OHIO MARKET REPORT · CINCINNATI COLUMBUS DAYTON 7 multi-family market NET ABSORPTION, NET DELIVERIES, & VACANCY RATE 4.0% 4.6% 5.2% 5.8% 6.4% 7.0% 7.6%-600-300 0 300 600 900 1,200

OHIO MARKET REPORTcincinnati columbus dayton

CINCINNATI

cincinnati overview

4 CINCINNATI COLUMBUS DAYTON

2,235units delivered

in last twelve months

3.9%rent growth


95.4%occupancy rate for apartments

in MSA

250units absorbed


cincinnati overview

5CINCINNATI COLUMBUS DAYTON

The commercial real estate market, and specifically the multi-family housing market, showed no signs of slowing down in 2017. A large portion of demand has been concentrated in the Cincinnati CBD, where the city is involved in downtown revitalization and employment growth is strong.

Over the decades, Cincinnati has dealt with challenging demographic trends; however, the city is experiencing an urban resurgence. A steadily diversifying economy and a revitalized downtown are helping the metro to retain educated workers and have accelerated Cincinnati’s economic growth. Approximately 32% of the population aged 25 years or older holds a bachelor’s degree or higher; 7% higher than the rest of Ohio. With 10 Fortune 500 companies headquartered here, Cincinnati is gaining a white-collar economic identity. Employment in manufacturing sectors, which hemorrhaged jobs after the recession, is growing again, thanks to the region’s status as a hub of aerospace manufacturing.

JOB GROW TH

1.1M workers in

greater cincinnati

3.8% unemployment

rate

10 fortune 500 companies headquartered in msa

$54,400 average annual earnings

in cincinnati

ECONOMIC DE VE LOPME NT

1,100 Paycor: human resources and payroll software provider adding 1,100 jobs in its effort to double its workforce by 2021.

219 Encore Technologies: data center operator and IT service company to add 219 jobs and make $18.3M in capital investments.

150 Path Forward: IT consulting company plans to add 150 jobs.

100 Ford: area Ford Transmission plant is expanding to add 100 new positions.

120 Ascendum Solutions: IT services company adding 120 jobs and making $2.5M in capital investments.

50 Equator Design: international packaging design and branding agency will open a creative workspace bringing 50 new jobs.

TOTAL NON FAR M EMPLOYME NT TRE N D

1,040

1,060

1,080

1,100

1,120Th

ousa

nds

Total Nonfarm Employment Trend - Cincinnati

12-Month Change: +31,800; + 2.96%

Unemployment Rate: 3.8%

cincinnati overview


multi-family marketDevelopers are trying to keep up with robust demand in Cincinnati, which has been generated by strong employment growth and years of pent-up housing demand. Since the beginning of 2016, construction levels have been significantly outpacing historical levels.

While less pronounced than the national average, rent growth remains healthy and sales volume in the MSA is driven by trades of 2- and 3-star assets.

$165M+YTD SALES VOLUME

IN MSA

2.40%10-YEAR

TREASURY YIELD

2,863UNITS UNDER

CONSTRUCTION

M ARKE T OCCUPANC Y AN D RE NT TRE N DS

94.1%

94.9%

95.7%

96.5%

$830

$855

$880

$905

$930

1Q16 3Q16 1Q17 3Q17

Market Rent Occupancy Rate

SUBM ARKE T BRE AKDOWN

Q4 2017 DELIVERIES/NET ABSORPTION OCCUPANCY* AVG. RENT AVG. RENT INCREASE

Major Submarkets T12 Delivered Units T12 Net Absorption 2016 Q4 2017 Q4 % pts 2016 Q4 Avg. Rents

2017 Q4 Avg. Rents

$ Change in Avg. Rent

% Change in Avg. Rent

Downtown 517 -18 94.2% 94.8% 0.6% $1,546 $1,547 $0 0.0%

Uptown 255 183 97.2% 97.0% -0.2% $1,071 $1,153 $82 7.6%

Hyde Park/Kenwood - 90 95.9% 95.8% -0.2% $1,167 $1,228 $60 5.2%

Northwest - -86 96.6% 94.6% -2.0% $781 $788 $7 0.9%

Southwest - 35 94.7% 95.7% 0.9% $648 $673 $25 3.9%

Anderson/Mt. Washington - 11 95.4% 96.2% 0.8% $847 $886 $39 4.6%

Tri-County 227 -86 98.2% 97.1% -1.1% $801 $807 $6 0.8%

Butler/Warren County 883 363 94.8% 96.2% 1.4% $978 $1,021 $43 4.4%

Clermont County - -44 96.4% 96.7% 0.3% $743 $779 $36 4.8%

Northern Kentucky 353 -198 95.2% 94.5% -0.6% $778 $793 $15 1.9%

Totals/Averages* 2,235 250 95.8% 95.4% -0.4% $886 $921 $35 3.9%

*Simple average applied to calculate submarket occupancy.

