ApartmentResearch

M A R K E T R E P O RT
Tampa-St. Petersburg Metro Area Fourth Quarter 2011

Buyers and Sellers Expectations Converge in Tampa

A solid pace of job growth and limited construction will keep the Tampa apartment market on track for an additional decline in vacancy in this years final quarter. Tenant demand continues to strengthen across the entire market, reducing vacancy for seven consecutive quarters through the third quarter this year. Residents who recently returned to work and formed new rental households continue to occupy Class B/C apartments at a vigorous pace. Nearly two out of three newly occupied rentals this year were lower-tier units, compared with less than half in the final three quarters of 2010. A further expansion of job opportunities, especially in service-oriented employment sectors such as leisure and hospitality, will augment Class B/C operations in the quarters ahead. Over the long term, recently enacted free-trade agreements with Colombia, Panama and South Korea could potentially boost exports through the Port of Tampa, expanding employment in trade-related employment sectors. Investment activity is recovering vigorously across all price points as private capital and large investors intensely pursue assets to supplement existing portfolios. Sales of distressed assets continue to occur, but lenders have stepped up efforts to dispose of troubled properties. Large, Class A complexes also remain a target for institutions and other well-capitalized buyer groups, and many trades are occurring at cap rates averaging in the mid-5-percent range. Demand for Class B properties in infill locations is also picking up. Cap rates for this grade of property have fallen from 50 to 70 basis points since early this year to the mid-7-percent range. Properties built since the 1980s remain a common choice among investors in Class B assets, especially if the asset is located in areas with barriers to adding new supply, such as Clearwater and St. Petersburg. Purchasing properties at current cap rates provides investors with attainable upsides based on reasonable expectations of near-term rent growth and additional reductions in vacancy.

2011 Annual Apartment Forecast

2.0% increase in total employment

Employment: Total employment in the metro will expand 2 percent in 2011 through the creation of 22,800 jobs. Only 600 jobs were added in 2010.

100 units will be completed

Construction: Only 100 units will come online in the metro this year, a significant drop from 2,200 new rentals placed into service in 2010. Multifamily permit issuance remains on track to rise 20 percent this year to 2,700 units.

160 basis point decrease in vacancy

Vacancy: Limited construction and steady demand will reduce the vacancy rate 160 basis points this year to 6.3 percent, following a decline of 280 basis points in 2010. Net absorption this year will total more than 2,400 units.

2.1% increase in asking rents

Rents: Following an increase of 1.5 percent last year, asking rents will gain 2.1 percent in 2011 to $826 per square foot. A 2.5 percent rise in effective rents to $779 per month will reduce concessions to 5.7 percent of asking rents this year. In 2010, effective rents climbed 2.3 percent.

Economy

Employment Trends
6%
Number of Units (thousands) Number of Home Price (Y-O-Y Existing Home Price (Y-O-Y Year-over-Year Change Chg.) Median Median Existing Home Price (Y-O-Y Year-over-Year Change Year-over-Year Change Number of Units (thousands) Existing Units (thousands) Chg.) Median Chg.) Metro Area United States

Total employment in the Tampa metro increased 1.9 percent in the first three quarters of 2011. NearlyTrends positions were added, including 19,900 privateVacancy Rate 21,000 sector jobs. TheMetro Area year-to-date results mark a turnaround from the final three quar13% United States ters of 2010, when employers cut 600 positions.
11%

3%
Vacancy Rate

0%

Employment Trends
-3% 6% -6% 3% 0%
Metro Area United States

Job growth in the metro this year has been broad-based, with most private-emsectors resuming hiring. Additions to payrolls in primarily blue-collar sectors Vacancy Rate notable. Collectively, manufacturing, construction and were especially Trends Metro Area 7% trade employers created 4,600 jobs year to date through the third quarter. 13%
9% ployment
United States

* Forecast Sources: Marcus & Millichap Research Services, BLS, Economy.com

-3% 6% 10% -6% 3% 07 0% 0% -10% -3% -20% 10% -6% -30% 0% 07 07 -10% -20% 10% 8 -30% 0% 07 6

Employment Trends Home Price Trends

Metro Area Metro Area United States United States

Vacancy Rate Median Price per Unit (thousands) Price per Unit (thousands)Price per Unit Change Median Median Year-over-Year (thousands)Year-over-Year Change Year-over-YearRate Vacancy Change

