Oklahoma City Multifamily Market Survey Year End 2019
2019 was a fun year for the multifamily investment market. While we’re excited about 2020, it’s hard not to wonder if 2019 reached the cyclical peak after crushing 2018’s total sales volume by 23% and surpassing a half billion in sales for the first time ever. A combination of a robust economy with over a decade of solid economic growth along with multifamily investing now becoming mainstream, one must wonder, is this just the new normal? Ten years ago a newly syndicated buyer would have had a difficult time trying to convince a seller that it truly had the ability to close; whereas today, one cannot discount the buying power made by these newly created companies putting family, friends and miscellaneous private capital to work. With the advancement of technology, someone with little experience in this industry can use their personal relationships and create a professional appearing investment company and start to acquire millions in real estate. The bigger concern is no longer their ability to close, but their ability to perform under the current pricing. Properties that have traded three or even four times over the last 6-8 years have nearly had all the value-add pulled from them, with the next buyer having to be even more creative than the one before.
Despite a slightly slower economy, demand remains solid with 2.11 million jobs added in 2019. Although positive, this was the lowest addition of jobs to the US economy since 2011 at 1.4%. Low unemployment fueled income growth, and although solid it was still below expectations, ending a decade of slow but steady economic growth. The average hourly earnings grew by 2.9 percent over the past year to $28.32, and while the weakest annual pace since July 2018 it’s still positive and therefore boosting the average workers buying and leasing power. While it’s interesting that people are talking about the economy slowing, it’s still worth noting that it is still growing, not contracting. If every year was better than the previous year, with record year after record year, then the economy would likely grow too fast and be headed towards a large correction. So the ebb and flow of growth is normal, and as long as it’s moving in a positive direction, then it’s good for the multifamily market.
Many expected interest rates to rise in 2019, therefore causing a reduction in overall multifamily volume; however, as interest rates continued to drop, demand increased. While there are many factors that can affect the multifamily market, there are none as direct as the cost of money. Further, Oklahoma City’s popularity as one of the most affordable cities to live has increased the population by 143,458 between 2010-2018, an increase of 11.64%. Putting this into perspective, during that same time period Los Angeles and New York grew by only 3.61% and 2.11% respectively. With continued population growth, solid wage gains and low cost of capital, the outlook for multifamily in the next 12 to 24 months appears bright.
Today’s apartment residents are not only renting for longer, but they’re staying in their specific units longer. This adds up to the expectation that demand for apartments will only continue to increase, further driving rates higher while pushing vacancy and concessions lower. Between the end of 2018 and 2019 rental rates in Oklahoma City grew 3.33% year over year to a market average of $0.93 overall. Occupancy remained unchanged at 90% and rental concessions lowered slightly to an average of 0.9% overall. Across the metro sub-markets, all experienced positive rent growth with the only outlier in the Urban Core which had isolated drivers such as employment and competition that created downward pressure on specific assets. Even with this negative pressure, overall rents only decreased by 1.01%, or one cent per square foot to an average price per foot of $1.47. With stress in the energy markets, locations with a higher concentration in that workforce may experience continued negative pressure preventing desired increase in rents and the likelihood of more concessions.
Breaking the market down, the largest gain year over year came from Class C assets, with an overall rent growth of a staggering 7.59% to $0.81 per square foot. Likewise, studios and efficiency units had the largest gains in unit types, with an annual increase of 3.48% and 5.26% respectively. Alternatively, Class A properties experienced a slight decrease in their annual rent growth, decreasing 1.65% to an average of $1.30 per square foot. Studying these numbers shows there is significant demand in the workforce housing sector, which was also reflected in the breakdown of average sales price by class.