CBRE CAPITAL MARKETS CBRE 2017 MULTIFAMILY CONFERENCE BEYOND THE CYCLE
INVESTING IN GOOD GROWTH: FINDING DEMAND IN ALL THE RIGHT PLACES JEFF ADLER Vice President, Yardi Matrix JEANETTE RICE Americas Head of Multifamily Research, CBRE GREG WILLETT Chief Economist, RealPage
MAJOR U.S. MULTIFAMILY MARKETS OUR CURATED GROUP Driven heavily by growing tech, financial services, health care, universities, consumer marketing Intellectual Capital Mostly in Smile States, with exception of a few Midwestern Markets
EMPLOYMENT GROWTH RATE, 2011-2016 Annual Job Growth Rate, 2011-2016: Professional and Health Services Sectors 6.0% 5.0% Professional and Health Services Jobs are Driving Employment Growth (bubble size reflects # of jobs in professional and health services) Las Vegas Orlando Austin Nashville San Jose Denver Atlanta 4.0% Dallas Charlotte San Francisco U.S. Average Miami Phoenix Raleigh = 2.6% Houston Portland 3.0% Seattle New York San Diego Boston Minneapolis Chicago Los Angeles 2.0% Washington DC U.S. Average = 29.6% 1.0% 21.0% 26.0% 31.0% 36.0% 41.0% Professional + Health Services Jobs as a % of Total Employment Source: Bureau of Labor Statistics; Moody s Analytics
EMPLOYMENT GROWTH IN THOUSANDS OF JOBS ADDED, 2011-2016 Thousands of Jobs Added, 2011-2016: Professional + Health Services Sectors 500 450 400 350 300 Professional and Health Services Jobs are Driving Employment Growth (bubble size reflects # of jobs in professional and health services) U.S. Average = 29.6% New York 250 Los Angeles 200 Dallas Atlanta Chicago 150 Miami Phoenix Washington DC Boston 100 Houston Seattle San Francisco Las Vegas Denver Austin 50 Orlando San Jose Nashville Charlotte Portland San Diego Raleigh Minneapolis - 21.0% 26.0% 31.0% 36.0% 41.0% Professional + Health Services Jobs as a % of Total Employment Source: Bureau of Labor Statistics; Moody s Analytics
JOB GROWTH IN PROFESSIONAL AND HEALTH SERVICES, 2011-2016 Metro Annual % Job Growth Rate: Professional & Health Services Thousands of Professional and Health Jobs Added Professional and Health Jobs as a % of Total Employment 1 Std. Dev. Of % Chg. in Job Growth Austin 5.7% 70 27% 8% San Jose 5.4 90 37 8 Orlando 4.3 68 29 7 Raleigh 3.7 50 32 5 Charlotte 3.8 54 26 6 Phoenix 3.9 111 30 6 Denver 4.0 79 29 6 Dallas 3.9 181 29 6 Las Vegas 5.5 54 23 8 San Francisco 3.8 139 33 5 Seattle 3.0 75 28 4 Nashville 5.2 69 32 8 Atlanta 4.2 155 30 6 Los Angeles 2.7 232 29 4 Portland 3.3 52 28 5 Miami 3.6 131 28 5 Houston 3.2 126 27 5 San Diego 2.8 57 29 4 Boston 2.7 130 42 4 Washington DC 1.8 103 37 3 New York 2.9 452 36 4 Chicago 2.2 156 33 3 Minneapolis 2.3 71 35 3 Source: Bureau of Labor Statistics (BLS); Moody s Analytics
RANKING OF EMPLOYMENT GROWTH, 2011-2016 Metro Rank: Total % Employment Growth Thousands of Professional and Health Jobs Added Growth Rank: Professional & Business Services Growth Rank: Health & Education Services Austin 1 70 2 3 San Jose 2 90 3 4 Orlando 3 68 7 7 Raleigh 4 50 13 10 Charlotte 5 54 5 21 Phoenix 6 111 10 9 Denver 7 79 15 2 Dallas 8 181 6 12 Las Vegas 9 54 4 1 San Francisco 10 139 8 14 Seattle 11 75 14 22 Nashville 12 69 1 11 Atlanta 13 155 11 5 Los Angeles 14 232 19 17 Portland 15 52 12 19 Miami 16 131 9 18 Houston 17 126 17 6 San Diego 18 57 21 8 Boston 19 130 16 20 Washington DC 20 103 23 15 New York 21 452 18 13 Chicago 22 156 20 23 Minneapolis 23 71 22 16 Source: Bureau of Labor Statistics (BLS); Moody s Analytics
