2.0% increase in total employment Y-O-Y
4% 12%
Year-over-Year Change

During the first half of the year 10,700 jobs were created,
3% 9%led by the trade, transportation and utilities sector, bring-

Average Rate
ing annualized employment gains to 23,600 and growing
2% 6%
the workforce at a greater clip than the nation.
1% 3%The unemployment rate compressed to 4.8 percent in
the second quarter of 2017, down 50 basis points from
0% 0%
the same time last year.
13 14 15 16 17* 00 02 04 06 08 10 12 14 16

Completions and Absorption CONSTRUCTION:

Pricing Trends
Completions Absorption
5,235 units completed Y-O-Y

Average Price per Unit (000s)

$180
8 In the second quarter 2,416 apartments were complet-
Units (thousands)

$160
ed, bringing deliveries over the year to 5,235. One year
6
earlier 5,109 rentals were opened.
$140
4
Construction remains elevated with 11,800 rentals
2
working through the pipeline. Completion dates extend
$120
into 2019, with a significant number of new rentals on
0 tap for downtown Miami and South Beach.
$100
13 14 15 16 17* 13 14 15 16 17**

Vacancy Rate Trends VACANCY:

Metro United States 210 basis point increase in vacancy Y-O-Y
8%
Negative net absorption totaling 1,366 units over the
6% past four quarters lifted vacancy to 3.8 percent, trig-
Vacancy Rate

gered by poor performance in the first quarter of 2017.

4%
A 140-basis-point drop was posted in June 2016.
2% Class A vacancy jumped 530 basis points in the last 12
months to 8.1 percent while Class C vacancy remained
0% unchanged at 0.7 percent.
13 14 15 16 17*

Rent Trends RENTS:

Monthly Rent Y-O-Y Rent Change 8.8% increase in effective rents Y-O-Y
$1,500 8% In the face of a substantial rise in vacancy, the average ef-
Year-over-Year Change
Monthly Effective Rent

fective rent jumped 8.8 percent in June from a year earlier

$1,375 6%
to $1,447 per month.
$1,250 4% A 12.7 percent increase was registered for Class A rent-
als, climbing to $2,012 a month. Class C apartments av-
$1,125 2% eraged an effective rent of $913 per month, up 7.0 per-
cent from last year.
$1,000 0%
13 14 15 16 17*

* Forecast
 Multifamily Research | Market Report

DEMOGRAPHIC HIGHLIGHTS

2Q17 MEDIAN HOUSEHOLD INCOME 2Q17 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS

Metro $47,009 Renting is $613 Per Month Lower 7,589 1H 2017

Compared with 1H
U.S. Median $58,672 Average Effective Rent vs. Mortgage Payment* h 13% 2014-2016

2Q17 MEDIAN HOME PRICE FIVE-YEAR HOUSEHOLD GROWTH** SINGLE-FAMILY PERMITS

Metro $346,900 84,000 or 1.7% Annual Growth 2,718 1H 2017

Compared with 1H
U.S. Median $246,000 U.S. 1.1% Annual Growth g 0% 2014-2016

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate

Lowest Vacancy Rates 2Q17 High Yields Remain Available in Parts

Of Miami-Dade County
Y-O-Y
Vacancy
Employment Effective Y-O-Y %
Submarket Basis PointTrends Deal flowLocal
slowedApartment Yield
16 percent overTrends
the previous four
Rate Rents Change
Change
Metro United States quarters from the prior period with aTreasury
Apartment Cap Rate 10-Year Rate
high volume of
4% sales in
12% the Bal Harbour/South Beach and Brickell/
Downtown Miami submarkets.
Year-over-Year Change

North Central Miami 0.3% 0 $909 5.6%

3% 9%
Pricing dipped 7 percent over the last 12 months, av-
Average Rate
SUBMARKET TRENDS

Homestead/
2% 1.4% 30 $972 9.3% eraging
6% $163,900 per unit. In Bal Harbour and South
South Dade County
Beach, many smaller properties changed hands over
SALES TRENDS

1% the past
3% year, averaging $208,500 per unit.
Hialeah/Miami Lakes 1.7% 60 $1,398 8.0%
Outlook:
0%Buyers in search of higher yields on apartment
0%
Miami Gardens 3.0% 12015 $1,09616 5.9% 17* investments will be drawn to the Miami Gardens/Opa-loc-
13 14 00 02 04 06 08 10 12 14 16
ka submarket, where cap rates average 7.5 percent.
Northeast Miami 3.0% 50 $1,544 5.5%

Completions and Absorption Pricing Trends

West Miami/Doral 3.7% 130
Completions $1,732
Absorption 4.2%
Average Price per Unit (000s)

$180
Westchester/Kendall 8 5.5% 360 $1,462 7.6%
Units (thousands)

