South Florida multifamily market cools down in Q3

Apartment rental growth in South Florida slowed in the third quarter, amid a construction boom that led to a rise in vacancies, a recent report showed.

Developers completed 13,388 apartments in South Florida in the first three quarters of the year, more than the 13,210 units completed in all of last year, according to data from brokerage Lee & Associates. New offer mood market, slowing rental growth, while high borrowing costs dampened the investment sales frenzy of 2021 and early last year.

“There are signs of slowing across a lot of key metrics,” said Todd Cohen, principal at Lee & Associates in South Florida. “But a slowdown of what? This market has been beyond fire. A cooldown is essential to the overall health of our market.”

South Florida multifamily market cools down in Q3
Annual Absorption (Collier)

Net absorption of 7,780 apartments during the third quarter lagged net deliveries of 13,388 units, according to Lee data. As a result, occupancy decreased. The vacancy rate in the third quarter rose to 5.4 percent from 4.6 percent in the third quarter of last year.

While interest rate hikes by the Federal Reserve since last year have scuttled some planned multifamily projects, developers with available financing are continuing to build. In Miami-Dade County, 16,260 units are expected to be completed by the end of 2024, with 4,364 units completed this year, according to Colliers data released early last month.

Overall, a building boom combined with delayed absorption can lead to vacancies and lower rents. In the face of rising mortgage rates and a shortage of housing inventory, potential homebuyers are expected to drive increased demand for rentals, Cohen said. Florida’s business-friendly climate and lack of state income tax will maintain the tri-state area’s reputation as a magnet for new residents, he said.

“While I don’t think anything can match what was happening from 2021 to early 2022 in terms of the fast pace” of the market, it will still be strong, and I think it will remain that way, he said.

Prospecting for rentals

South Florida multifamily market cools down in Q3
Average rent by category (Collier)

Lee’s report shows the average monthly asking rent in South Florida was $2,121 in the third quarter. That’s a hair more than the $2,126 rent in the previous quarter and a 1 percent increase from the $2,099 rent in last year’s third quarter.

“The rent crunch as we knew it, defined as rapid year-over-year increases, has mostly disappeared,” said Ken Johnson, an economist and professor at Florida Atlantic University.

Johnson is part of a partnership that includes Bernie Waller, a professor at the University of Alabama, and Shelton Weeks, a professor at Florida Gulf Coast University, that produces the nationwide rental index.

According to the Waller, Weeks and Johnson index, rents in South Florida in September rose 0.17 percent from the previous month and 2.7 percent year over year. That’s a lot Quieter growth That compares with September last year, when rents rose 0.5 percent from the previous month and 18.8 percent year-on-year, according to the index.

“It’s a big difference,” Johnson said. “But what has not happened is that rents have not gone down, and are unlikely to go down.”

In fact, Johnson expects South Florida to experience a “prolonged period of housing affordability issues” due to incomes not keeping up with rent increases.

According to the three professors, for an average South Florida family to spend no more than 30 percent of its total income on housing costs, it would need to earn $111,780 annually. (Thirty percent is the federal maximum before a family is considered cost burdened.)

However, the Department of Housing and Urban Development pegs the median income in the Miami-Dade area at $74,700. Broward County at $88,500; and Palm Beach County at $98,300.

Low trades

In the first three quarters of this year, the volume reached Several families Investment sales reached their lowest level since 2014.

So far this year, 17 deals have been closed with a combined value of $1.4 billion, well below the 73 deals worth $8.2 billion recorded last year, and the 138 deals worth $8.8 billion in 2021, according to the Newmark report. Annual deal volume has ranged from $2.8 billion to $8.8 billion since 2015, meaning this year’s volume can only be compared to 2014 when 46 deals were closed for a total value of $1.4 billion.

South Florida multifamily market cools down in Q3
Sales volume (coller)

This decline is largely due to higher borrowing costs, although some real estate investors have found alternative solutions. The players are still in the gameThese are companies that have capital discretionary funds that allow them to have less exposure to financing or to avoid borrowing altogether.

Through its $728 million Investment Fund $138 million in June.

Others who obtain financing either take vendor feedback or turn to Freddie Mac. In August, Harbor Group International paid the amount 75 million dollars for the Pine Ridge complex at 6200 Wallis Road near West Palm Beach. Harbor assumed the seller’s $37.2 million in variable-rate debt and purchased a cap, which limited the interest rate to 5 percent.

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