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MARKET INSIGHTLEXINGTON, KENTUCKY MULTIFAMILY REPORT | SECOND QUARTER 2018
CUSHMAN & WAKEFIELD | COMMERCIAL KENTUCKY LOUISVILLE MULTIFAMILY RESEARCH
The Cushman & Wakefield | Commercial Kentucky Multifamily Research Team provides in-depth coverage of the Lexington Metropolitan Statistical Area. In addition to analyzing multifamily rent and sale trends, these reports examine employment data, key economic announcements, and development pipeline news.
RESEARCH & SALES TEAM
IN THIS EDITION
CRAIG COLLINSSENIOR [email protected]
MIKE KEMETHERVICE CHAIR, MULTIFAMILY ADVISORY [email protected]
1L EXI N GTON , KEN T UCKYMARKET INSIGHTSecond Quarter 2018
The following are select announcements from second quarter 2018:
In January 2018, the Lexington Metro area’s unemployment rate was the lowest it has been in a decade. Employment in the Lexington Metro area continues to outperform Kentucky and the U.S.
The Federal Reserve Bank of Cleveland noted in May 2018, that growth in the Lexington Metro area continues at a steady pace as evidenced by a decreasing unemployment rate, increasing employment, increased median home values, stable levels of consumer debt and historically low credit card delinquency rates.
Average Q2 employment increased by 3,175 jobs.
Average Q2 unemployment decreased to 3.1%.
+1.2 -80% Y O Y B P S Y O Y
ECONOMIC EXPANSION
EMPLOYMENT GROWTH
JOB GROWTH & UNEMPLOYMENT RATE
Xooker, the Lexington-based mobile marketing company is expanding regionally as part of a planned national rollout. The company began doing business in Lexington 17 months ago after two years of development and testing. With their national rollout, Xooker predicts 300 jobs in Lexington.
Windstream announced an investment of $2 million in high-speed internet infrastructure improving network speeds to approximately 30,000 Lexington households.
Toyota announced a wave of changes in the Georgetown plant this year, including a $1.33 billion investment in the company’s largest plant in the world.
Louisville-based ARGI Financial Group is expanding to Lexington with a new office. The company, provide personal and business financial advising and has offices in Bowling Green, KY, Elizabethtown, KY, Cincinnati, OH, Indianapolis, IN, Grand Rapids, MI and Norwalk, CT.
a
As of the end of May 2018, unemployment rates in the Lexington area experienced a decline from 3.5% (as of Q1 2018) to 3.1%. Lexington’s unemployment rate continues to stay well below the national average, which was 3.8% for the same period.
EMPLOYMENT & UNEMPLOYMENT TRENDS
LEXINGTON JOB GROWTH TRENDS
LEXINGTON METRO AREA
Q2 2017 Q4 2017 Q2 2018
EMPLOYMENT (% Change) 1.2% 0.6% 0.8%
UNEMPLOYMENT RATE (%) 3.9% 2.9% 3.1%
Source: Bureau of Labor Statistics
EMPLOYMENT IN THOUSANDS
Source: Cushman & Wakefield | Commercial Kentucky
a
248000
250000
252000
254000
256000
258000
260000
262000
264000
266000
Q3 Q4 Q1 Q2
2016 2017 2018a
a
2L EXI N GTON , KEN T UCKYMARKET INSIGHTSecond Quarter 2018
Occupancy rates are at 93.4% overall. This is down 1.5% from year-end 2017 occupancy rates of 93.6%. Highest submarket occupancies are North Circle (at 95.5%) and South Circle (at 94.8%).
Average rents for 1 BR units are at $710/mo. with average rents for 2 BR units at $1,001/mo. While rental rates throughout the Lexington Metro are up slightly, rates for both 1 and 2 BR unit rentals should continue to rise.
Effective rents in the Lexington Metro market have grown from $821/mo. in Q1 2017 to $841/mo. in Q2 2018. These rents are forecast to see modest increases through the end of 2018. Q1 2018 REIS report notes that Lexington has the 3rd fastest rent growth in the nation and the 2nd fastest in the South Atlantic region.
870 units were completed in 2017, and just over 1,000 units are under construction in the Lexington area. An additional 1,761 units are planned throughout the Metro Lexington area.
A recent Fayette County Housing Demand study forecasts household growth to yield an overall demand of 22,780 new housing units by 2025 - at least 6,275 of them multifamily.
The Lexington Metro population is projected to grow by 21% between 2015 and 2040.
