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Multifamily Research

Market Report

Fourth Quarter 2016

Broward County
High Employment Growth Attracts Stronger Investment Interest
Broward multifamily market benefiting
from robust job market. Exceptional job
performance so far this year coupled with
a challenging single-family housing environment are driving more residents to the
multifamily market. Household formation
has reached its greatest momentum of the
current cycle, helping to absorb new stock
and supporting continued rent gains marketwide. Though the gap between monthly rent and a single-family home payment
is the narrowest compared with the rest of
South Florida, affordability remains a hurdle
for many, particularly as home prices outpace incomes in the county. These factors
have driven developers to add rental stock
in Broward County at a strong clip, especially to the west of Interstate 95, where large

mixed-use projects are drawing more residents to the area. A large push at the end of
this year will bring close to half of the units
slated for delivery in 2016 online in the last
quarter. This will increase the vacancy rate
in the short term as new stock is leased up.
Strong demand for these units marketwide
will lift the average effective rent for the seventh consecutive year.
Buyers look to capitalize on stability of
Broward rental market. Transaction volume maintained its upward trajectory over
the year ending in the third quarter as more
investors look to Broward County for a stable store of assets. While rent gains have
slowed, cap rates are holding steady with
Class C complexes trading in the mid-5 to

mid-7 percent range and Class A assets


sometimes falling below 5 percent. Activity in the submarkets of Coral Springs and
Plantation/Sunrise grew at the greatest
momentum as investors looked to capitalize on the dynamic growth in these areas.
Greater interest in the Broward County
multifamily sector has pushed prices to
cycle highs. Fort Lauderdale proper averaged a price per unit of $187,000 over the
past year with some of the best properties
trading above $300,000 per unit. Employment and income growth that will outpace
the projected national rates of growth,
along with favorable trends in household
formation and homeownership rates, will
spur rental demand, supporting favorable
operating metrics.

2016 Multifamily Forecast


4.8% increase
in total employment

3,100 units
will be completed

50 basis point
increase in vacancy

4.6% increase
in effective rents

Employment:
Hiring will accelerate in 2016 with 38,800 new workers, a 4.8 percent increase. Last year employers created 24,300 positions, primarily in the construction, and professional and business
services sectors.

Construction:
After builders delivered 3,400 apartments in 2015, 3,100 rentals will be placed in service this
year, all of which will be conventional units. Developers are shifting their focus to the west of
Interstate 95, with the majority of construction in the areas of Sunrise/Lauderhill and Plantation/
Davie/Weston.

Vacancy:
Builders anticipate that roughly half of this years completions will be completed in the final quarter, pushing vacancy up 50 basis points to 4.1 percent this year. The vacancy rate compressed
60 basis points last year.

Rents:
In 2016, the average effective rent will advance 4.6 percent to $1,492 per month, a deceleration
from the 8.5 percent increase registered in 2015. Over the past five years, the average effective
rent grew 23.4 percent.

Multifamily Research | Market Report

Economy

Employment Trends
Market

Vacancy Rate Trends


Employment surged
over the last
three quarters with an additional 26,800 workMarket
United States
ers on8%
payrolls, bringing the amount of new jobs created in the last 12 months
to 35,000. Hiring underpinned a decline in the unemployment rate of 40 basis
points 6%
over the past year to 4.4 percent, a rate below the national level.

United States

6%

Vacancy Rate

Year-over-Year Change

8%

Job growth
so far this year has been led by the trade, transportation and
4%
utilities sector, which added 10,500 workers, a 5.8 percent increase. Over the
same 2%
time span last year, the sector grew 2.0 percent.

4%
2%
0%
12

13

14

15

16*

Bars, restaurants
and hotels created 3,900 jobs over the past year. The pro0%
fessional and
business
12
13 services
14 sector
15was one
16*of the greatest contributors
of jobs in Broward County during the period; these establishments created
8,000 jobs.

Outlook:

Staffing in the county will expand 4.8 percent, or by 38,800 new


hires, this year. During 2015, 24,300 jobs were created. Employment growth will
be led by the trade, transportation and utilities sector.

Trends
Housing and Rent
Demographics

Market

United States

Monthly Rent

Y-O-Y Rent Change

Job growth contributed to a 2.7 percent rise in the median household income
12% per year. Over the same
from$1,600
one year ago to an all-time high of $55,200
span, the median price of an existing single-family residence climbed 5.3
9%
$1,450
percent to $280,500, pricing many out of ownership and extending tenures
in the
rental market.
6%
$1,300
Monthly Effective Rent

32%

Year-over-Year Change

Median Home Price (Y-O-Y Change)

Home Price Trends

16%
0%

Based on a 10 percent downpayment, the median-priced home would cost


3%
$1,150
$1,650 per month with taxes and insurance added. The monthly payment
would
be roughly $190 greater than the average
0% monthly rent.
$1,000

-16%
-32%
12

13

14

15

16**

12

13

14

15

16*

Strong rent growth in the last year has closed the gap between the monthly
cost of owning versus renting, though the heavy burden of a downpayment
still keeps many residents in the rental pool.

