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Multifamily Investment Forecast 2020​

Tampa-St. Petersburg

Corporate headquarter prominence, a strong financial sector and an expanding tech center produce solid job gains

Employment opportunities are contributing to the population expanding at a rate double that of the U.S. and the added residents will create almost 22,000 households, generating a need for additional housing. To meet the increased demand, deliveries rose above the five-year average last year, yet vacancy continued to tighten. This year, the construction pipeline thins, further lowering vacancy and driving rents higher. After investors concentrated in the urban cores during recent years, rising construction and land costs, as well as the need for cost-conscience rental options, drew them farther from the central cities. During 2020, the western portion of Pasco County will receive its largest inventory supply since 2002 with more than 660 units scheduled for delivery. Throughout the market, rising rents are generating robust demand for lower-cost housing. Vacancy in Class C units has sat below 3 percent for more than a year, producing sizable rent growth.


Vacancy and rents

Economic and demographic gains draw attention to apartment assets

Lower entry costs and cap rates that average roughly 80 basis points above nearby Orlando are luring more out-of-state capital to the market. Yield-driven investors will find initial returns above the metro average in older Class C properties with less than 50 units in neighborhoods outside the urban core including University Square. Many other buyers are seeking value-add prospects. Buildings that can readily be upgraded and amenities improved to raise rent to market rate are desired but are scarce as a large number of assets have already been renovated. Investors seeking a steady cash flow may find opportunities in the Temple Terrace area, where vacancy rests below 4 percent, producing healthy rent growth. A lack of new inventory in this neighborhood during 2020 should keep rental demand strong, especially as employment growth along with the Interstate 4 corridor flourishes.


sales trends

Orlando

Apartment market flourishes amid strong demand drivers

Orlando will retain its top spot in the nation for employment growth during 2020 as organizations add positions at a pace that is nearly triple the nation’s rate. Job opportunities, the metro’s quality of life and a favorable tax climate attract workers and retirees to the region. This year, 28,000 households are expected to be formed, a gain that generates a margin of increase more than double that of the nation. Many of these households will favor the flexibility, amenities and affordability of renting. The monthly cost of housing is a mounting concern in the market as rent growth has outpaced the U.S. rate since 2013. As a result, vacancy in Class C units has been below 2 percent since mid-2017, driving up rent in this class much faster than the metro average. A surge in market-rate deliveries this year will assist in providing additional housing but will do little to alleviate the growing need for lower-cost apartments, holding vacancy extremely tight in Class C rentals.


Orlando Vacany and rents

Orlando’s healthy economic trends lure new buyers to the metro

Many of these investors are seeking value-add opportunities, although fewer properties are available as many operators have made improvements, refinanced and are holding for the long-term. This is increasing competition for the limited supply of buildings listed for sale. Investors searching for steady cash flows may find opportunities in Class C properties near the university or in West Orlando. In these areas, Class C vacancy rested below 1 percent at the end of last year, which produced double-digit rent growth. No new apartments are scheduled for delivery in these locales during 2020, which should hold vacancy tight in the quarters ahead. Yield-driven investors can find cap rates above the metro average to the north of the city of Orlando. Class C buildings constructed in the 1960s and 1970s with less than 50 units in outlying areas including Sanford and Apopka can trade at first year returns above 6 percent.


Orlando sales trends


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