Class A: Q4 2017Occupancy Avg. Rent

98.0% $1,609Class B: Q4 2017

Occupancy Avg. Rent95.2% $1,142

Class C: Q4 2017Occupancy Avg. Rent

95.6% $725


multi-family marketN E T ABSORP TION , N E T DE LIVE RIES , & VAC ANC Y R ATE

4.0%

4.6%

5.2%

5.8%

6.4%

7.0%

7.6%

-600-300

0300600900

1,2001,5001,8002,1002,4002,700

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Deliveries Net Absorption Vacancy

NOTABLE FAC TS & F IGURES

The typical sale price for communities around the Cincinnati metro is just over $1.5 million, and the median price per unit is around $60,000/unit. The median cap rate in Cincinnati is in the 7.2% range, which is slightly higher than the median for the nation.

Average annual returns are currently at 6.0%, which is higher than the national mean of 3.3%.

SUBM ARKE T AC TIVIT Y

While there is seemingly demand all over the metro, the CBD and Over-the-Rhine (OTR) districts continue to be two of the most active neighborhoods, with OTR appealing to Millennials and Downtown targeting more of the empty nester crowd.

The downtown district isn’t the only one thriving. More suburban submarkets such as East, Northern Kentucky, and Butler/Warren Counties are becoming increasingly attractive areas to rent in with a growing retail presence; thus, demand has been strong over the last year.

RE NTE R PROFILE

As younger generations continue to rent rather than own, developers are constructing modern apartment buildings everywhere from large downtown metropolitans to small college towns in the Midwest. Residents are willing to pay a premium to live in an atmosphere flush with amenities like Nippert Stadium, the Great American Ball Park, and an array of bars and restaurants.

In 21 U.S. cities with a population of 100,000 or more, more than 50% of the households are made up of renters. Per research from ABODO, the number of cities that can claim this is only going to grow.

COLUMBUS

columbus overview




4.6%rent growth



in MSA

2,715units absorbed


columbus overview


As the state capital, Columbus’ economy is sheltered from extreme economic swings by its heavy concentration of government, education, and health services jobs, as well as by its status as home of Nationwide Insurance. This solid base has fostered robust economic growth, plentiful jobs, and population growth, bringing in residents from across the country; the metro’s population has climbed by more than 7% this cycle.

Fueled by a low cost of business and educated workforce, Columbus’ economic expansion is forecasted to continue. This drives strong demand for multi-family projects, and in spite of the heavy volume of deliveries this cycle, vacancy rates have stayed under historical expectations. The apartment market in Columbus is booming and shows no indication of oversaturation. Over 2,500 units were delivered in 2016, but vacany has held steady in the last 12 months.

JOB GROW TH

1 million workers in

greater columbus

3.7% unemployment

rate

14 fortune 1000 companies headquartered in msa

$59,000 median annual income

in columbus metro


700 United Healthcare: healthcare data management service is opening a new facility bringing 700 jobs.

400 Exel: part of DHL Supply Chain, Exel is opening a new facility bringing 400 new jobs.

386 Huntington National Bank: financial and IT service company is expanding to add 386 jobs.

272 FacilitySource: a tech-enabled facility management firm will expand its operations to double current staff level.

150 Homeside Financial: one of the fastest growing mortgage lenders in the U.S. will expand its operations to add 150 new jobs.

145 TSYS: electronic payment processor plans to open a card-production facility in Columbus, adding 145 jobs.


1,040

1,060

1,080

1,100

1,120

Thou

sand

s


Rents have climbed by more than 20% this cycle across the metro; however, the rates remain well below the national average. Renters can easily afford an apartment with an annual income of around $35,000 ($24K lower than the median household income).

Since 2010, developers have expanded the inventory pool by nearly 15%, but with the job growth routinely eclipsing national figures, fundamentals continue to outperform historical averages.


