"If absorption continues at the pace of the past 18 months, expect rising occupancies soon with rising rents to follow," Grubb & Ellis senior vice president Steve Flanagan tells GlobeSt.com. Strong population and job growth are fueling demand.
Overall occupancy is at 92.4%, fractionally down by .6% from the 12-month period ended March 31, 2000. There are 150,000 apartment units in Central Florida.
After peaking at 14,155 units under construction in September 1999, new construction has dropped by 42% to 8,202 units. That number compares with average absorption of 8,449 units over the past 36 months, the Grubb & Ellis report finds.
Flanagan feels the construction slowdown may once again provide a more balanced market. "Developers seem to be showing restraint in starting new projects," he says. Not in time, however, for several seasoned submarkets which are hurting from the arrival of the newer units.
For example, the submarkets in Lake Mary/Sanford, Hunters Creek area of south Orange County and South Lake/Northeast Polk County are below 90% occupancy.
"Of these three submarkets, we expect Hunter's Creek to stabilize by year end, as Terrabrook's last multifamily site is under contractions and recent absorption has been strong," Flanagan says. "Unfortunately, there is no relief in sight for the Lake Mary/Sanford submarket," which, coincidentally, is one of the hottest commercial real estate hubs in Central and North Florida.
At Lake Mary/Sanford, there are three new communities with a total 1,117 units under construction and five new communities with a total 2,466 units in the pre-development pipeline.
Winter Garden/Ocoee, Apopka, east Orlando and south Orlando are showing the strongest occupancy levels.
Despite the glut of new product, average overall rents increased by about 4%. "That's another key indicator of the strength of the Orlando apartment market," Flanagan tells GlobeSt.com. But, "as always, this rent growth was distributed unequally across various submarkets and among products of different ages," the broker says. "Selected submarkets are even seeing concessions, primarily in new communities undergoing leaseup."
Investment sales are plodding along even as the multifamily sector tries to balance itself between new product and demand. Only two institutional-quality sales have been recorded since the first of the year.
FirstWorthing of Dallas bought the six-year-old, 364-unit Waterford Club in the MetroWest submarket near Universal Orlando for $24.2 million or $66,500 per unit ($73.25 per sf) which was below the $25 million seller J.P. Morgan bought the asset for in 1996, a year after it was built.
"It may be that this sale (to J.P. Morgan) was motivated by concerns about a portfolio over-weighted in real estate," Flanagan suggests. Average street rents at Waterford Club are $848 per month or 93 cents per sf.
In the second sale, a private unidentified investor paid $22.36 million or $66,750 per unit ($63.11 per sf) for the 340-unit, 15-year-old Archstone's Cameron Springs community in Altamonte Springs. Average street rents are $782 per month of 75 cents per sf. "This transaction was a financial restructuring and does accurately reflect the value of the property," Flanagan tells GlobeSt.com.
He expects sales volume for the rest of the year to be "tempered by concerns about market occupancy levels among institutional investors and an apparent gap between bid and ask prices."
Flanagan says "private investors seem to be seeking going-in returns in the 9%-plus range, while property sellers seem convinced that capitalization rates of 8.5% or less are just around the corner."
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