07

08

09

10

11*

11% 5%

* Forecast Sources: Marcus & Millichap Research Services, Reis

Steady hiring in high-paying sectors is generating demand for Class A apartments 07 08 09 10 11* in the metro. Employers in the professional and business services sector created 9% 4,600 new jobs year to date and financial services expanded by 3,000 positions.
Vacancy Trends Rent Rate Trends will add 22,800 jobs in the metro, marking a This Metro Rent year, employers Asking Area United States significant increase from the meager 600 positions added in 2010. Effective Rent
08 09 10 11*

7% Outlook: 13% 6% 5% 11% 07 3%

08

09

10

11*

* Forecast Sources: Marcus & Millichap Research Services, BLS, Economy.com

* Forecast Sources: Marcus & Millichap Research Services, Reis

Housing and Demographics

9% 0%

Home Price Trends

Metro Area United States

Low prices supported a 17 percent increase in the number of existing singlefamily homes soldTrendsthe 12 months ending in the third quarter. Residences Rent during 7% Asking Rent sold during the period carried a median price of $124,400, marking a decline of -3% 6% 4 percent fromEffective Rentearlier. one year
5% -6% 3%

* Forecast * Trailing 12-Month Period Sources: Marcus & Millichap Research Services, BLS, Economy.com Sources: Marcus & Millichap Research Services, Economy.com, NAR

08 08

09 09

10 10

11* 11*

* Forecast * Forecast Sources: Marcus & Millichap Research Services, Reis Sources: Marcus & Millichap Research Services, Reis

Home Price Trends ConstructionTrends

Metro Completions Apartment Area United States Multifamily Permits

Single-family home construction trends remain benign. Permit issuance ticked up 0% 3 percent over the past year to about 4,500 units, while construction started on 4,400 new residences, roughly the same number as the preceding year. Rent Trends Sales Trends -3%
Effective Rent demand should remain strong this year, as a re-invigorated job market -6% will spur the creation of 9,200 new households, a 0.8 percent increase.

07 07

08

09

10

11*

6% $80 Housing 3% 07 $60 0% $40

Asking Rent

08

09

10

11*

08

09

10

11*

* Trailing 12-Month Period Sources: Marcus & Millichap Research Services, Economy.com, NAR

* Forecast Sources: Marcus & Millichap Research Services, Reis

-10% 4

Construction Trends
-20% 2 8 0 -30% 6 07 4
Apartment Completions Multifamily Permits

Outlook: The single-family housing market continues to stabilize, but low prices alone may not encourage renters to make the jump to homeownership. Lending Sales Trends criteria remains tight and down payment requirements are high, which will com-3% $20 $80 many renters to defer home purchases. pel
-6% $0 $6007 08 09 10 10 11* 11*

07

08 08

09 09

10 10

11* 11*

* Trailing 12-Month Period Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau Economy.com, NAR

Forecast * Trailing 12-Month Period Sources: Marcus & Millichap Research Services, Reis Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

07 08 Construction 09

No $40

2 8 0 6 4 2 0

Construction Trends
Apartment Completions Multifamily Permits

07

08

09

10

11*

* Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau

containing about 1,100 units are under construction and scheduled for $0 delivery in 2012. Three developments in the North Hillsborough market account 07 08 09 10 11* $60 for nearly all * Trailing 12-Month Period of the new rentals slated to come online next year.

$20 $80 Projects

market-rate projects were completed in the third quarter this year. Over the past 12 months, only the 325-unit Fusion 1560 in St. Petersburg came online. Sales Trends

Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

$40

Approximately 4,500 units are planned, including 1,200 rentals in the Central Tampa submarket. Permits for multifamily housing, an indicator of future con$20 struction, rose 9 percent year over year in the third quarter to 3,000 units.
$0

07

08

09

10

11*

* Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau

07 08 09 10 Outlook: Developers will complete11* 100 units this year. An average 2,500 only * Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc.,the past decade. units were completed annually over RCA

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Marcus & Millichap

Apartment Research Report

Vacancy

Marketwide vacancy ticked down 20 basis points in the third quarter to 6.7 percent Employment Trends on net absorption of approximately 300 units, marking the seventh consecutive quarMetro 6% ter of demand growth. Year to date, vacancy has declinedUnitedArea points. 120 States basis
Year-over-Year Change

Vacancy Rate Trends

13% 11%
Vacancy Rate Metro Area United States

3% In the Class A tier, vacancy was 5.4 percent at the end of the third quarter. Nearly 700 additional high-end rentals were occupied during the first nine months of the year. Nonetheless, demand growth has eased, 0% more than 2,800 units were absorbed in as the preceding three quarters. Employment Trends