HOMEOWNERSHIP RATES DECLINING Percent U.S. Homeownership Rate by Age Cohort, 1994-2015 90 65+ 80 55-65 70 45-54 60 35-44 50 40 30 >35 20 10 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Overall >35 35-44 45-54 55-65 65+ Renter Households (Millions) 44 42 Renter Households 40 Homeownership Rate 38 36 34 32 30 Homeownership Rate 74% 72% 70% 68% 66% 64% 62% 60% Notes: Beginning in 2000, renter household data are the revised, consistent-vintage counts. 2000-09 counts are 2010 vintage, 2010-15 are 2014 vintage. Source: US Census Bureau, Housing Vacancy Surveys
FORECASTED JOB FORMATION VS. RENTER HH FORMATION Average Annual Job Formation (2016-2026) Professional + Health Services Sectors 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Chicago Washington DC Boston San Francisco Minneapolis Seattle Portland San Jose Austin Raleigh New York Dallas Los Angeles Houston Atlanta Phoenix Miami Orlando Nashville Denver Charlotte Las Vegas San Diego 0 5,000 10,000 15,000 20,000 25,000 30,000 Average Annual Renter Household Formations (2016-2026) Source: Bureau of Labor Statistics; Moody s Analytics
SIGNIFICANT VARIATION BY CITY, BUT THE U.S. WON T EVER LOOK LIKE LA/SF Metro Homeownership Rate 2006 Homeownershi p Rate 2016 % Point Drop Metro Homeownership Rate 2006 Homeownership Rate 2016 % Point Drop Orlando 70.5% 58.4% 12.1% Miami 69.2% 58.6% 10.6% Phoenix 71.2% 61.0% 10.2% Portland 68.3% 58.9% 9.4% Las Vegas 61.4% 52.1% 9.3% Denver 70.7% 61.6% 9.1% San Diego 60.5% 51.8% 8.7% San Jose 59.2% 50.7% 8.5% Inland Empire 68.5% 61.1% 7.4% Tampa - St Petersburg 71.7% 64.9% 6.8% Philadelphia 73.5% 67.0% 6.5% Austin 63.9% 57.5% 6.4% Chicago 70.0% 64.3% 5.7% Los Angeles 54.6% 49.1% 5.5% Jacksonville 67.9% 62.5% 5.4% Baltimore 70.6% 65.3% 5.3% Seattle 64.5% 59.5% 5.0% Boston 63.0% 59.3% 3.7% Sacramento 64.1% 60.8% 3.3% San Francisco 57.8% 56.3% 1.5% San Antonio 66.0% 66.0% 0.0% Bottom is probably ~62%, rising slowing back to ~63%
PROJECTIONS OF NEW HOUSEHOLD FORMATIONS (2016-2026) Metro Total Renter Households (000s) New Renter Households (000s) Percentage Change Renter Rates 2016 2026 Total Avg. Annual Total Increase Avg. Annual 2016 Orlando 381 539 158 15 41% 3.5% 41.5% Raleigh 245 336 91 9.1 37% 3.2% 34.1% Austin 343 458 115 11.5 34% 2.9% 43.5% Charlotte 320 417 97 9.7 30% 2.7% 33.8% Las Vegas 392 509 117 11.7 30% 2.6% 48.7% Phoenix 646 823 177 17.7 27% 2.5% 37.4% Dallas 1,055 1,316 261 26.1 25% 2.2% 40.3% Atlanta 819 1,013 194 19.4 24% 2.1% 38.5% Miami 974 1,204 230 23.0 24% 2.1% 37.4% Houston 983 1,215 232 23.2 24% 2.1% 41.0% Nashville 255 305 50 5.0 20% 1.8% 35.0% Seattle 634 756 122 12.2 19% 1.8% 42.3% Portland 364 434 70 7.0 19% 1.8% 38.2% Denver 430 505 75 7.5 17% 1.6% 38.4% Minneapolis 431 496 65 6.5 15% 1.4% 30.9% San Diego 552 632 80 8.0 14% 1.4% 46.7% Washington 845 958 113 11.3 13% 1.3% 36.9% San Francisco 779 881 102 10.2 13% 1.2% 44.2% San Jose 335 375 40 4.0 12% 1.1% 50.1% Los Angeles 2,389 2,673 284 28.4 12% 1.1% 52.9% Boston 769 847 78 7.8 10% 1.0% 41.1% New York 3,724 4,002 278 27.8 7% 0.7% 49.6% Chicago 1,281 1,366 85 8.5 7% 0.6% 35.5% Source: CBRE; Moody s Analytics
