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MATRIX MONTHLY

2015 Ends with Multifamily Rents on a High NoteRent Survey | December 2015

National averages include 111 markets tracked by Matrix, not just the 30 metros featured in the report. All data provided by YardiMatrix.

National Average Rents

�� Although U.S. multifamily rents were unchanged in December and have not increased for four months, 2015 proved to be a banner year for property owners. Rents were up by 6.4% on a year-over-year basis in December, among the highest increases in recent years and 190 basis points more than the 4.5% recorded in 2014. The growth continues to be far higher than the 2.8% long-term average.

�� Nationwide, average rents remained at $1,165, or $1 less than the all-time peak that was reached in September and October. December’s 6.4% year-over-year increase is the same as November and 30 basis points less than the cyclical peak of 6.7% that was reached in the fall. The year-end flattening is consistent with a normal seasonal pattern.

�� The final results for 2015 show that rent gains were led by outsize increases in metros on the West Coast and in the Pacific Northwest. Portland (14.8%), Sacramento (10.7%), Seattle (10.5%) and San Francisco (11%) all produced double-digit increases, with Los Angeles (9%) rounding out the Top 5.

�� Going forward, we expect rent growth to cool somewhat but continue to be above the historical average. Nationwide, demand will remain robust as the large Millennial generation reaches renter age and many of its members form households, while empty-nest Baby Boomers increasingly trade down from oversize houses. That will enable the market to absorb the increase in supply in most metros. We anticipate 335,000 completions in 2016, a 2.9% increase in stock, but absorption will keep vacancy rates low. The economy should continue to produce roughly 200,000 jobs a month. Given all those factors, we project rents will grow by 4.5% in 2016.

Year-Over-Year Rent Growth—All Asset Classes

2.8% 8-Year Avg

Matrix Monthly | December 2015 2

Trailing 3 Months Sequential—Lifestyle Asset Class

Trailing 3 Months Sequential—Rent by Necessity Asset Class

Trailing 3 Months Sequential—All Asset Classes

Trailing 3 Months: Seasonal Flattening; Signs of Life in Philadelphia�� Nationally, rents were flat on a trailing three-month basis compared to the prior-year period, a 10-basis-point

decease from last month and 50-basis-point decrease over three months. The T-3 survey captures short-term changes in rents that may or may not be indicative of future trends. Nationally, Lifestyle rents declined 0.2% on a T-3 basis, while working-class Rent by Necessity assets rose by 0.1%.

�� While the overall lack of change reflects a seasonal flattening, changes within the rankings of metros bear watching. During the fourth quarter, some of 2015’s top-perfoming metros (such as Portland, San Francisco and Denver) saw negative rent growth, while gains were led by the Inland Empire, Phoenix and Miami. One metro that stands out in the three-month ranking is Philadelphia, which was tied for seventh overall at 0.3%, led by 0.7% growth in Lifestyle rents. The change stems from the growing popularity of Philadelphia’s downtown and the number of newly built high-end luxury units that are popping up in the city’s core.

Matrix Monthly | December 2015 3

Trailing 12 Months Year-Over-Year—Lifestyle Asset Class

Trailing 12 Months Year-Over-Year—Rent by Necessity Asset Class

Trailing 12 Months Year-Over-Year—All Asset Classes

Trailing 12 Months: Good Times Rolled Across the U.S. in 2015�� Nationally, rents grew by 6.1% on a trailing 12-month basis, which averages the last 12 months compared to the

prior-year period. That represented a 20-basis-point increase over November. The Lifestyle and Rent by Necessity segments each grew by 6.1%.

�� The multifamily sector’s good performance in 2015 was broad-based. Of the top 30 metros, 21 (70%) had rent growth of 5% or more. The top-performing metros of 2015 will see strong growth again in 2016, but in recent months rents have hit a ceiling at luxury properties, a sign that growth is slowing. Meanwhile, only three metros (10%) were below the 2.8% long-term average. The bottom three (Richmond, Washington; D.C.; and Baltimore) are all expected to lag again in 2016, but for different reasons. Rents in Washington will be held back by the large amount of new supply, while Baltimore is expected to be among the weakest metros when it comes to job growth.

Matrix Monthly | December 2015 4

Employment/Supply Trends and Forecast Rent Growth �� Although our forecast calls for rent growth to moderate in 2016, we expect that the relative rankings of the metros

will look roughly the same as 2015. Why? The U.S. economic cycle has yet to fully play out, and the growth drivers are basically the same, with a few exceptions.

�� Job growth will be led by knowledge centers with concentrations in creative industries, including technology and health care (for instance, the Research Triangle in North Carolina, Seattle and San Francisco); markets that are affordable and have an attractive climate and strong hospitality industry (such as Orlando, Phoenix, Las Vegas, Tampa and Miami); and markets that feature a live-work-play environment attractive to Millennials (like Denver, Portland and Austin).

�� Growth will continue to be slower in metros in the Midwest and Northeast, which are seeing outmigration of population and/or tepid job growth. Metros in the Northeast and Mid-Atlantic are also relatively expensive, and the affordability gap gives owners less leeway to raise rents. Metros with concentrations in the energy sector—with Houston being the largest—will struggle with job losses caused by lower oil prices.

