Multifamily Market Wichita - 2014 Q2

250 Douglas Place sits behind the new Corner 365 Apartments

2014

State of the Market The Wichita market is experiencing noteworthy new multifamily construction for the first time in nearly 15 years. Higher occupancy and increasing rental rates in the Class A market have created new opportunities.

Occupancy Nationally, vacancies have decreased from 5.9% to 4.9% over the past year. Locally, the vacancy rate, as tracked by NAI Martens, has slightly increased to 6.5%* but is well below the 10.3% at mid-year 2010.

Vacancies in the Class A market increased from 2.6% in early 2013 to 5% in March of 2014 as new units were added to the market. However, the vacancy rate for Class A units built prior to 2013 remained stable at a 2.7% vacancy rate. The new construction properties have achieved strong absorption and are approaching stabilization. The Class B market, which makes up over two-thirds of the Wichita market, remained virtually unchanged at a vacancy rate of 6% while Class C vacancy has increased 150 basis points to 10.2%.

* Not included in these statistics are Class D properties, which are complexes that have a significant amount of deferred maintenance and numerous down units not in leasable condition.

Rental Rates

Studio Avg $/SF

1-Bed Avg $/SF

2-Bed Avg $/SF

Class A

N/A

$0.99

$0.91

Class B

$0.96

$0.76

$0.67

Class C

$0.94

$0.75

$0.65

Overall Market

$0.95

$0.79

$0.71

$0.76

Overall Market

$0.89

$0.76

$0.70

$0.74

% Change

6.7%

3.9%

1.4%

3.30%

April 2013

Overall Market Avg $/SF

Apartment rents in Wichita are among the lowest in the nation at approximately $590 per month. Historically, rental rates have grown on an average of 3% per year and have continued to do so over the past 12 months. Primarily due to new construction, Class A market rents increased around 4% over the past 12 months with an average rent of $0.95 – $1.20/SF. Class B had the smallest overall change with current rents at $0.67 – $0.76/SF. Class C rents on one and two-bedroom units average $0.65 – $0.75/ SF, a slight increase over the last year. On a per square foot basis, Class B & C units are similar, but larger Class B units are typically around $100+ per month higher. Overall, the absorption of new units with rental rates near or at the high-end of the market is encouraging and suggests continued increases in Class A market rents. Also, the closing of the margin between Class B and Class C rents may create the opportunity for an increase in Class B rents.

Bennington Place unit interior photos.

Multifamily Team Jeff Englert 316 847 4924 [email protected]

Nathan Farha, CCIM 316 263 9669 [email protected]

NAI Martens 435 S Broadway Wichita, KS 67202

New Development Over the last two years more than 2,500 new units have been proposed in the Wichita market. Most of these projects are amenity-rich, Class A developments with proposed rents in the range of $0.95 – $1.35/SF. In 2013 and early 2014 more than 350 of these units were completed, including Bennington Place Apartments in northwest Wichita and Chisholm Lake Apartments in northeast Wichita. An additional 438 units are under construction.

SunStone (208)

D

Value Place (134)

E

Corner 365 (36)

F

The Lux (60)

29th

A

G

Stoney Point (438) The Vue (184)

I

River Vista (152)

143rd

Rock

B

H

G

21st 13th Central

Proposed H

Oliver

Seneca

37th

Andover Rd.

C

Greenwich

Under Construction

Broadway

Chisholm Lake (216)

West

Bennington Place (138)

B

Maize

A

Ridge

Completed

I F D E

C

Harry

New development rents are generally in the $1.00 – $1.10/SF range and absorption rates have exceeded expectations. Absorption has been in the 12 to 15 units per month range, suggesting that the market is capable of handling additional higher priced units. The graph below illustrates the relationship between units added to the market and the occupancy rate. It is expected that the market will continue to experience slight increases in vacancy over the next few years as these new units are added to the market and absorbed.

Occupancy &Occupancy Building Permit Activity: Wichita and Building Permit Activity: Wichita Source: Savage, Inc. The Wichita Apartment Directory, Progress Reports; HUD SOCDS Building Permit Database

1,600

100.0%

95.0%

1,200 1,000

90.0%

800 85.0%

600 400

80.0%

Market Occupancy Rate

# Units

1,400

200 0

75.0%

Units

Year

Units

Occupancy

Occupancy

Transaction Activity

# of Units Sold

The demand for stabilized, well-maintained Class A and B multifamily properties remains strong with buyers willing to pay what was previously thought to be above market prices for the Wichita area. The market rebounded in 2011 and then slowed in 2012 due to a shortage of available quality product. Activity revived in 2013 with pricing increases as well. Class B and C properties traded in the $14,000 to $25,000 per unit range with amenity-rich, higher-end Class B approaching $65,000 per unit. Sales of 600 units in the first quarter of 2014 indicate that we could be in for another good year. In Q1 2014, a mix of traditional units and duplexes sold at Number of Multifamily Units Sold Annually in Wichita: 2007-2013 prices similar to 2013 2,000 with the duplexes sell1,864 ing at $120,000 to 1,767 1,630 1,500 $140,000 per unit. 1,349 1,000 731

500

615

496 2007

2008

2009

2010

2011

2012

2013

Cap Rates The average capitalization rate on 25 stabilized Class A and B properties that sold across the state over the last two years was 7.84%. It is expected that capitalization rates in the Wichita area may continue to decline slightly and that Class A properties can achieve cap rates near the national non-institutional grade average of 6.8% (as reported in the PwC Real Estate 4th Quarter 2013 Investor Survey). Wichita’s capitalization rates tend to run about 100 to 200 basis points higher than national averages because of the higher concentration of Class B and C properties.

SunStone Apartments - Andover