Trepp LLC

12/06/2018 | News release | Distributed by Public on 12/06/2018 19:40

Analysis of the Top 10 US Counties Reveals Positive Income Growth

According to Trepp data, nine of the ten largest US counties in terms of CMBS exposure reported positive net operating income growth over the past year. The ten counties examined in our study are New York (NY); Los Angeles (CA); Harris (TX); Cook (IL); Orange (CA); Maricopa (AZ); Dallas (TX); Santa Clara (CA); San Diego (CA), and King (WA). Maricopa County, Arizona logged the greatest improvement at 6.60% and Cook County, Illinois (+0.41%) ranked last. The Dallas, Texas and Santa Clara, California counties came in second and third place, respectively, as both counties recorded average increases greater than 5%

These ten counties outpace the national average in terms of NOI, expense, and revenue percentage growth across most of the property groups. However, the 10 counties slightly lagged the national average for occupancy rate gains due to their already-low vacancy rates. Overall, West Coast counties in Arizona, California, and Washington were consistently among the top performers for NOI acceleration in 2017 despite posting the largest uptick in property-level expenses.

Houston Area Performance Hindered by Storm and Energy Sector

Harris County of Texas stood out as the only county with a negative NOI change during this period. This segment was dragged lower by substantial income deterioration among Houston apartments and suburban offices which suffered damage caused by Hurricane Harvey. On the flip side, Harris County hotels enjoyed a surge in annual NOI (+20.60%) and occupancy (+7.23%) during the latter half of 2017 as displaced residents and disaster responders sought housing. However, this boost is expected to be temporary as disaster-affected CRE markets rebuild and continue to stabilize following relief efforts. Another interesting note about Harris County is that income (-8.49%) and occupancy rate (-3.14%) growth for its office segment trailed that of other counties, most likely as a result of weaknesses stemming from contraction in energy businesses.

Income Growth for Lodging Sector Lags Other Property Types

From a property type perspective, NOI for hotels declined in most of the counties tied to East and West Coast metros. Urban areas were flooded with new hotel supply in recent quarters to keep up with strong demand in the post-recessionary expansion cycle. However, this could put downward pressure on room prices and hinder further growth in markets that are slowly overheating. Regarding the office and multifamily sectors, property performance growth was the most notable in Southern and Western counties like Dallas, Texas and Maricopa, Arizona thanks to solid gains in local employment and population. Those increases have been boosted by lower taxes and attractive job opportunities in tech and oil industries. In the retail space, New York County outperformed the rest on financial growth percentages, as healthy consumer spending and record tourism activity continue to sustain robust property fundamentals.

*Properties that reported year-over-year changes exceeding 200% were excluded from each category's calculations to account for outliers.

Methodology

County assessors rely on operating performance data of US commercial real estate to perform property valuations. Values in commercial real estate are driven by net operating income (NOI) generated by the property and the return required by investors on that property (cap rate). To help illustrate how properties in major markets are performing in regards to income, Trepp examined its database of year-end financials reported on properties in ten of the counties which contain the most significant exposure to CMBS. We measured year-over-year changes in net operating income (NOI), expenses, revenue, and occupancy rates on more than 6,700 commercial properties in CMBS. Specifically, we analyzed properties listed as collateral for private-label CMBS and government agency-sponsored multifamily loans. Changes were calculated for properties which submitted consecutive year-end financial statements for the 2016 and 2017 fiscal years. The results for average financial growth rates were then broken out into property type and county level categories.

For more information on our comprehensive income and expense data, sign up for a free trial.

Sign up for a free trial today

Disclaimer: The information provided is based on information generally available to the public from sources believed to be reliable.