$160
Downtown Miami/ 6
6.1% 530 $1,929 2.7%
South Beach
$140
4
Coral Gables/
6.8% 380 $1,769 12.2%
South Miami $120
2

Overall Metro 3.8% 210 $1,447 8.8% $100

0
13 14 15 16 17* 13 14 15 16 17**

** Trailing 12 months through 2Q17

Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
8%
Fort Lauderdale

Employment Trends EMPLOYMENT:

Local Apartment Yield Trends
Metro United States 4.0%
Apartment Cap Rate 10-Year Treasury Rate
increase in total employment Y-O-Y
4%
12%
Led by the creation of 12,000 jobs in the professional and
Year-over-Year Change

3% business services sector, year-over-year employment

9%

Average Rate
gains totaled 33,000 in June, far surpassing the 21,000
2%
jobs created a year ago.
6%

1% The jobless rate fell 80 basis points from June 2016,

3%
reaching 3.8 percent to account for the tightest local la-
0%
0%bor force since 2007.
13 14 15 16 17* 01 03 05 07 09 11 13 15 17*

Completions and Absorption CONSTRUCTION:

Pricing Trends
Completions Absorption
4,067 units completed Y-O-Y

Average Price per Unit (000s)

$160
8 Deliveries surged over the past four quarters as 4,067
Units (thousands)

apartments were brought online, far more than the

$135
6
1,538 units completed in the prior period. The largest
$110
delivery was the 555-unit Modera Port Royale.
4

$85
There are 19 projects underway comprising 5,600 units.
2
They have completion dates reaching into 2019. In Fort
0 Lauderdale proper, 1,850 units are rising.
$60
13 14 15 16 17* 13 14 15 16 17**

Vacancy Rate Trends VACANCY:

Metro United States 130 basis point increase in vacancy Y-O-Y
8%
Net absorption of 1,500 units fell behind deliveries to
6% push the vacancy rate up to 5 percent in the second
Vacancy Rate

quarter. A 10-basis-point drop was observed a year ago.

4%
Class A vacancy was at 8.6 percent in June, up 360
2% basis points from last year while a 20-basis-point drop
was registered at Class C complexes to bring the rate to
0% a tight 1.9 percent.
13 14 15 16 17*

Rent Trends RENTS:

Monthly Rent Y-O-Y Rent Change 0.6% increase in effective rents Y-O-Y
$1,500 12% The average effective rent inched up to $1,474 a month,
Year-over-Year Change
Monthly Effective Rent

rising much slower than the 6.9 percent pace set last year.
$1,375 9%
Class C rents climbed at the greatest clip, up 1.7 per-
$1,250 6% cent over the year to reach a monthly rent of $1,065 while
Class B apartments posted a 0.3 percent reduction to av-
$1,125 3%
erage $1,472 per month. Class A rent averaged $1,850
monthly, up 0.7 percent.
$1,000 0%
13 14 15 16 17*

* Forecast
 Multifamily Research | Market Report

DEMOGRAPHIC HIGHLIGHTS

2Q17 MEDIAN HOUSEHOLD INCOME 2Q17 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS

Metro $58,047 Renting is $317 Per Month Lower 2,852 1H 2017

Compared with 1H
U.S. Median $58,672 Average Effective Rent vs. Mortgage Payment* h 10% 2014-2016

2Q17 MEDIAN HOME PRICE FIVE-YEAR HOUSEHOLD GROWTH** SINGLE-FAMILY PERMITS

Metro $294,800 87,000 or 2.2% Annual Growth 1,983 1H 2017

Compared with 1H
U.S. Median $246,000 U.S. 1.1% Annual Growth g 25% 2014-2016

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate

Lowest Vacancy Rates 2Q17 Buyers Broaden Acquisition Criteria For

Well-Performing Apartment Complexes
Y-O-Y Trends
Employment Local Apartment Yield Trends
Vacancy Effective Y-O-Y %
Submarket
Rate
Basis Point
Rents Change Sales slowed 19 percent in the last 12 months from the
Metro ChangeUnited States Apartment Cap Rate 10-Year Treasury Rate
prior period. Investment activity jumped in the Pompa-
4% no Beach/Deerfield Beach submarket.
12%
Year-over-Year Change

Pompano Beach/
Deerfield Beach 3%
2.7% -80 $1,222 0.9% Pricing averaged $145,400 per unit, up 1 percent from
the previous
9% 12 months while initial cap rates held sta-
Average Rate
SUBMARKET TRENDS

2%
Pembroke Pines/Miramar 4.3% 120 $1,587 0.9%
ble in low-6 percent territory. Complexes in the Hol-
6%
lywood and Dania Beach submarket traded at a dis-
SALES TRENDS

1% count,3%averaging $98,700 per unit.