IN MSA

2.40%10-YEAR

TREASURY YIELD

7,270UNITS UNDER

CONSTRUCTION


94.0%

94.8%

95.6%

96.4%

97.2%

$780

$810

$840

$870

$900

$930

1Q16 3Q16 1Q17 3Q17





2017 Q4 Avg. Rents



Downtown 443 292 93.7% 94.1% 0.3% $947 $981 $34 3.6%

University Area 571 267 98.3% 97.9% -0.4% $1,117 $1,171 $54 4.8%

Dublin/Hilliard 340 618 96.1% 96.6% 0.6% $1,007 $1,045 $38 3.8%

East Columbus 64 18 95.8% 95.9% 0.1% $790 $817 $27 3.5%

Southwest 184 -212 96.3% 96.8% 0.5% $957 $993 $37 3.8%

Northeast - 81 96.5% 95.4% -1.1% $727 $753 $26 3.6%

Gahanna/New Albany 431 552 96.9% 96.7% -0.2% $1,053 $1,090 $38 3.6%

South Columbus 282 215 96.8% 95.5% -1.3% $843 $868 $25 3.0%

Northwest 440 474 96.6% 96.8% 0.2% $1,007 $1,056 $49 4.8%

Worthington/Westerville 144 186 96.2% 96.0% -0.2% $889 $921 $32 3.6%

Delaware County 296 224 96.7% 96.0% -0.6% $1,096 $1,192 $95 8.7%

Totals/Averages* 3,195 2,715 96.2% 96.2% 0.0% $876 $916 $40 4.6%



94.6% $1,480Class B: Q4 2017

Occupancy Avg. Rent96.4% $1,023


95.8% $732

multi-family market

columbus overview


multi-family marketN E T ABSORP TION , N E T DE LIVE RIES , & VAC ANC Y R ATE

4.0%

4.8%

5.6%

6.4%

7.2%

8.0%

-150

450

1,050

1,650

2,250

2,850

3,450

4,050

4,650

5,250

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022


NOTABLE FAC TS & F IGURES

Columbus’ population recently surpassed that of Indianapolis, becoming the nation’s 14th largest city.

Volume has trended up for much of the cycle, peaking in 2014 when total investment was over $860 million. Multiple portfolio purchases lead to figures spiking that year, with 15 assets trading for $20 million or higher.


The construction already underway Downtown, the hottest submarket in the MSA, will begin to transform city life in the upcoming year. Columbus has never had a live/work/play environment in the heart of the city, and such an influx of new residents will likely promote growth in retail and office stock, increasing demand for space in the city. Close to 2,000 new units are expected to deliver in 2018.

Despite the popularity of the downtown, suburban submarkets such as Northeast Columbus and Dublin/Hilliard have been receiving attention over the last year. Construction has been heaviest in the Dublin/Hillard Submarket, where over 5,300 units delivered since 2010. The emphasis here has been on two-bedroom homes, showing that developers are catering to young families, given the large employment base in the area.

RE NTE R PROFILE

A quarter of the metro’s population is 20–34 years old, and the 66,000 students enrolled at Ohio State provide a robust base level of demand. The cultural and commercial options are helping keep Ohio State students in place after graduation, attracting Millennials from across the country, which means demand for space continues to grow.

DAYTON

dayton overview




1.3%rent growth



in MSA

634units absorbed


dayton overview


Although Dayton was hit especially hard by the recession, recovery in Dayton is in a holding pattern. Positive indicators include year-over-year job growth, median household-income growth that is on par with the national average, and an unemployment rate below 5%. Defense, manufacturing, and healthcare dominate the industry makeup of Dayton. Wright-Patterson Air Force Base is the metro’s largest employer at 27,000, and should provide it with long-term economic stability. Honda employs 2,400 people in Dayton, so the metro should benefit from the nation’s increased appetite for new vehicles.

As unemployment and vacancy rates stabilize, development has picked up significantly: more than 1,000 units had delivered annually as of 17Q4.

JOB GROW TH

393,000 workers in dayton

4.2% unemployment

rate

TOP 5 best business climates

in the nation

$53,000 median household income

in dayton region


1,000 Amazon: retail and e-commerce giant plans new fulfillment center south of Dayton providing 1,000 new jobs.