9% 7% 13% 5% 11% 07 9%

Number of Units (thousands) Median Existing Home Price (Y-O-Y Chg.) Number of Units (thousands) Number of Units (thousands) Existing Home PriceMedian Existing Home Price (Y-O-Y Chg.) Median (Y-O-Y Chg.) Year-over-Year Change Year-over-Year Change

* Forecast Sources: Marcus & Millichap Research Services, Reis

0%

Outlook: Metrowide, vacancy will decrease 160 basis points this year to 6.3 percent. Home Price Trends Employment Trends Vacancy plunged 280 basis points in 2010. -3% Metro Area Metro Area 6%
10%
United States United States

Vacancy Rate

The Class B/C vacancy rate slid 20 basis points in the third quarter to 7.6 percent. -6% New rental households filled an additional07 3% 1,100 lower-tier units in the first three 08 09 10 11* * Forecast quarters, reducing the vacancy rate 130 basis points. Research Services, BLS, Economy.com Sources: Marcus & Millichap

-3% 6%

Vacancy Rate Trends

Metro Area United States

Metro Area United States

08

09

10

11*

7% 13% 6% 5% 11% 3% 07 9% 0%

Rent Rate Trends VacancyTrends

Asking Rent Metro Area Effective Rent United States

-6% 3% 07 0%

08

09

10

11*

Year-over-Year Change Vacancy Rate

Rents

* Forecast At $820 per month at the end of the third quarter, Millichap Research Services, BLS, in the metro average asking rents Economy.com Sources: Marcus & 0% -10% have increased 1.4 percent so far this year. Asking rents surged 0.7 percent from July to September. Home Price Trends

08

09

10

11*

* Forecast Sources: Marcus & Millichap Research Services, Reis

Median Price per Unit (thousands) Median Price per Unit (thousands) Price per Unit (thousands) Median Year-over-Year Change Year-over-Year Change

Despite minimal competition from new projects, leasing incentives were unchanged -6% -30% at 5.9 percent of asking rents in the third quarter. Effective rents rose 0.8 percent to 07 08 09 10 11* 0% 07 08 09 10 11* * * Forecast advanced $772 per month during the period andTrailing 12-Month&Period 1.6 percent year to date. have Sources: Marcus Millichap Research Services, Economy.com, NAR
Sources: Marcus & Millichap Research Services, BLS, Economy.com

-3% -20% 10%

Metro Area United States

7% -3% 6% 5% -6% 3%07 07 0%

Rent Trends
Asking Rent Effective Rent

08 08

09 09

10 10

11* 11*

* Forecast * Forecast Sources: Marcus & & Millichap Research Services, Reis Sources: Marcus Millichap Research Services, Reis

So far this year, Class B/C asking rents have increased 1.0 percent to $700 per month, Construction Trends Home Price Trends an improvement from a 0.4 percent uptick in the final three quarters of 2010. In the Apartment Completions -20% Metro Area 10% 8 United States Class A sector, asking rents surged 1.7 percent year toMultifamily Permits the third quarter date through to $9,992 per month, slightly more than -30% rate of increase posted in the preceding the 6 0% 07 08 09 10 11* nine months. * Trailing 12-Month Period
Sources: Marcus & Millichap Research Services, Economy.com, NAR

-10%

-3% 6% $80 -6% 3% $60 07 0% $40

Sales Trends Rent Trends

Asking Rent Effective Rent

08

09

10

11*

Outlook: Asking rents will advance 2.1 percent in 2011 to $826 per square foot. Construction Trends Concessions will tick down to 5.7 percent2 of asking rents as effective rents rise 2.5 -20% Apartment Completions 8 percent to $779 per month. Multifamily Permits
* Forecast 12-Month Period * Trailing Sources: Marcus & & Millichap Research Services, Economy.com, NAR Sources: Marcus Millichap Research Services, U.S. Census Bureau

4 -10%

* Forecast Sources: Marcus & Millichap Research Services, Reis

$20 -3% $80 $0 -6% $6007 07 $40 $20 $80 $0 $60 $40 $20 $0 07

Sales Trends

Sales Trends**

0 -30% 6 07 07

0808

09

10 10

11* 11*

The number of apartment complexes sold nearly tripled in the past year as investors 4 gained greater access to financing and buyers and sellers pricing Trends Construction expectations narrowed. More than 12,000 units traded in deals pricingApartment Completions million. at more than $10 2
8
Multifamily Permits

* Trailing 12-Month Period * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA Sources: Marcus & Millichap Research Services, Reis