PROJECTED MARKET PLACEMENT WITHIN GROWTH CYCLE SOME MARKETS GROWTH ARE DIMINISHING AS COST/SUPPLY CONSIDERATIONS PUSH GROWTH TO LOWER COST CITIES; SOME LATE STAGE CITIES ARE ACCELERATING, WHILE CERTAIN MARKETS ARE ON A STEADIER GROWTH PATH. Growth Diminishing Growth Accelerating Growth Steady Larger Markets, Slower % Growth San Francisco Orlando Dallas New York Bay Area Raleigh Atlanta Los Angeles Denver Austin Miami Boston Charlotte San Diego Chicago Las Vegas Minneapolis Washington D.C. Phoenix Houston Nashville Seattle Portland
BOOMER AND MILLENNIAL NET MIGRATION Millennial + Baby Boomer % of Total Population 34.0% 33.5% 33.0% 32.5% 32.0% 31.5% 31.0% 30.5% 30.0% 29.5% New York Millennials (age cohort 26-35) & Baby Boomers (ages 56-65) are Driving Net Migration (bubble size reflects % of population with bachelor's degree) Illinois New Jersey Minnesota Maryland Massachusetts (40% w/ bachelor s) California Virginia Georgia Tennessee Texas Washington Arizona North Carolina Florida Colorado Oregon Nevada (23% w/ bachelor s) 29.0% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Annual Net Migration % of Millennial + Baby Boomer Population from 2011-2015 U.S. Average = 32.4% Source: U.S. Census Bureau (BOC); Internal Revenue Service
CLEAR WINNERS/LOSERS FOR KEY IN-MIGRATION GROUPS AMONG STATES SOME MARKETS GROWTH ARE DIMINISHING AS COST/SUPPLY CONSIDERATIONS PUSH GROWTH TO LOWER COST CITIES; SOME LATE STAGE CITIES ARE ACCELERATING, WHILE CERTAIN MARKETS ARE ON A STEADIER GROWTH PATH. Winners North Carolina Georgia Tennessee Florida Texas Colorado Arizona Nevada Washington Oregon Losers Massachusetts New York New Jersey Maryland Virginia Illinois Minnesota California
MILLENNIAL GENERATION NET MIGRATION BY STATE Millennial Population Growth from Net Migration and HH Income by State 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Millennials favor Western states, less so pricey California Sunbelt states are secondary migration markets Millennials are leaving New York, Chicago, and Boston $70 $60 $50 $40 $30 $20 $10-1.5% $- Age Cohort 26-35: Avg Annual Pop. Growth, 2011-2015 Avg HH Income in Thsds for Net Migrating HH in Age Cohort Source: U.S. Census Bureau (BOC); Internal Revenue Service
BOOMER GENERATION NET MIGRATION BY STATE Baby Boomer Population Growth from Net Migration and HH Income by State 2.0% 1.5% Migrating Boomers favor Florida and Desert Secondary retirement destinations in Mid-South and Pacific Northwest Substantial migration of affluent Boomers out of Northeast, Midwest, and California $250 $200 1.0% 0.5% 0.0% $150 $100-0.5% $50-1.0% $- Age Cohort 56-65: Avg Annual Pop. Growth, 2011-2015 Avg HH Income in Thsds for Net Migrating HH in Age Cohort Source: U.S. Census Bureau (BOC); Internal Revenue Service
