Central Florida's Apartment Investment Engine in Low Gear

TAMPA, FL-As most real estate investors know by now, it’s a seller’s market out there and it isn’t expected to get any better soon, in Central Florida at least, concludes new 12-month research by the regional office of San Francisco-based Marcus & Millichap. The study takes in the first quarter of this year.

Higher than average rents and sales prices are turning off buyers for the short run but may interest investors with a longer horizon, the study finds.

South Hillsborough County, south of Tampa and the Pasco/Hernando County submarket north of the city outranked all Tampa and Orlando area submarkets as possible “buys’ in a first half that produced few trophy properties for sale in 27 Central Florida submarkets. Tampa is 80 miles west of Downtown Orlando.

The M&M study finds the best long-term investment markets are Bradenton, a Tampa suburb; the Northeast-University corridor in Orlando; Clearwater, five miles west of Tampa on the Gulf of Mexico; Pasco/Hernando; and the Maitland-Winter Park hub in Orlando.

“South Hillsborough, Central Pinellas, Northeast-University and Clearwater are markets with solid and stable property incomes, but marginal short-run investment upside, due to higher than average rents and sales prices,” Steven M. Ekovich, vice president/regional manager, Tampa, tells Globest.com.

For potential buyers, Ekovich likes Central Hillsborough and Pasco/Hernando as “areas that stand out with excellent opportunities.” Temple Terrace, FL; Maitland-Winter Park in the Orlando area; Apopka-Ocoee in northwest Orlando; Lakeland-Winter Have, 40 miles south of Downtown Orlando; and Bradenton, FL also ranked high as near-term investments.

“All of these submarkets are projected to experience moderate to strong population growth,” Ekovich says. “They also enjoy low rents and per unit prices compared to the rest of the region, which will allow buyers to benefit from rent and price appreciation.”

The broker says most of the above markets are “well-positioned for the future with low vacancies and minimal construction.”

Ekovich has difficulty offering many “buy” markets. “Several submarkets across the region do not currently possess the attributes to warrant strong buy recommendations,” he says. “This is generally due to market softening, resulting from high vacancies, rising construction, a below average employment or population growth outlook or above-market rents and sales prices.”

He says these submarkets “currently represent more of a sell or reposition opportunity than a short-term buying opportunity with significant upside.”

For example, in the Tampa metropolitan statistical area, the Brandon and Carrollwood suburbs offer few bargains, even with construction relatively low in Carrollwood compared to other nearby markets; rents at reasonable levels; and an improved vacancy level, Ekovich says. “In fact, while still not warranting a buy recommendation, Brandon has improved markedly over the last six to 12 months,” he says.

In the Orlando area, Seminole and Osceola counties, and the Southeast-Airport and Southwest-Disney submarkets ranked low for immediate investment opportunities.

“Rents are higher than average in these areas, with the exception of Osceola County, and other than the Airport area of Orlando, these markets currently have fairly high sales prices for the region,” Ekovich tells GlobeSt.com. “It is clear that investment opportunities in these submarkets favor sellers more than buyers at the present time.”

The less-than-vibrant apartment investment market in Central Florida can also blame the low number of construction starts for its lackluster performance. The Marcus & Millichap study finds apartment construction starts in the Tampa Bay region numbered 6,346 for the 12 month study period ended March 31 of this year.

“Not since 1998 have starts” in this area been this low, Ekovich notes. There were 7,800 starts in 2000; 11,900 in 1999 and 4,000 in 1998. The 6,346 figure is down 45% from the peak 1999 period.

“Ironically, of the nearly 1,000 units started in the last 90 days, many are in submarkets not known for significant new construction,” the broker says. Those markets are St. Petersburg, Central Pinellas, North Pinellas and Pasco/Herando.

With low construction, vacancies, too, are at their lowest level in more than three years, 4.2%. Vacancies are lowest in Clearwater and Pasco/Hernando counties, which average 2.9% overall. In most Tampa submarkets, vacancies average 4% to 6%. That compares with Orlando’s submarket average of 7.4% in the same 12-month period, an improvement from 8.6% in the previous 12-months.

Tampa area rents are up on average by 4.5% since mid-2000, fueled by strong absorption levels and falling vacancies, Marcus & Millichap finds. Class A rents were up 4.6%; class B, 3.9%; and class C, 7.7%. Most of the class A product was isolated in the Carrollwood, Brandon, Clearwater and North Pinellas submarkets. Orlando’s rent growth, meanwhile, has lagged other Central Florida markets in recent months, the study finds.

On the sales side, the Tampa submarkets have remained fairly steady over the last few years, averaging about 100 transactions annually. Class C properties comprised the bulk of the deals. Class A and class B sales, however, drove up the average price per unity by about 20% to $44,315.

Although investors are focusing more on class A and class B properties, that trend was reversed in the first quarter of this year when class C properties outsold the other two classes.