JLL: Sunbelt Cities to Shine, Despite Heavy Delivery Pipeline

By Jeffrey Steele, Contributing Writer

Boca Raton, Fla.—Many observers continue to voice concerns about oversupply of apartments saturating recently recovering markets.  But oversupply issues will be surmounted in 14 cities, foremost among them Sunbelt metros Jacksonville, Tampa and Phoenix, according to a new report by Jones Lang LaSalle (JLL).

“Especially in the last few years among risk-average investors, everyone has concentrated on supply-constrained markets,” JLL’s Ft. Lauderdale-based director of multifamily research Brady Titcomb tells MHN.  “But there is opportunity to look outside that box at Sunbelt markets.  Look down the road at what’s really driving these markets.  The overall prospects for growth are in jobs and the economic rebound that could impact these markets. If renter demand continues to grow or even backs off a bit, there is a lot of opportunity for developers and investors.”

Released at NMHC’s annual meeting in Boca Raton, Fla., JLL’s Multifamily Outlook report noted the national apartment sector continued to expand in 2013.  Occupancy attained a 10-year high of 95.8 percent, and gains averaged 13 basis points a quarter.  Last year was also a record breaker for multifamily sales, with volumes totaling more than $100 billion.  That outpaced the 2012 velocity by almost 30 percent, and beat the 2007 record by $6 billion.

Leading in sales volumes were New York, greater Washington, D.C. and Los Angeles, posting a combined total surpassing $30 billion.  Those three were followed by Dallas, Houston, San Francisco, Atlanta and Phoenix.

Click to view a large image. Courtesy Jones Lang LaSalle.

JLL’s sunniest forecasts into 2017 are for 14 markets, a disproportionate number of them Sunbelt cities.  They are 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,” says Jubeen Vaghefi, international director and leader of JLL’s Multifamily Capital Markets. “Those are the two critical demand factors that will determine how metros will perform through the current development cycle   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.”

The JLL report also underscored that the housing recovery is spurring expansion coast to coast.  As well, tightening market conditions delivered U.S. quarterly rent increases for 2013.  They averaged 75 basis points a quarter, with high-tech and STEM-employment centric markets driving the most notable rent growths.

The JLL report indicated that on a year-over-year basis, Seattle, Nashville, San Francisco, Denver and Houston led in annual rent growth.  These metros averaged between 4.5 and 7 percent.

Since 2012, uncertainty overseas has sent demand for multifamily product in the U.S. back to pre-recessionary levels.  Though Dallas, New York, Chicago, Houston and South Florida each witnessed more than $300 million in cross-border capital since the start of 2012, international capital has found its way to almost all of the major metropolitan areas.