Download Multifamily Metro Outlook: Inland Empire Fall 2016

Multifamily Metro Outlook: Inland Empire Fall 2016
The Riverside-San Bernardino metro offers an abundance of inexpensive land and proximity to California coastal areas with
higher business and housing costs. In the past, these factors drove the region’s economy though construction of single family
housing as residents seeking less expensive housing moved to the Inland Empire. However, inexpensive land now supports a
thriving logistics industry. The metro receives and warehouses goods from the ports of Los Angeles and Long Beach. Jobs are
also created as these stored goods must be distributed throughout the U.S.
With almost 200,000 jobs created from 2010 to 2015, new residents relocating to the region created strong demand for all
types of rentals at a time when few new multifamily units were added. The net result is a tight market. As of Q2 2016, the
vacancy rate was estimated to be only 3.25 percent and concessions were virtually nonexistent. These trends are likely to
continue into 2017 thanks to continued job growth. Moody’s Analytics estimates that almost 95,000 jobs added to the region
from 2016 to 2018.
A number of factors will continue to support the Inland Empire economy. While logistics is a key driver, defense is also
important with the Fort Irwin Army base employing an estimated 13,800 residents. In addition, alternative energy will become
more of a driver as California seeks to sell emission reduction credits to utilities in other states. In addition, the Blythe Mega
Solar project is the latest to be approved for construction in the region. At the same time, the local housing market is recovering
which has produced construction jobs and strengthening homes prices. Finally, tourism adds a measure of diversification
through resorts such as Palm Springs and the millennial-driven Coachella music festival.
Demographics are also in the metro’s favor, with the population expected to grow by 1.1 percent on average annually over the
next five years, 30 percent higher than the national rate. The metro’s proportion of 21 to 34 year olds, the prime renting cohort,
is 22 percent, well above the nation’s 20.7 percent and this group is likely to grow at double the national average over the next
five years. The metro’s colleges and universities, which include the Claremont Colleges, U.C. Riverside, CA State, San
Bernardino, Cal. Poly Pomona and Loma Linda Medical Center also provide students to support rental housing.
In spite of numerous colleges, the educational attainment is lower on average in the region than it is in the rest of the state,
making it difficult to attract new knowledge-based businesses. As a result, per capita income is $36,000, below the national
average of $48,000, leaving consumers less buying power to drive the economy. There are no Fortune 500 companies.
With over 10 percent of the jobs in trade and warehousing, the economy is highly dependent on the ports of Los Angeles and
Long Beach and is susceptible to both global and domestic economic downturns as well as prolonged labor disputes.
Due to the relative abundance of land, home prices are among the most affordable in Southern California. According to the
California Association of Realtors, 66 percent of households in Riverside and 78 percent of households in San Bernardino can
afford median-priced homes. Should credit guidelines loosen, there could be fewer renters.
Development
The Inland Empire attracts few institutional investors and, as a result, there is a low level of multifamily development. Since
2012, only approximately 2,400 units have been added to the rental stock and under 1,000 units are underway.
Outlook
Relatively little new supply has been added over the past few years and continued above average job growth will ensure
demand for apartment rentals. As a result, the apartment rental supply should remain tight into 2017. Over the next five years,
households in the Riverside-San Bernardino metro area will form at double the national rate. Given the low level of multifamily
development over the past few years, there is likely need for additional supply.
Vacancy and Rent Composite Estimates
10%
9%
8%
7%
6%
5%
4%
3%
2%
Vacancy Rate
National
Inland Empire
Q2 2016: 3.25%
Source: Fannie Mae Multifamily and Economics Research
3%
2%
1%
0%
-1%
-2%
-3%
Asking Rent Growth
National
Inland Empire
Q2 2016: +1.5%
Asking Rent: $1,250
© 2016 Fannie Mae. Trademarks of Fannie Mae.
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5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
CBRE-EA
Q2 2016 Market Inventory:
164,000 Units
Net Absorption
Completions
Vacancy
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
REIS
6,000
5,000
4,000
Net Absorption
Completions
Vacancy
Q2 2016 Market Inventory:
136,000 Units
3,000
2,000
1,000
0
(1,000)
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
CoStar (Formerly PPR)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
10.0%
Q2 2016 Market Inventory:
161,000 Units
Net Absorption
Net Completions
Vacancy
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Annual Rent Growth
8.0%
6.0%
4.0%
CBRE-EA
2.0%
REIS
0.0%
CoStar
-2.0%
-4.0%
-6.0%
-8.0%
© 2016 Fannie Mae. Trademarks of Fannie Mae.
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Construction Bidding/Underway
(10 projects/800 Units/1.0 M Sq. Feet)
CBRE-EA Subm arket
Num ber Total Sq
of
Ft
Projects (000's)
Total
Units
University City/Moreno Valley
2
331
255
Rancho Cucamonga
2
180
192
Fontana/Rialto
2
288
188
Indio/La Quinta/Coachella
1
102
84
San Bernardino
1
61
62
South Ontario/Chino
1
21
17
Riverside/North Magnolia
1
N/A
N/A
© 2016 Fannie Mae. Trademarks of Fannie Mae.
Source: Dodge Data & Analytics
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Multifamily Metro Outlook: The Inland Empire Fall 2016
Fannie Mae Multifamily Economics and Market Research
Tanya Zahalak, Economist
Sources Used
• AxioMetrics
• CBRE-Econometric Advisors
• Bureau of Labor Statistics
• Census Bureau
• CoStar
• Dodge Data & Analytics
• Moody’s Analytics
• Real Capital Analytics
• Reis, Inc.
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Multifamily Economics and Market Research
(EMR) group included in this commentary should not be construed as indicating Fannie Mae's business prospects or
expected results, are based on a number of assumptions, and are subject to change without notice. How this information
affects Fannie Mae will depend on many factors. Although the EMR group bases its opinions, analyses, estimates,
forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these
materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information
underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other
views published by the EMR group represent the views of that group as of the date indicated and do not necessarily
represent the views of Fannie Mae or its management.
© 2016 Fannie Mae. Trademarks of Fannie Mae.
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