100 Hematite, Inc: automotive supplier and manufacturer announced expansion into US with 100 new jobs.

85 Topre American: Japanese auto part manufacturer building a new plant in the region adding 85 jobs.

68 Cornerstone Research Group: defense contractor relocating to MSA bringing 68 new jobs.

40 Norwood Medical: medical device manufacturing plans to add another building to their fleet with 40 new jobs.


370

380

390

400

410

Thou

sand

s

dayton overview


Renter demand, which has been fairly steady, mainly stems from the blue-collar population that rents Dayton’s abundant old, low-quality inventory for its affordability. However, solid leasing for the wave of new construction shows that demand for new product does exist.

Rents have been growing modestly but steadily, between 1.5% and 3% annually over the past five years, while vacancies have slowly compressed to healthier levels.


IN MSA

2.40%10-YEAR

TREASURY YIELD

895UNITS UNDER

CONSTRUCTION


94.0%

94.8%

95.6%

96.4%

$650

$680

$710

$740

$770

1Q16 3Q16 1Q17 3Q17





2017 Q4 Avg. Rents



Downtown 138 -14 94.6% 94.6% 0.0% $845 $913 $68 8.1%

Dayton—East - -24 96.2% 95.2% -1.0% $753 $772 $19 2.5%

Dayton—West - 475 97.4% 96.9% -0.5% $599 $610 $10 1.7%

West Carrollton/Moraine - -11 95.2% 95.9% 0.7% $739 $749 $9 1.3%

Trotwood - - 95.5% 95.3% -0.2% $591 $620 $29 4.8%

Fairborn/Huber Heights 102 66 96.2% 96.4% 0.2% $709 $715 $6 0.9%

Englewood/Vandalia - -6 95.9% 95.9% 0.0% $654 $657 $2 0.4%

Centerville/Miamisburg 405 139 95.4% 93.3% -2.2% $890 $890 $0 0.0%

Springfield/Xenia - -8 95.9% 94.9% -1.0% $738 $746 $8 1.1%

Miami County 287 17 94.7% 96.5% 1.8% $838 $825 -$13 -1.6%

Preble County - - 100.0% 100.0% 0.0% $549 $556 $7 1.2%

Totals/Averages* 932 634 95.7% 95.0% -0.7% $754 $764 $10 1.3%



92.9% $1,173Class B: Q4 2017

Occupancy Avg. Rent95.2% $912


95.0% $653

multi-family market

dayton overview


N E T ABSORP TION , N E T DE LIVE RIES , & VAC ANC Y R ATE

6.0%

7.0%

8.0%

9.0%

10.0%

-100

0

100

200

300

400

500

600

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022


RE NTE R PROFILE

Historically, renter demand is characterized by affordability; thus, existing inventory largely comprises 1-, 2-, and 3-star properties. Recently median household income growth has outpaced the national average giving renters more disposable income. This income increase gives developers freedom to build higher-end apartments and thus far, these high-end properties are renting quickly.


Strong leasing in newly constructed properties proves that demand for new, amenity-laden product exists in the metro. For instance, the Water Street Flats delivered in December 2015 and was 95% occupied by September 2016. This 215-unit, 4 Star property in the Central/West Submarket includes amenities such as a clubhouse, a pool, and a fitness center.

Construction is widespread throughout the metro, with projects delivering in four submarkets in the past two years. The Centerville/Kettering Submarket is experiencing especially heavy construction with over 450 units currently in development.

The Beavercreek/Bellbrook submarket is by far the most affluent in Dayton, largely thanks to its proximity to high-paying jobs at the Wright Patterson Air Force Base. The median income of about $85,000 allows landlords to command significantly higher rents than in all other submarkets in the metro. The average unit here rents for 30% more than that in Dayton’s second-most-expensive submarket, Miamisburg/Moraine.

multi-family market

CAPSTONE APARTMENT PARTNERSCINCINNATI OFFICE: 1100 WALNUT STREET CINCINNATI, OH 45202

STASIU GELESZINSKI, CCIM Managing Director

513.417.5588

[email protected]

NATHAN MURPHYSenior Advisor

513.460.5941

[email protected]

SHERIEF GOUDASenior Advisor

513.252.1427

[email protected]

ZACH JANSENInvestment Sales Analyst

513.910.4027

[email protected]

www.CapstoneApts.com

Documents

OHIO MARKET REPORT · CINCINNATI COLUMBUS DAYTON 7 multi-family market NET ABSORPTION, NET DELIVERIES, & VACANCY RATE 4.0% 4.6% 5.2% 5.8% 6.4% 7.0% 7.6%-600-300 0 300 600 900 1,200