WEALTH ALSO MIGRATING TOWARDS SECONDARY MARKETS Retiring Boomers and mobile Millennials highlight population and income shifts Business friendliness and relative affordability common among growing markets Source: IRS, Tax Foundation
IMMIGRATION IS THE KEY TO GATEWAY CITY GROWTH Population Growth, 2011-2016 15% Natural Population Growth Domestic Migration Immigration Total Population Growth 10% 5% 0% -5% Atlanta Austin Boston Charlotte Chicago Dallas Denver Houston Las Vegas Los Angeles Miami Minneapolis Nashville New York Orlando Phoenix Portland Raleigh San Diego San Francisco San Jose Seattle Washington DC Source: U.S. Census Bureau (BOC); Moody s Analytics
2012-2016 MIGRATION: IMMIGRANTS CHOOSE GATEWAY, DOMESTIC MIGRANTS, SECONDARY Secondary Markets: High Migration, Low Immigration Gateway Markets: High Immigration, Low/Negative Migration 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Austin Raleigh Charlotte Orlando Nashville Denver Phoenix Las Vegas Houston Dallas Portland Seattle Atlanta San Francisco Minneapolis San Diego Miami Boston Washington DC San Jose Los Angeles Chicago Annual Domestic Migration per Capita Annual International Migration per Capita Annual Rent Growth New York 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: U.S. Census Bureau (BOC); Moody s Analytics; Yardi Matrix
INTERNATIONAL GATEWAY CITIES ARE MOST EXPOSED TO IMMIGRATION POLICY INTERNATIONAL CITIES NET MIGRATION DEFICIT IS ONLY MADE UP BY IMMIGRATION. WITHIN THAT, CERTAIN INDUSTRIES AND CITIES ARE IMPACTED BY SPECIFIC PROGRAMS: H1-B/EB-5 San Francisco Boston New York Washington, D.C. INDUSTRIES AFFECTED Tech, Finance Tech, Healthcare Finance, Tech Healthcare, Defense CERTAIN CITIES, WHILE NOT INTERNATIONAL GATEWAYS, ARE EXPOSED TO A LESSER DEGREE: H1-B/EB-5 Seattle INDUSTRIES AFFECTED Tech RESTRICTIVE BORDERS Miami Orlando Los Angeles Hospitality Hospitality, Construction Construction
WHAT MIGHT A REVAMPED IMMIGRATION SYSTEM LOOK LIKE? MERIT BASED IMMIGRATION SIMILAR TO CANADA: Foreign nationals may apply for green cards on the basis of educational, intellectual, personal skills Limits chain migration of residents bringing family members to U.S. Would benefit intellectual capital based markets, and limit unskilled immigration
BEST POSITIONED MARKETS Net domestic in-migration in low tax states with strong Tech/Healthcare/Services sectors seem best positioned as offensive and defensive plays. Examples: Seattle, Austin, Dallas, Atlanta, Raleigh, Nashville, Portland Possibility of near term (2-3 year) correction from unrelenting expansion since 2010 International gateway cities are a bet on NO real change in immigration policy Within the markets above, suburban areas with an urban feel, seem best positioned to take advantage of demographic shifts
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CBRE CAPITAL MARKETS CBRE 2017 MULTIFAMILY CONFERENCE BEYOND THE CYCLE