0808

09 09

10 10

11* 11*

Sales Trends

Prices appear to be stabilizing. The median0price of properties sold in the past year 6 07 08 09 10 11* declined 4 percent $40,100 per unit. In Forecast year before the recession, the median * the last Sources: Marcus & Millichap Research Services, U.S. Census Bureau price was $65,600 per unit. 4 Cap rates for the newest Class A properties 2 have settled in the mid-5-percent range, while heightened interest in Class B properties in infill locations has reduced cap rates to the mid-7-percent range. Class C apartments trade at approximately 8 percent. 0
07 08 09 10 11*

08

09

10

11*

* Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

07

08

09

10

11*

Outlook: The market continues to ride a wave of positive trends, as employment is expanding and property operations are strengthening. Further reductions in vacancy and the easing of concessions will continue to encourage investors and sustain an intense bidding climate.

* Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau

* Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

** Data reflect a full 12-month period, calculated on a trailing 12-month basis by quarter.

Marcus & Millichap

Apartment Research Report

page 3

Capital Markets
By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation

Visit www.NationalMultiHousingGroup.com or call:

Increased Fed intervention, such as Operation Twist, should keep interest rates relatively low over the near term. As of late-October, the yield on the 10-year Treasury was hovering around 2.3 percent, approximately 175 basis points below the 10-year average. Apartment mortgage originations more than doubled in the first half of 2011 when compared with the same period last year, driven largely by agency lenders Fannie Mae and Freddie Mac, life insurance companies and local/regional banks. While agency originations increased over past year, the re-emergence of life companies and banks caused their market share to drop from 62 percent in 2010 to 44 percent in the first half. Lenders view apartments as preferred assets and are moving down the quality chain to finance Class B properties in strong locations, encouraged by healthy occupancy gains and firming values. Nonetheless, financing lower-tier properties in secondary and tertiary markets remains a challenge. Portfolio lenders generally originate new loans at 55 percent to 75 percent LTVs, while agency lenders provide up to 80 percent leverage on high-quality assets in core metros. All-in rates for $3 million-plus mortgages start around 3.75 percent for a five-year term, with seven-year loans pricing in the low- to mid-4-percent range, and 10-year notes averaging 4.5 percent to 5.0 percent. All-in rates for smaller loans are typically 10 to 25 basis points higher.

John Sebree National Director National Multi Housing Group Tel: (925) 953-1700 john.sebree@marcusmillichap.com

Submarket Overview

In the North Hillsborough submarket, a total of 1,040 rentals will be delivered next year, expanding rental stock 5 percent. The largest of the projects underway is the 486-unit Colonial Grand at Hampton Preserve, which is slated for delivery in the fourth quarter. Although multifamily permit issuance rose over the past year, future construction in Pinellas County will be limited. Approximately 30 units were permitted in the third quarter, down from a similarly small 83 units during the corresponding period in 2010. Outside of the metro, vacancy in Manatee and Sarasota counties declined 110 basis points in the third quarter to 5.6 percent. Year to date, however, the vacancy rate has ticked up 50 basis points. Average rents ticked up 2.1 percent from July to September, to $883 per month.

Prepared and edited by Senior Market Analyst Research Services For information on national apartment trends, contact Vice President, Research Services Tel: (602) 687-6700 ext. 6803 john.chang@marcusmillichap.com

Art Gering

John Chang

Regional Manager bmerrey@marcusmillichap.com 7600 Courtney Campbell Causeway Suite 920 Tampa, Florida 33607 Tel: (813) 387-4700 Fax: (813) 387-4710 Price: $150

Bryn Merrey

Tampa Office:

Submarket Vacancy Ranking

Rank
1 2 3 4 5 6 7 8 9 10

Submarket
Brandon/Plant City North Hillsborough North St. Petersburg Clearwater North Pinellas Sulphur Springs MacDill Air Force Base Westshore University North Pinellas Park/Seminole

Vacancy Rate
4.0% 4.4% 5.3% 5.6% 5.6% 5.8% 6.1% 6.1% 7.1% 7.5%

Y-O-Y Basis Point Change

-210 -150 -250 -160 -190 -340 -190 -160 -250 -190

Effective Rents
$859 $830 $789 $763 $797 $708 $902 $817 $646 $728

Y-O-Y % Change
3.5% 2.3% 3.7% 0.3% 3.0% 1.4% 3.4% 3.2% 1.4% 6.0%

Marcus & Millichap 2010 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 using seasonally adjusted quarterly averages. Sales data includes transactions valued at $500,000 and greater unless otherwise noted. Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics, CoStar Group, Inc., Economy.com, National Association of Realtors, Real Capital Analytics, Reis, TWR/Dodge Pipeline, U.S. Census Bureau.