Multifamily Research

Market Report

Fourth Quarter 2016

Miami-Dade County
Developers Work to Keep Up With Growing Demand
Exceptional net absorption highlights
robust operations. Solid job growth and
rising home prices are driving residents to
the Miami-Dade County rental market. Demand has been at heightened levels over
recent years, bringing vacancy down to
near-record lows and pushing builders to
pick up the pace of development. Construction has reached new highs in response to
dwindling vacancy, boosting the number of
apartments underway to more than 11,000
units, many of which are high-end rentals in
the urban core. Low housing affordability remains a roadblock to many first-time homebuyers, providing the multifamily market
with a steady stream of renters countywide.
Strong net absorption this year coupled with
robust performance in the job market will

contribute to a slight vacancy reduction this

year, supporting the seventh consecutive
year of rent gains.
Widening buyer and seller expectations. Investors remain ready to invest into
the Miami-Dade market but are met with a
shortage of suitable listings, creating a disconnect between buyers and sellers. Pricing
gains over recent years have put a number
of owners into hold mode over concerns
about where to place potential proceeds. In
response to market conditions, buyers have
increasingly sought out smaller Class C assets in prime locations and areas ripe for redevelopment. The East Little Havana neighborhood, which borders the evolving Brickell
submarket, is one of these areas. Many re-

cent trades here were for buildings smaller

than 20 units with a price per unit averaging $134,200. Initial yields in East Little Havana were in the mid-5 to mid-7 percent
range. Sales also picked up momentum in
the Bal Harbour/South Beach submarket,
a top tourist destination. Some initial yields
in this area fell below 5 percent with several of the best properties trading for more
than $500,000 per unit. Headwinds in the
condominium market and economic woes
in Latin American countries may pose
challenges for the Miami market down the
road. A pullback in capital by South American investors has already been noticed,
but Miamis international status will still attract large swaths of buyers.

2016 Multifamily Forecast

1.9% increase
in total employment

6,100 units
will be completed

30 basis point

Employment:
The pace of job creation will hold steady in 2016 with the creation of 21,500 jobs, a 1.9 percent
gain. Since employers resumed hiring in the first quarter of 2010, 168,400 jobs have been created, nearly twice the number of jobs lost during the downturn.

Construction:
The multifamily sector will experience a considerable supply increase this year with the completion of 6,100 rentals, a substantial jump from last years 2,640 apartments. Of this years
deliveries, nearly 600 units will be income- or age-restricted.

Vacancy:

decrease in vacancy

A 30-basis-point drop in the vacancy rate to 2.1 percent will be recorded this year on net absorption of 6,800 units. Last year net absorption of 3,000 apartments sliced the vacancy rate 70
basis points to the lowest level since 2005.

3.9% increase

Rents:

in effective rents

Strong demand for apartments in Miami-Dade will support a 3.9 percent climb in the average
effective rent to $1,351 per month this year. Since the third quarter of 2011, the average effective rent has climbed 20.3 percent.

Multifamily Research | Market Report

Economy
Employment Trends
Market

RateorTrends
Employment roseVacancy
1.4 percent,
by 15,500 workers, during the year ending
in the third quarter.Market
Job creation
during
United
Statesthe past 12 months supported a
8%
decline in the unemployment rate of 80 basis points to 5.2 percent, which is
slightly more than the national level.

United States

4.5%

Vacancy Rate

Year-over-Year Change

6.0%

6%

The professional and business services sector and the construction sector led
the way,4%
adding a combined 10,300 positions since the third quarter last year.

3.0%
1.5%
0%
12

13

14

15

16*

Job growth
has been broad-based across most sectors except for manu2%
facturing, which shed 2,000 jobs over the year ending in the third quarter.
Financial0%activities employers added 3,000 workers, followed by the trade,
transportation
sector,
created 2,500
jobs.
12 and utilities
13
14 which 15
16*

Outlook: Job gains will remain steady through the rest of the year. Employment in Miami-Dade will increase 1.9 percent in 2016, or by 21,500 workers,
almost on par with the 22,600 jobs added in 2015.

Housing and Demographics

United States

Monthly Effective Rent

Median Home Price (Y-O-Y Change)

Market
24%
18%

$1,300

6%

$1,000

0%

Year-over-Year Change

The median household income advanced to $46,100 annually in September,

Rent Trends
up 3.0 percent from one year ago. In the existing single-family home market,
Monthly Rent
Y-O-Y Rent Change
the median price climbed 5.3 percent year over year to $324,600 in the third
quarter,
widening the gap between the monthly8%
cost of a single-family home
$1,400
and the average rent.

Home Price Trends

When combining insurance and tax payments, plus assuming a 10 percent

downpayment,
the monthly cost to own a home
4%is $1,710, or roughly $380
$1,200
greater than the average monthly rent. The high cost of homeownership is
2%
fueling$1,100
the demand for rental housing and encouraging
developers to build
additional apartments.

12%
6%
0%
12

13

14

15

16**

12 households
13
14the county
15
16* 2 percent, or by 16,000 during
The number of
in
rose
the past 12 months. A propensity toward rental housing among these households will support strong performance in the multifamily sector this year.

Outlook:

Homeownership will remain out of reach for many households in

Miami-Dade as prices grow faster than incomes, sustaining demand for rental
housing that will maintain low vacancy.

Construction

Construction Trends
Multifamily Permits

Completions during the four quarters ending in the third quarter this year
totaled$200
3,700 units. More than a third of the new rentals were delivered in the
Downtown Miami/South Beach submarket.
Average Price per Unit (000s)

Number of Units (000s)

Completions

Sales Trends

12

$165
Over the
first three quarters, seven complexes were completed in the Coral
Gables/South Miami submarket, the greatest influx in the county. The largest
$130
project was the 262-unit Modera Douglas Station. In the same span, four
developments totaling 1,396 units were placed into service in the Downtown
$95
Miami/South Beach area.

