The Louisville multifamily market has consistently demonstrated strong, favorable market fundamentals, which has drawn significant interest in this growing riverfront city. Since 2010, the market has seen 19.8 percent rent growth and continually posted occupancy gains. This momentum resulted in a record amount of multifamily transactions in 2014 and continues to fuel investor demand today.
This momentum in the multifamily sector is happening not only in Louisville, but across the U.S., according to CBRE Research. Overall demand for rental housing continues to be driven by demographic-led household formation and a deepening preference for rental vs. owner tenure. Supply continues to grow briskly and rent and revenue growth are accelerating. Additionally, a recent CBRE multifamily study found that the national homeownership rate is 63.4 percent — its lowest level since 1967. The report also discovered that the national rent growth has reached its strongest year-over-year gain in nine years. And we don’t expect this trend to level off anytime soon.
During the first half of 2015, the Louisville market demonstrated strong fundamentals with increasing rents and occupancy. Between 2014 and 2015, the annual market-wide rent growth was 3.4 percent, bringing the average rent to $786, or $0.86 per square foot.
Steve LaMotte Jr., CBRE|Central Midwest
Dane Wilson, CBRE|Central Midwest
The market-wide average occupancy reported in 2015 was 95.7 percent, representing a 5.2 percent increase since 2005. Multifamily owners in Louisville, and nationwide, are increasingly embracing revenue management programs that favor rent growth (and revenue growth) versus above 95 percent occupancies. Consequently, the overall occupancy among Louisville’s multifamily communities seems to have settled at a sustainable 95 percent.
Last year ended with fewer than 1,500 new units placed in service throughout the Central Business District (CBD), Midtown, East End and South submarkets. Recently, developers have aggressively pursued the CBD and other infill locations for new construction and reposition opportunities to meet the increasing demand for conveniently located housing near concentrated amenities.
The newer multifamily developments offer unique design characteristics and lifestyle amenities to their residents that rival those of many larger cities in the central United States. Amenities such as resort-style pools that include cabanas with privacy curtains, upscale fitness centers with classes and personal trainers, pet spas with grooming stations, hammock lounges, electronic, keyless entry, quartz kitchen counters, wine refrigerators, USB charging ports and fiber optic internet make these communities an attractive place to live, and are especially beneficial for recruiting top talent to Louisville.
Increasing demand for Louisville multifamily product drove sales activity in 2014 with volume exceeding $410 million in 21 transactions, an 80 percent increase over 2013 levels. In six transactions, more than $181 million of Class A product traded in 2014, including Louisville’s first pre-stabilized sale. However, the majority of activity occurred in the Class B space with 12 assets and $184 million in volume. Year-to-date 2015, more than $171 million — primarily Class B and C — has traded in seven transactions.
Due to a limited supply of product on the market, there is pent-up demand of investment capital anxiously awaiting opportunities in every asset class. With increasing demand for Louisville product and consistent fundamentals, stable pricing is expected for multifamily, and yields could see continued compression for best-of-class or well-located value-add assets.
Louisville is no longer a “fly by” city. As Kentucky’s largest city, the economy is both well diversified and expanding. Buyers are drawn to stable and diverse employment, steady fundamentals and a well-run, clean and growing city.
Home to four Fortune 500 companies, Louisville, has received a vast amount of awards and recognitions including the “Best Place to Travel” (Travel + Leisure, 2015), “Top 20 Cities with Economic Momentum” (newgeography.com, 2014) and “One of America’s Best Entrepreneurial Cities” (Entrepreneur.com, 2014) and has seen steady job growth. In fact, the U.S. Bureau of Labor Statistics estimates that 60,500 new jobs were created in the last five years (June 2010 to June 2015). As Louisville continues to flourish and attract additional businesses, creating job growth, we expect economic stability across all sectors, especially multifamily.
— By Steve LaMotte Jr., CCIM, Senior Vice President, CBRE|Central Midwest, and Dane Wilson, First Vice President, CBRE|Central Midwest. The article was originally published in the September 2015 issue of Southeast Real Estate Business.