Marcus & Millichap

Tulsa Multifamily Market Report

Second Quarter 2018

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Multifamily Outlook Improves, Enticing Increased Investment

Employment gains fuel demand, which lowers vacancy and lifts rents. Rising oil prices are benefiting Oklahoma’s economy, as the oil and gas sector represents 12 percent of the state’s gross domestic product. Tulsa is sharing in this improvement, as job growth returned to the metro over the past 12 months. Elevated hiring is continuing in 2018 and the expanding workforce is contributing to an increase in apartment demand. At the same time, the construction pipeline is contracting. Whereas deliveries surpassed 1,000 units in four of the past six years, completions for 2018 will not eclipse 600 apartments. The combination of rising renter demand and less development will lead to a small decline in vacancy, the first downward movement in three years. Healthier demand will also improve rents. Following a drop in the average effective rate in 2016, monthly rent appreciated 1.6 percent in the past 12 months and will grow at a slightly faster pace this year.

High returns attract growth-oriented investors from around the country. The improving economic environment in Tulsa and healthy performance of multifamily properties have invigorated investors’ interests in the metro. Transaction velocity dipped in 2016 but has increased over the past year ending in March. A greater number of the buyers from the past 12 months hail from outside Oklahoma, including several Midwest and West Coast cities. The potential for larger returns is a motivating factor, as initial returns for the area average in the high-7 to low-8 percent zone. Yields are similar for comparable properties in nearby Oklahoma City but are typically 100 to 200 basis points above what one would find in other major regional markets, such as Dallas/Fort Worth and Austin. Within Tulsa, yields can range from low-to-mid 6 percent for Class A and B buildings and to above 9 percent for older stock with fewer amenities. Properties completed since 2000 changed hands most frequently in the South Tulsa/Broken Arrow submarket. Multiple transactions also occurred in Riverside/Peoria and in North Tulsa for predominantly Class C assets. Yield-oriented investors will also benefit from lower entry costs, as the average sales price is $20,000 to $40,000 below what is found in close-by primary markets.

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