Fort Lauderdale 4.5% 130 $1,556 -3.6%
0%
Outlook: In the Oakland Park/Lauderhill and Hollywood/
0% submarkets, first-year yields are in the mid-6
Dania Beach
13
Margate/Coconut Creek/ 14 15 16 17* 01 03 05 07 09 11 13 15 17*
North Lauderdale
5.2% 50 $1,470 -0.6% to low-8 percent band, fueling buyer interest here.

Coral Springs Completions

5.5% and Absorption
200 $1,567 0.3% Pricing Trends
Completions Absorption
Average Price per Unit (000s)

Plantation/Davie/Weston 5.7% 130 $1,655 4.0% $160

8
Units (thousands)

$135
Hollywood 6 5.8% 330 $1,343 2.2%

$110
4
Sunrise/Lauderhill 6.3% 230 $1,320 5.6%
2 $85

Overall Metro 0 5.0% 130 $1,474 0.6% $60

13 14 15 16 17* 13 14 15 16 17**

** Trailing 12 months through 2Q17

Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
8%
West Palm Beach

Employment Trends EMPLOYMENT:

Local Apartment Yield Trends
Metro United States 2.7%
Apartment Cap Rate 10-Year Treasury Rate
increase in total employment Y-O-Y
8% 12%
Job gains in the last four quarters totaled 16,300, led by
Year-over-Year Change

6% 9%the leisure and hospitality sector and the professional and

Average Rate
business services sector, which each contributed 4,400
4% 6%
jobs. Employment growth outpaced the nation.
2% 3%The unemployment rate dropped 70 basis points since
the second quarter last year to 4.1 percent, below the
0%
0% national rate.
13 14 15 16 17* 00 02 04 06 08 10 12 14 16

Completions and Absorption CONSTRUCTION:

Pricing Trends
Completions Absorption 2,954 units completed Y-O-Y

Average Price per Unit (000s)

$160
6.0 Deliveries over the year ended in June surpassed the
Units (thousands)

1,661 units opened during the previous yearlong stretch.

$145
4.5
Palmetto Promenade, a 378-unit complex, accounted
3.0
for the largest completion over the last 12 months.
$130

There are 17 projects in the pipeline that are anticipated

$115
1.5
to finish in the next 18 months, totaling 4,300 units. The
0 largest is Altis Boca Raton at 398 doors.
$100
13 14 15 16 17* 13 14 15 16 17**

Vacancy Rate Trends VACANCY:

Metro United States 20 basis point increase in vacancy Y-O-Y
8%
The vacancy rate climbed to 4.6 percent in the second
6% quarter on net absorption of 2,260 units over the past
Vacancy Rate

year. A 30-basis-point drop was observed a year ago.

4%
Class C vacancy tightened 80 basis points to 1.6 per-
2% cent in the second quarter while an influx of top-tier
units pushed Class A availability to 7.2 percent, a 90-ba-
0% sis-point increase from last June.
13 14 15 16 17*

Rent Trends
RENTS:
Monthly Rent Y-O-Y Rent Change 3.5% increase in effective rents Y-O-Y

$1,600 12% Year over year in the second quarter, the average rent
Year-over-Year Change
Monthly Effective Rent

climbed to $1,504 per month. One year earlier, rents grew

$1,450 9% at a much more robust pace, rising 6.4 percent.

$1,300 6% Class B units increased rents at the greatest rate, up 7.5

percent year over year to $1,512 a month. Class C rates
$1,150 3% rose 2.6 percent to $1,038 monthly while Class A units
posted a 4.2 percent increase to $1,924 per month.
$1,000 0%
13 14 15 16 17*

* Forecast
 Multifamily Research | Market Report

DEMOGRAPHIC HIGHLIGHTS

2Q17 MEDIAN HOUSEHOLD INCOME 2Q17 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS

Metro $61,524 Renting is $490 Per Month Lower 912 1H 2017

Compared with 1H
U.S. Median $58,672 Average Effective Rent vs. Mortgage Payment* h 45% 2014-2016

2Q17 MEDIAN HOME PRICE FIVE-YEAR HOUSEHOLD GROWTH** SINGLE-FAMILY PERMITS

Metro $334,000 107,000 or 3.4% Annual Growth 2,799 1H 2017

Compared with 1H
U.S. Median $246,000 U.S. 1.1% Annual Growth g 5% 2014-2016

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate

Lowest Vacancy Rates 2Q17 Limited Listings Pull Back Sales Activity,
Though It Remains Above 2014-2015 Level
Y-O-Y
Submarket Employment
Vacancy
Basis PointTrends
Effective Y-O-Y %
Deal flowLocal
slowedApartment
11 percent Yield Trends
in the last 12 months from
Rate Rents Change
Change Apartment Cap Rate 10-Year Treasury RatePalm
Metro United States the previous period, with a strong focus on West
8% Beach
12%and Lake Worth.
Year-over-Year Change

