Q1-2018 Multifamily Market Update

WICHITA Multifamily

NAI Martens Multifamily Market Update

First Quarter 2018 Trends and Statistics | May 7, 2018

MULTIFAMILY OCCUPANCY TRENDS The Wichita market has experienced an increase in multifamily occupancy since 2012 when occupancy was at 92%. Since that time it has hovered around 93.5%-94.5% with a high in late 2015. Over the last 6-12 months multifamily occupancy has been decreasing. In mid-2017 the Class B submarket (largest segment of the market) the occupancy rate was 94.5%. In March 2018, updated occupancy information from a sampling of the market (40 Class B properties with 100 or more units) showed an average occupancy of 92%. This sample consists of approximately 8,000 units, which is a quarter of a market. This decline of 2%-3% is expected to be market wide, not just the Class B market, which is typically the most stable. According to Trepp data, the national average occupancy for multifamily CMBS loans has been trending downward over the past two years. Average occupancy was measured at a recent low of 93.1% in March, which is 60 basis points lower year over year. According to the National Real Estate Investor, “The continued competition from new construction may finally make a small dent in occupancy levels in 2018,” (http://www.nreionline.com/ multifamily/apartment-sector-boom-set-continue-2018). New construction ramped up in 2013 after over a decade of minimal new development leading to built-up demand. From 2013- 2016 there were steadily 600 units added to the market per year. In 2017, over 1,000 units were added to the market. New construction has slowed absorption and decreased occupancy in Class A. “Developers have so far concentrated their efforts on building luxury apartments, charging high rents to offset the high cost of development. That often means that new class-A apartments face a lot of competition.” (http://www.nreionline.com/ multifamily/apartment-sector-boom-set-continue-2018). Class B and C properties have felt the trickle-down effect from this. Slow job/population growth may be another reason for the decrease in occupancies. According to the Center for Economic Development and Business Research, the forecasted job growth for the Wichita metro area is at .4 percent. Even with a slight increase in growth, the Wichita job market still lags behind the U.S. as a whole. This is the kind of growth rate the city has seen for a while now largely due to a struggling aerospace manufacturing sector. Statewide, the forecast says overall job growth looks to be weak in 2018 as well. Initial new development was fueled by pent up demand and the slower housing market. Wichita area home sales slowed in 2017 due to tight inventories. Demand remains strong though, with sales forecasted to rise 1.5 percent in 2018. The stagnant employment and population growth has also hindered new home construction. The competition for homes priced below $250,000 is strong due to the limited inventory. In 2017, 36.7 percent of [continued on back page]

OCCUPANCY TRENDS

97.0%

96.0%

95.0%

94.0%

93.0%

92.0%

91.0%

90.0%

NUMBER OF HOME SALES

12,000

10,000

8,000

6,000

4,000

2,000

0

2012

2013

2014

2015

2016

2017

NUMBER OF EMPLOYED

2017

2016

2015

2014

2013

2012

282,000 284,000 286,000 288,000 290,000 292,000 294,000 296,000 298,000 300,000

*Numbers reflect Wichita market area statistics. Data supplied by NAI Martens Research and the WSU Center for Real Estate.

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