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ORLANDO-The decade-long construction boom of new apartment units may be over and a tighter multifamily market could be evolving, predicts a new market analysis by Marcus & Millichap Real Estate Investment Brokerage Co.

“During 2004, vacancy will drop 50 basis points while asking rents will rise 2.7%,” says Steven M. Ekovich, vice president and regional manager of the firm’s Orlando office. “We project higher prices and better occupancies over the next 18 months as a result of continued economic expansion and a respite in the construction rate.”

Developers will complete 2,500 units this year, a 47% decrease from the previous year and only 25% of what was delivered three years ago, the M&M executive estimates. Half of all units in 2004 will be in the Southeast/Airport submarket in large complexes comprised of 200 to 300 units. Ekovich says 26 projects are in the planning stage that could deliver up to 6,700 units to the metropolitan statistical area during the next two to three years.

Current vacancies near the 8% level here are higher than the national average of 6.7%. Ekovich thinks the Orlando vacancy mark should remain above 6.7% for the next 18 months. “Vacancy should decline 50 basis points by year end to 7.8%, its lowest level since 2000,” the broker says.

The lowest vacancy rates are found in the northern half of the metro area where only a small number of completions have occurred in recent years; the cost of living is low; and the smaller towns are more family-friendly, he says.

The good news to property owners is that rents should increase 2.7% throughout the market this year, Ekovich predicts. Conveniently located markets such as Altamonte Springs, FL and other northern suburbs should see rent gains of 3.5% to 4.5%.

“At $772 per month, asking rents in the Orlando metro area are 16% below the national average and are a factor in maintaining a strong migrant stream to the region,” Ekovich says. Higher rents are found Downtown and in the master-planned community of MetroWest in southwest Orlando.

On the sales side, the M&M executive says “low prices and the potential for long-term growth in Orlando are attracting out-of-state investors to the local market with many transactions involving private partnerships from Chicago and New York.”

The current median sales price of $43,500 per unit should increase 3% to 6% this year. “Most transactions will consist of class B or class A properties located within the city limits,” Ekovich expects.

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