Multifamily Investment Forecast 2019
Vacancy Drops to New Low, Sparking Rent Acceleration
Rental demand outpacing inventory additions. Apartment deliveries will remain above the 10-year average this year with more than half of the metro’s submarkets receiving new rentals. The greatest number of new units will be in Central Tampa. Here, a surge of mixed-use redevelopment projects are transforming underutilized sections of the core into walkable urban neighborhoods with amenities. Completions in the area will remain heightened over the next several years as rentals in the 50-acre Water Street development are finalized. Marketwide, new apartment inventory will not keep pace with apartment demand this year, as population growth more than doubles the national average. Absorption will be sustained as rising interest rates and home prices as well as a lack of for-sale starter homes keep more tenants from transitioning to homeownership. As a result, vacancy will dip below 4 percent for the first time, pushing the average e¨ective rent to a new high.
Vibrant economic and demographic trends lure investors to Tampa-St. Petersburg
The strong rental market, driven by robust employment and population growth, continues to attract a wide range of investors to the metro. Many are seeking the lower entry costs and comparatively higher cap rates that average in the low-6 percent area. Newer apartments with some upside potential are keeping institutional and high-net-worth investors active in the urban core, near the beaches and in high-growth communities, especially in outlying Hillsboro County. Many other buyers are targeting well-located Class C properties with some upside potential, but demand for these assets far exceeds supply. Buildings around the many redevelopment efforts near downtown St. Petersburg and Tampa, or in Largo, may provide buying opportunities. As valuations and interest rates trend higher, investors are becoming more cautious and taking longer to scrutinize deals. This is widening the gap in expectations and slowing transaction momentum.
Dynamic employment growth and favorable quality of life are a boon to the rental market
Job gains more than triple the national level amid tight unemployment are producing significant migration into the metro and generating a surge in housing need. Nearly 65,900 new residents will reside in Orlando during 2019, boosting rental demand. Even though apartment completions will hover near the five-year average, demand will outpace new inventory this year, tightening vacancy to one of the lowest rates in the nation. Deliveries will be widespread with nearly every submarket receiving new units. Many of the projects are mixed-use apartment buildings with ground-floor retail in walkable neighborhoods favored by young renters. As vacancy tightens and additional units are placed into service during 2019, the average e¨ective rent will jump more than 7 percent for a third consecutive year, one of the highest growth rates in the U.S.
Investors enticed by Orlando’s robust economy and vibrant apartment sector
More national, international and syndicate buyers are entering Orlando, boosting competition for available apartment properties. Many of these investors are seeking to lower risk by targeting newer Class A assets with at least 250 units. Buildings near downtown Orlando or close to major employment centers along International Drive are garnering attention at first-year returns that average in the low-5 percent span. Heightened construction activity in these desired neighborhoods should provide additional buying opportunities as developers list stabilized properties to fund new endeavors. Investors in search of yield will find cap rates above the market average, which is in the low-6 percent area, in older assets northwest of downtown in Pine Hills or Ocoee. Throughout the metro, a rise in values coupled with the increased cost of financing has widened the pricing gap between buyers and sellers. This could delay the transaction time to close deals this year.
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