The trend is in full force in luxury, workforce, and shadow markets
For years, condo has been king in South Florida’s real estate market. That title may now be in question, as multifamily apartments are rising in popularity, with more than 51,000 units under construction, in the planning stage, or proposed for development. With home sales continuing to slip and interest rates continuing to rise, many buyers are opting to rent rather than buy.
This shift may signal a major shakeup in the business, and CRE developers should be mindful of its potential consequences.
Multifamily rentals soar
In the first quarter of 2019, Florida had four markets, the most of any state, in the nation’s top 15 for multifamily rent growth:
- Tampa/St. Petersburg (#5), with average year-over-year rent growth of 6.8 percent and 95.3 percent occupancy
- Orlando (#9), with average year-over-year rent growth of 5.5 percent and 96 percent occupancy
- Jacksonville (#12), with average year-over-year rent growth of 5.3 percent and 95 percent occupancy
- South Florida (#14), with average year-over-year rent growth of 5.1 percent and 95.5 percent occupancy
And the local South Florida market as a whole is seeing high demand and low vacancies.
Why rentals?
Short-term rentals appeal to developers because they introduce a new kind of tenant who can broaden their potential market and bring down the possibility of vacancies. Thus, many condo owners have teamed up with short-term rental operators to attract renters and manage leases.
One flavor of new tenant is the tourist or business traveler, who, in cities like Nashville, encounter a dearth of traditional hotel rooms and a surplus of residential properties—hotel-style accommodations in a condo-size setting. In the Airbnb era, these travelers represent an essential market that is driving the multifamily rental boom and opening up a long-term solution for developers.
Traditionally, hotels want to provide amenities that compel their guests to stick around—health clubs, spas, coffee shops, restaurants—in order to maximize revenue. Short-term rentals have the opposite value proposition—residential properties are situated in real communities and encourage guests to venture out and support the local economy.
Multiple markets
There are several markets at work in this transition to multifamily developments that include rentals.
- The luxury market. Rents are sky-high in much of South Florida’s wealthiest communities—over $3,000 in some areas. And many have raised concerns that luxury complexes like Florida East Coast Realty’s Panorama Tower have saturated the market and only contribute to the slide in condo sales.
- Workforce housing. Many of these high-rent communities struggle to provide affordable housing to those who earn middle- and lower-level salaries in industries such as food service, education, health care, and the not-for-profit sector.
Palm Beach County requires developers to portion a certain number of units as affordable housing. Fort Lauderdale partnered with European property investor Round Hill Capital to create The SIX13, a workforce multifamily housing project with rents far lower than average in the popular downtown area.
- The shadow market. When condos don’t sell, they end up here. In 2018, Miami-Dade County alone saw over 2,200 shadow market leases, a fifth of all available units.
Morris Southeast Group closely monitors these and other multifamily housing trends and their effect on South Florida’s market—and we will continue to do so. As one sector rises, another often dips, and things could turn around for the condo market as they did well after the “glut” of condos that preceded the real estate crash in 2006-2007.
For a free consultation on our commercial real estate investment or property management services, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Tags: Condo Sales Slump, Multifamily rentals soar, Multifamily Rentals Soar in South Florida. Multifamily Units, Multiple markets, new tenant, shadow marketing, Workforce housing