Outlook:

A substantial influx of new apartments and the rising cost of single-family housing will maintain rental units as the preferred affordable option for
many households in Broward.

Construction Trends
Multifamily Permits

Construction

Sales Trends

So far
this year 1,590 rentals have been completed across the county, con$160
tributing to a year-over-year supply increase of 2,150 units. More than 3,900
units$140
were delivered in the preceding 12 months.
Average Price per Unit (000s)

Number of Units (000s)

Completions
8
6

Currently, 6,940 apartments remain under construction across Broward


$120
County
and delivery dates stretch into 2018. Most of the development is
taking place west of Interstate 95, including 3,600 units from Coral Springs
$100
south to Miramar. Last year, construction was greatly concentrated in coastal
communities east of I-95.

4
2
0
12

13

* Forecast
** Trailing 12 months through 3Q

14

15

16*

$80

12
13
14
15 is the16**
The largest project
under
construction
Modera Port Royale in Fort Lauderdale. The 555-unit development is slated for completion in the third quarter 2017. The largest completion of this year will be the 417-unit market-rate
Portico in the Sunrise/Lauderhill submarket, coming online this quarter.

Outlook: Developers will complete 3,100 multifamily units across the county this
year, a modest decrease from last years production. The Plantation/Davie/Weston
submarket will receive approximately 700 units, the highest total in any submarket.

Multifamily Research | Market Report

Vacancy

The Fort Lauderdale submarket posted the largest vacancy increase, 190 basis
6%
points over the year ending in the third quarter to 4.5 percent. Class A rentals
drove the rise, jumping 460 basis
4% points to 7.8 percent behind the completion
of 433 units in the third quarter. Pompano Beach/Deerfield Beach ended the
third quarter with the tightest rate
2% in the county at 2.3 percent, unchanged from
one year earlier.

Vacancy Rate Trends


Market

United States

8%

Vacancy Rate

Year-over-Year Change

In the 12-month period ending in September, the vacancy rate climbed 40


Employment
Trends
basis points to 3.8 percent on net absorption
of 1,360
units. Over the same
Market
United
States an additional
time last year, vacancy fell 100 basis points
as tenants
occupied
8%
4,500 rentals.

6%
4%
2%
0%

0%

After a 40-basis-point year-over-year rise, vacancy among Class C complexes


12
13
14
15
16*
was 1.6 percent at the end of September, the tightest in Broward County. By
submarket, six out of eight areas recorded a Class C vacancy rate of less than
1 percent.

12

13

14

15

16*

Outlook: Following the largest increase to supply since 2014, the vacancy rate
will increase 50 basis points to a still-tight 4.1 percent at the end of 2016. Last
year, a 60-basis-point drop was registered.

Home Price Trends


Market

Rent Trends

United States

32%
year,
16%

The average rent increased 2.4 percent over the past year in the city of Fort
Lauderdale to $1,592 per month,
tapering from last years 11.1 percent
0%
climb. Class C properties fueled the gain, rising 7.2 percent during the yearlong period.
-16%
Class B complexes led rent gains countywide, climbing 4.4 percent annually in
-32%
the third quarter to $1,448 per month while Class C units posted an increase of
12
13
14
15
16**
2.1 percent to $1,043 per month. For Class A apartments, concessions were
employed in only 2.3 percent of units and averaged an 8.3 percent discount.
Monthly rent of this type was $1,780 in September, up 0.8 percent.

Monthly Effective Rent

Since the third quarter last


the average rent advanced 4.2 percent to
$1,464 per month. In the preceding period, an 8.2 percent gain was posted.

Monthly Rent

Y-O-Y Rent Change

$1,600

12%

$1,450

9%

$1,300

6%

$1,150

3%
0%

$1,000
12

13

14

15

Year-over-Year Change

Median Home Price (Y-O-Y Change)

Rents

16*

Outlook: The average effective rent of $1,492 per month at the end of this year
marks an increase of 4.6 percent from year-end 2015. A climb of 8.5 percent was
posted last year.