9
6
3
0
12

13

* Forecast
** Trailing 12 months through 3Q

14

15

16*

More than
$60 11,000 rentals are under construction across Miami-Dade with
12 through
13 2019
14as development
15
16**proceeds at a robust pace.
completion dates
One of the largest developments in the pipeline is the 550-unit 8800 Doral,
scheduled for completion in the third quarter of next year.

Outlook: After 2,640 rental units were delivered in 2015, completions will rise
to 6,100 apartments this year. West Miami/Doral will receive the most units
through the remainder of the year: 680 units in two projects.

Multifamily Research | Market Report

Vacancy

The Coral Gables/South Miami submarket posted net absorption of 1,400

4.5%the strongest countywide. The vacancy rate fell
units in the last four quarters,
80 basis points to 1.8 percent. Northeast Miami recorded the greatest drop,
3.0%
falling 240 basis points to 3.3 percent behind net absorption of 1,250 apartments over the same span.
1.5%

Vacancy Rate Trends

Market

United States

8%

Vacancy Rate

Year-over-Year Change

Employment
Trends the vacancy rate
Net absorption of 6,700 units over the
past year reduced
120 basis points to end the third quarter
at
1.8
percent.
Market
United Class
States C units had the
lowest availability, ending the
third
quarter
with
a
vacancy
rate
near 1.0 percent.
6.0%

Vacancy was tight among apartments built since 2010 with only 3.1 percent
0% a 440-basis-point reduction from September
of units sitting empty following
12
16*
2015. More than 2,000 apartments
were13
delivered14
in the last15six months.

6%
4%
2%
0%
12

13

14

15

16*

Outlook: The vacancy rate will decline 30 basis points this year to 2.1 percent.
In 2015, net absorption of 3,000 units supported a 70-basis-point drop in the
vacancy rate.

Rents

6%

Effective rent rose 6.7 percent over the past year for properties constructed in
the 1980s, ending the third 0%
quarter at $1,312 per month. The average rent in
assets built since 2010 increased
to $1,590
per
over the
12 2.7 percent
13
14
15month 16**
same span.

Monthly Rent

Monthly Effective Rent

18% Miami/South Beach submarket averaged a

Apartments in the Downtown
monthly rent of $1,892, the steepest in the market followed by Coral Gables/
South Miami at $1,486 per12%
month. The most affordable units are in North Central Miami at $886 per month.

Rent Trends
Y-O-Y Rent Change

$1,400

8%

$1,300

6%

$1,200

4%

$1,100

2%
0%

$1,000
12

13

14

15

Year-over-Year Change

Median Home Price (Y-O-Y Change)

Low vacancy supported a 1.6 percent

rise in
the average
Home
Price
Trends effective rent over
the past year to $1,332 per month at the
end
of
the
third quarter. The average
Market
United States
Class A rent roughly matches year-ago levels at $1,885 per month while Class
24%
C offerings boosted rent 2.1 percent to $870 monthly.

16*

Outlook: The average effective rent will climb 3.9 percent this year to $1,351
per month, approximating the increase recorded in 2015.

Sales Trends
Buyers remain interested in the Miami-Dade multifamily market. Sales rose 7
Construction Trends
percent over the past 12 months. Submarkets in the greater downtown area
Completions
Multifamily Permits
continued to garner the most buyer
attention.

Initial yields fell 30 basis points

3 to 5.7 percent for Class C properties, the most
commonly traded assets in the market. Class B complexes recently sold car0
ried an average cap rate in the
mid-4 to mid-5 percent range with Class A
12
13
14
15
16*
assets in low- to high-4 percent territory. North Miami Beach was home to
numerous value-add opportunities in which apartments changed hands with a
first-year yield in low-6 to mid-7 percent span.

Outlook:

Investment in the Miami-Dade multifamily sector will remain strong

behind a broad pool of investors that includes domestic capital and some sponsorships that act on behalf of foreign clients.

Average Price per Unit (000s)

Number of Units (000s)

The average price climbed 13

12percent from one year ago to $185,300 per unit.
Prices in Bal Harbour and South Beach averaged $233,700 per unit, with a number of trades achieving a price9point greater than $500,000 per unit. North Miami
Beach has been an increasingly popular area for investors. The best assets here
can command prices ranging 6from $120,000 to $230,000 per unit.

Sales Trends
$200
$165
$130
$95
$60

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

Miami Office:
Kirk A. Felici

First Vice President | Regional Manager

Tel: (786) 522-7000
kirk.felici@marcusmillichap.com
5201 Blue Lagoon Drive
Suite 100
Miami, Florida 33126

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
A growing condo supply remains a concern. Year-over-year sales declined 25 percent in July and for-sale inventory neared one years supply, above the six- to ninemonth range considered equilibrium. The primary fear posed by excess supply is
that owners will undercut the apartment sector and rent out units, creating a shadow
rental market.
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

The largest project completed in the third quarter is the Mile Coral Gables with 120
units, adding to the 860 apartments that have been completed in the submarket so
far this year. Of this years development in Coral Gables, 345 rentals are categorized
as affordable. The remaining project with a 2016 delivery date in Coral Gables is the
JOYA, a 431-unit complex.
Limited inventory and rising demand in the Brickell submarket are changing the area
and creating opportunity for growth. More than 1,600 rentals are under construction
and the most recent delivery is the 418-unit SOMA at Brickell. In the pipeline for the
submarket is the Panorama Tower, an 821-unit project that will rise 83 stories, marking it the tallest residential building on the East Coast south of New York. Completion
is scheduled at the end of 2017.

Price: $250
Marcus & Millichap 2016 | 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. 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.