Market

Actual Rent GrowthJanuary to

December 2015

ForecastedRent Growth

(YE 2015)

YoY Job Growth (6-mo moving avg) as of October 2015

Completions as a % of Total Stock as of

December 2015Portland 14.3% 9.0% 3.5% 3.1%

Sacramento 9.9% 8.8% 2.6% 0.7%

San Francisco 9.8% 11.0% 3.8% 2.6%

Seattle 9.1% 7.2% 3.4% 3.8%

Los Angeles 8.4% 4.2% 2.2% 1.6%

Atlanta 8.2% 6.8% 3.2% 2.2%

Orlando 8.2% 6.4% 3.7% 2.0%

Tampa 7.7% 4.4% 2.9% 2.4%

Denver 7.4% 11.2% 2.7% 3.6%

Phoenix 7.1% 5.4% 2.8% 1.4%

Dallas 7.0% 7.0% 3.3% 2.1%

Inland Empire 6.6% 5.4% 3.6% 0.4%

Miami 6.3% 4.9% 2.7% 3.4%

San Diego 6.1% 6.5% 3.2% 1.2%

Austin 6.0% 8.0% 3.4% 3.8%

NC Triangle 5.6% 4.6% 2.9% 4.4%

Las Vegas 5.5% 4.1% 2.9% 1.4%

Boston 5.1% 4.2% 2.1% 2.9%

Orange County 4.7% 5.3% 3.2% 2.6%

San Antonio 4.6% 1.5% 3.4% 2.4%

Jacksonville 4.5% 5.6% 2.4% 1.7%

Philadelphia 4.4% 1.3% 1.2% 1.0%

Kansas City 4.3% 3.5% 1.7% 2.0%

Chicago 3.3% 1.9% 1.2% 1.8%

Houston 3.2% 4.7% 1.7% 2.5%

Nashville/Knoxville 2.7% 4.2% 3.0% 2.4%

Twin Cities 2.6% 0.8% 1.8% 2.3%

Washington, DC 2.3% 0.8% 2.1% 2.8%

Richmond 2.3% 0.0% 0.7% 1.8%

Baltimore 1.6% 2.3% 2.3% 1.0%

Matrix Monthly | December 2015 5

Market Rent Growth by Asset Class

Los Angeles

Dallas Houston

Atlanta

Inland Empire

Denver

Trailing 12 Months Overall Trailing 12 Months Lifestyle Trailing 12 Months Rent by Necessity

Matrix Monthly | December 2015 6

San Diego

Phoenix

Orange County

Sacramento

Orlando

Trailing 12 Months Overall Trailing 12 Months Lifestyle Trailing 12 Months Rent by Necessity

Las Vegas

Matrix Monthly | December 2015 7

Washington, DC

Seattle

Tampa

Trailing 12 Months Overall Trailing 12 Months Lifestyle Trailing 12 Months Rent by Necessity

San Francisco

Matrix Monthly | December 2015 8

Appendix: Year-over-Year Rent Growth for Non-Reported Markets

Market

December 2015

Overall Lifestyle Rent-by-Necessity

Colorado Springs 11.3% 13.9% 9.5%

Tacoma 10.9% 12.6% 9.4%

SW Florida Coast 9.8% 7.3% 12.1%

Reno 8.4% 10.6% 7.1%

San Fernando 7.2% 3.2% 8.5%

Central Valley 5.8% 2.5% 6.4%

Long Island 5.4% 6.6% 5.0%

Northern New Jersey 4.1% 3.1% 4.6%

Albuquerque 4.0% 6.1% 2.4%

NC Triad 3.4% 3.5% 3.3%

Bridgeport - New Haven 3.3% 5.8% -0.5%

Indianapolis 2.9% 2.4% 2.6%

St. Louis 2.9% 0.5% 3.4%

Central East Texas 2.8% 3.1% 2.7%

Louisville 2.6% -0.3% 3.2%

Tucson 2.5% 3.4% 2.2%

El Paso 1.5% 3.3% 0.8%

Matrix Monthly | December 2015 9

Definitions Lifestyle households (renters by choice) have wealth sufficient to own, but have chosen to rent. Discretionary households, most typically a retired couple or single professional, have chosen the flexibility associated with renting over the obligations of ownership.

Renter by Necessity households span a range. In descending order, household types can be:

�� A young-professional, double-income-no-kids household with substantial income, but without wealth needed to acquire a home or condominium;

�� Students, who also may span a range of income capability, extending from affluent to barely getting by;

�� Lower-middle-income (“gray collar”) households composed of office workers, policemen, firemen, technical workers, teachers, etc.;

�� Blue-collar households, which may barely meet rent demands each month and who likely pay a disproportionate share of their income toward rent;

�� Subsidized households, which pay a percentage of household income in rent, with the balance of rent paid through a governmental agency subsidy. Subsidized households, while typically low income, may extend to middle-income households in some high-cost markets, such as New York City;

�� Military households, subject to frequency of relocation.

These differences can weigh heavily in determining a property’s ability to attract specific renter market segments. The five-star resort serves a very different market than the down-and-outer motel. Apartments are distinguished similarly, but distinctions are often not clearly definitive without investigation. The Yardi® Matrix Context rating eliminates that requirement, designating property market positions as:

Market Position Improvement Ratings

Discretionary A+ / A

High Mid-Range A- / B+

Low Mid-Range B / B-

Workforce C+ / C / C- / D

The value in application of Yardi® Matrix Context rating is that standardized data provides consistency; information is more meaningful because there is less uncertainty. The user can move faster and more efficiently, with more accurate end results.

The Yardi® Matrix Context rating is not intended as a final word concerning a property’s status—either improvements or location. Rather, the result provides reasonable consistency for comparing one property with another through reference to a consistently applied standard.

To learn more about Yardi® Matrix and subscribing, please visit www.yardimatrix.com or call Ron Brock, Jr., at 480-663-1149 x2404.

© Yardi Systems, Inc., 2015. All rights reserved. All other trademarks are the property of their respective owners.

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