Sales Trends

Construction Trends

Transaction velocity advanced 7 percent in the 12-month period ending in the


third quarter. Closed transactions
8 increased substantially in the suburban areas
of Plantation/Sunrise and Miramar/Hallandale Beach.
Number of Units (000s)

Sales Trends

Multifamily Permits

Intense trading underpinned an increase in the average price of 20 percent over


the past year to $155,400 per unit.
Class C complexes in the Fort Lauderdale
4
submarket traded on average for $171,800 per unit while in the Hollywood/
2 assets averaged $96,700 per unit.
Dania Beach submarket Class C
Strong price appreciation over0 the last 12 months pushed down the mar13 6.1 percent
14
16*quarter.
ketwide average cap rate 30 basis 12
points to
in15the third
Class A properties traded with an average initial yield in the low- to mid-4 percent range and Class C complexes averaged closer to 6.4 percent.

Outlook: Transaction velocity will remain heightened and widespread as investors look to deploy capital in return for stable cash flows. Buyers in search of
value-add plays will find more assets with a vacancy component in the Sunrise/
Lauderhill and Plantation/Davie/Weston submarkets.

Average Price per Unit (000s)

Completions

$160
$140
$120
$100
$80

12

13

14

15

16**

* Forecast
** Trailing 12 months through 3Q
Sources: CoStar Group, Inc.; Real Capital Analytics

Multifamily Research | Market Report

Capital Markets
National Multi Housing Group
Visit www.NationalMultiHousingGroup.com

John Sebree

First Vice President | National Director


National Multi Housing Group
Tel: (312) 327-5417
john.sebree@marcusmillichap.com

Fort Lauderdale Office:


Ryan Nee

Vice President | Regional Manager


Tel: (954) 245-3400
ryan.nee@marcusmillichap.com
5900 North Andrews Avenue
Suite 100
Fort Lauderdale, Florida 33309

By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation

The initial reading of third quarter GDP of 2.9 percent and consistent growth
in employment are fanning expectations that the Federal Reserve will raise its
benchmark short-term lending rate at its December meeting. Other economic
data showing steady improvement in the housing market and the stabilization of
oil prices around $50 per barrel offer signals that the U.S. economy is growing at
a sustainable pace.
Increasing rental housing demand underpinned a decline in the U.S. apartment
vacancy rate of 60 basis points to 3.5 percent year to date through the third
quarter, the lowest level this cycle. Apartment builders have responded to growing demand and favorable demographic trends by ramping up construction.
Completions will rise to 320,000 units this year and peak in 2017.
Capital markets remain highly competitive, offering an assortment of fixed-rate
products available through commercial banks, life-insurance companies, CMBS
and agency lenders. Fannie Mae and Freddie Mac are underwriting loans of 10
years at maximum leverage of 80 percent. Rates will typically reside in the high-3
to low-4 percent range, depending on underwriting criteria. Portfolio lenders will
also price in this vicinity but will typically require loan-to-value ratios in the 65 to
75 percent band. Floating-rate bridge loans and financing for asset repositioning
are typically underwritten with LTVs 70 to 75 percent of stabilized value (80 to 85
percent of cost) and price 300 basis points above Libor for recourse deals and
extending to 450 basis points above Libor for non-recourse transactions.

Local Highlights

Prepared and edited by

Michael Murphy

Research Associate | Research Services


For information on national apartment trends, contact:

John Chang

First Vice President | Research Services


Tel: (602) 687-6700
john.chang@marcusmillichap.com

Price: $250
Marcus & Millichap 2016 | www.MarcusMillichap.com

In the Sunrise/Lauderhill and Plantation/Davie/Weston submarkets, development


currently entails more than 1,000 units underway; with completion dates extending into 2018. Strong year-over-year rent gains present an appealing investment
in these areas. In the area of Plantation/Davie/Weston, effective rent climbed 6.1
percent to $1,633 per month, the highest in the county. North to Sunrise/Lauderhill, the average rent gained 5.1 percent over the period to $1,258 per month.
The neighborhood of Flagler Village west of U.S. 1 has been home to a number of
new developments over the past few years. The area is being transformed from
vacant lots and warehouses into residential and retail properties, with more than
40 projects under construction or planned. One draw to the area is the upcoming
Brightline rail system running from Miami to Orlando that will have a station in
Flagler Village. Coming soon will also be a new street car with numerous stops
in the area. Fairfield at Flagler Village is just one property under construction; the
292-unit conventional rental complex is slated for completion in late 2017.
Dania Beach recently approved a proposal for an eight-story apartment building
that would include ground-floor retail. Tentatively named the Trion Dania Beach,
the project will have 286 rentals along with 16,000 square feet of retail space.
The development would comprise luxury amenities similar to those found in new
apartments in Flagler Village but at a lower monthly rent. Dania Beach is a roughly
15-minute drive from employment centers in Fort Lauderdale.

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. Sources: Marcus
& Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Moodys Analytics; National Association of Realtors; Real Capital Analytics; MPF Research;
TWR/Dodge Pipeline; U.S. Census Bureau.

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