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News release

Boca Raton, FL

The 14 in ’14:  Jones Lang LaSalle Picks the Top Multifamily Markets Where Oversupply is Not an Option

Despite a heavy delivery pipeline, sunbelt metros expected to shine


BOCA RATON, FL, Jan. 29, 2014 — Too many apartments, not enough renters?  Will an oversupply of development saturate newly recovering markets?  How much is too much?  Those are the questions that still hit home for multifamily investors in 2014. 

But are the worries legitimate?  For some markets, perhaps.  But Jones Lang LaSalle predicts 14 cities will overcome oversupply issues, with Sunbelt markets such as Tampa, Jacksonville and Phoenix shining brightly in the year ahead.

The markets JLL expects to shine into 2017 include:  Phoenix, Atlanta, Jacksonville, Tampa, San Diego, Dallas-Fort Worth, San Antonio, Houston, Philadelphia, Orange County, the Inland Empire, Palm Beach, Las Vegas and Memphis.

“Besides construction levels, it’s all about job growth and household growth—those are the two critical demand factors that will determine how metros will perform through the current development cycle,” said Jubeen Vaghefi, International Director and leader of the firm’s Multifamily Capital Markets.  “The surprising news to many will be the resurgence of the sunbelt markets over the tech-heavy regions.  After some very tough years, that’s where we’re seeing a significant rise in new households as a result of improving economic conditions.”

According to JLL’s Multifamily Outlook report released this week at NMHC’s Annual Meeting in Boca Raton, Florida, the national apartment sector expansion continued in 2013 as occupancy reached a 10-year high of 95.8 percent and gains averaged 13 basis points a quarter.  In addition, as expected, 2013 turned out to be a record breaking year for multifamily sales as volumes totaled more than $100 billion – outpacing 2012’s velocity by nearly 30 percent and surpassing the 2007 record by nearly $6 billion.  New York, the greater Washington, DC, area and Los Angeles led in sales volumes with a combined total of more than $30 billion.  Dallas and Houston rounded out the top five, followed by San Francisco, Atlanta and Phoenix.

“A large component of these record volumes was needle-moving portfolio sales, ownership entity transfers and mergers of major apartment operators,” explained Brady Titcomb, Vice President and Director of U.S. Multifamily Research at JLL.  “In addition, the U.S. recovery over the past 12 months, rising consumer confidence and still historically low interest rates played a critical role in aiding growth by propelling the housing market recovery.”

The JLL report showed that the housing recovery is causing expansion nationwide.  In addition, tightening market conditions brought U.S. quarterly rent increases for 2013, averaging 75 basis points a quarter with high-tech and STEM employment centric markets driving the most notable rent growths.

On a year-over-year basis, the JLL report showed that Seattle, Nashville, San Francisco, Denver and Houston have led in annual rental growth averaging between 4.5 and 7 percent.

The report also showed that since 2012, uncertainty overseas has driven demand for U.S. multifamily product back to pre-recessionary levels.  While international capital has found its way to nearly all of the major metros – Dallas, New York, Chicago, Houston and South Florida each saw more than $300 million in cross-border capital since the start of 2012.

Outlook

According to the National Multi Housing Council’s (NMHC’s) quarterly survey of market conditions released in October, following four years of almost continuous growth, apartment markets have begun to slow.  NMHC’s Vice President of Research and Chief Economist, Mark Obrinsky says, "Conditions cannot continue to improve indefinitely and new development is at least somewhat constrained by available capital, though more on the equity than the debt side."

But overall, the strength of the fundamentals will continue to propel the sector, according to Vaghefi, “We expect multifamily performance to remain strong for the foreseeable future.”
He added, “While there are some supply concerns that will slow the pace of occupancy and rent growth, overall the anticipated increase in job growth and household formation will help to mitigate the threat of oversupply and keep conditions balanced across the country.”  

With continued improving economic conditions nationally, JLL anticipates U.S. occupancy gains to average 40-60 basis points annually over the next three years.
Assets located in secondary markets and value-add opportunities will be in higher demand as the search for yield becomes increasingly difficult. 

JLL’s U.S. Multifamily Capital Markets team includes more than 80 experts in 16 offices across 10 states. With an average of $42 million per transaction, the team has closed 97 multifamily sales and 204 debt and equity transactions in 2013, totaling more than $7 billion.  The figures represent a 245 percent increase in market share from the first half of 2012 to 2013 in deals of at least $25 million or more. http://bit.ly/15mbe2a 

About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.7 billion of real estate assets under management. For further information, visit www.jll.com. 

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