Lake Worth/Greenacres/ Properties traded in the last 12 months commanded

6% 2.4% -50 $1,305 2.6% 9%
Wellington an average price per unit of $153,900, a nominal in-
Average Rate
SUBMARKET TRENDS

4% crease
6%from the prior 12 months.
Outlook: Higher yields are more readily available in Palm
SALES TRENDS

3%
West Palm Beach 2% 2.8% -220 $1,293 6.2% Beach County than the rest of South Florida, spurring
greater 0%
investor interest in the county. Older mid-rise and
0%
garden-style properties will be in high demand for val-
13 14 15 16 17* 00 02 04 06 08 10 12 14 16
ue-add opportunities.
North Palm Beach County 4.9% 30 $1,547 6.5%

Completions and Absorption Pricing Trends

Completions Absorption
Boca Raton 5.3% 150 $1,779 2.5%
Average Price per Unit (000s)

$160
6.0
Units (thousands)

$145
Boynton Beach/ 4.5
6.5% 120 $1,551 1.2%
Delray Beach
$130
3.0

1.5 $115
Overall Metro 4.6% 20 $1,504 3.5%
0 $100
13 14 15 16 17* 13 14 15 16 17**

** Trailing 12 months through 2Q17

Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
8%
Multifamily Research | Market Report

Apartment Acquisitions By WILLIAM E. HUGHES, Senior Vice President,

By Buyer Type* Marcus & Millichap Capital Corporation
Other, 1% Cross-Border, 6% Monetary policy in transition. Despite the Fed raising its
benchmark short-term rate three times in seven months and
Equity Fund signaling another rise before the end of the year, long-term rates
& Institutions, 23% have remained stable. The yield on the 10-year U.S. Treasury
bond remained in the low- to mid-2 percent range throughout
Private, 64% the second quarter of 2017. The Federal Reserve wants to nor-
Listed/REITs, 6% malize monetary policy and, in addition to rate hikes, will likely
start paring its balance sheet.
Sound economy a balancing act for Fed. With unemploy-

CAPITAL MARKETS
* Trailing 12 months through 2Q17
ment hovering in the low-4 percent range, the lowest level since
2007, the Federal Reserve will remain vigilant regarding the pos-
Apartment Mortgage Originations sible rapid increase in inflation if wage growth takes off. Addi-
By Lender
tionally, business confidence and job openings are near all-time
100% highs. Businesses finally have the assurance to expand their
Percent of Dollar Volume

footprints after years of tepid growth following the Great Re-

75% Gov't Agency cession. These conditions are allowing pent-up households to
Financial/Insurance
Reg'l/Local Bank form, creating new apartment demand. The Fed, however, must
50%
Nat'l Bank/Int'l Bank now balance economic growth and job creation against wage
CMBS growth and inflationary pressures.
25% Pvt/Other
Underwriting discipline persists; ample debt capital re-
0% mains. Overall, leverage on acquisition loans has continued
11 12 13 14 15 16 to reflect disciplined underwriting, with LTVs typically ranging
from 65 percent to 75 percent for most apartment properties.
Sources: CoStar Group, Inc.; Real Capital Analytics At the end of 2016, the combination of higher rates, conserv-
ative lender underwriting and fiscal policy uncertainty encour-
aged some investor caution that slowed deal flow, a trend that
National Multi Housing Group has extended into 2017. A potential easing of regulations on
financial institutions, though, could liberate additional lending
Visit www.NationalMultiHousingGroup.com capacity and higher interest rates may also encourage addition-
al lenders to participate.
John Sebree
First Vice President, National Director
National Multi Housing Group
Tel: (312) 327-5417
john.sebree@marcusmillichap.com

Prepared and edited by Miami Office: Fort Lauderdale Office:

Michael Murphy
Research Analyst | Research Services Kirk A. Felici Ryan Nee
First Vice President | Regional Manager Vice President | Regional Manager
(786) 522-7000 Tel: (954) 245-3400
For information on national apartment trends, contact: kirk.felici@marcusmillichap.com ryan.nee@marcusmillichap.com
John Chang 5201 Blue Lagoon Drive 5900 North Andrews Avenue
First Vice President | Research Services Suite 100 Suite 100
Tel: (602) 707-9700 Miami, FL 33126 Fort Lauderdale, FL 33309
john.chang@marcusmillichap.com

Price: $750

Marcus & Millichap 2017 | www.MarcusMillichap.com

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no
representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment
growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intend-
ed to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered
as investment advice.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association of Realtors; Moodys Analytics; Real Capital
Analytics; MPF Research; TWR/Dodge Pipeline; U.S. Census Bureau.