The following are Cushman & Wakefield’s projections over the near term:
MULTIFAMILY TRENDS
HISTORICAL & FORECASTED METRO RENT GROWTH RATES
DEVELOPMENT / INVENTORY
DEMOGRAPHIC FUNDAMENTALS
Average Occupancyincrease of 0.7% from 6/2017
LEXINGTON RENT GROWTH RATES
93.4%
MULTIFAMILY FORECAST
VACANCYREN TS P IP EL INE % G ROWTH
Source: AXIOMetrics / REIS Forecast is 12-month outlook
2000: 408,3262010: 459,7612016: 495,1932021: 523,479
Current%: 44.69Current #: 48,399
Current: $108,847
POPULATION
PERCENT RENTER
HOUSEHOLDS
AVERAGE HOUSEHOLD
INCOME
Respective Average Rental Ratefor 1 and 2 BR units from 6/2017
2.0% and 2.6%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18
3L EXI N GTON , KEN T UCKYMARKET INSIGHTSecond Quarter 2018
Multifamily investment activity for Q2 2018 in the Lexington MSA is down from an exceptional Q1 2018 period when over 1,600 units sold.
Regional and national apartment funds continue to become more active players for acquiring multifamily in the Lexington marketplace in 2018. Private capital also continues to play a major role in the market.
Class A – Miller Valentine sold Waterstone at Hamburg Place (264 units) located in the East Fayette submarket to Waypoint. The sale price was $165K per unit.
Class A – Covenant Capital Group sold The Racquet Club (474 units) to Strata Equity for $108K per unit. The asset is located in the East Fayette submarket.
Class B – Priderock Capital, LLC sold Stoney Brooke Apartments (232 units) AND Raintree Apartments (480 units) to New Stoney Brooke, LLC. Both properties sold for $78K per unit and both are located in the East Fayette submarket. This sale represented the largest sale in the Lexington market in 2017.
The market’s mid-quartile spread is 6.6% to 6.5%, holding steady with trailing 12 month trends from the last quarter.
INVESTMENT ACTIVITY
NOTABLE SALES
PRICING & CAP RATES
HISTORICAL SALES VOLUME
Source: Real Capital Analytics, Commercial Kentucky | Cushman & Wakefield Research
Source: Real Capital Analytics, Commercial Kentucky | Cushman & Wakefield Research
$-
$20
$40
$60
$80
$100
$120
$140
$160
Q3
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Volu
me
in M
illio
ns
CHANGE IN SALES (YOY) AVERAGE CAP RATE
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
12/1
/201
3
3/1/
2014
6/1/
2014
9/1/
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12/1
/201
4
3/1/
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/201
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12/1
/201
6
3/1/
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6/1/
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9/1/
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12/1
/201
7
3/1/
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National Average Lexington Average
4L EXI N GTON , KEN T UCKYMARKET INSIGHTSecond Quarter 2018
SUBMARKET OVERVIEW SELECT MSA NEWS
• Construction has begun on Continental Properties’ 312-unit Springs at Hamburg apartment complex. This complex is Continental’s sister property to Springs at Winchester, with each complex located on either side of Frederick Douglass High School.
• Last August, the former Crossland Economy Studios at Patchen Village was dilapidated. Lexington developer, Norwood Cowgill renovated it into apartments targeted at millennials and delivered the deluxe Studios at Patchen in March of this year.
• Commonwealth Village, a fixture of apartment living near the University of Kentucky campus, was sold in May to Norwood Cowgill, who now plans to renovate the property into a new apartment community called The Axis at 1435.
• Ball Homes is seeking city approval to build on a 20-acre parcel that the Fayette County Schools opted not to purchase. Ball Homes is already developing an adjacent 90 acres off of Squire Road with single family homes, townhouses and apartments, including the 308-unit complex called The Peninsula.
• Thirteen years after its first two buildings went up, Hamburg still looks prosperous to Ball Homes, the developers of the Brighton 3050 apartment complex. The first two buildings of the complex have been updated, and a total of three more are planned. One is now being built. One of the future buildings will have room for retail and offices. When the five buildings are completed, Brighton 3050 will have 372 apartments, including one-, two- and three-bedroom models.
UNDER CONSTRUCTION BY SUBMARKET
Source: Cushman & Wakefield | Commercial Kentucky Research
420
465
119
0 00
50
100
150
200
250
300
350
400
450
500
East Fayette West Fayette North Circle Campus Area South Circle
Copyright © 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.
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commercialkentucky.com
Craig CollinsSenior DirectorCushman & Wakefield | Commercial Kentucky 333 East Main Street, Suite 510Louisville, KY 40202 Tel: +1 502 589 5150 [email protected]
Mike KemetherVice Chair, Multifamily Advisory GroupCushman & Wakevield1180 Peachtree Street, Suite 3100 Atlanta, GA 30309 Tel: +1 404 853 5269 [email protected]
