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(Carl Cronan is editor of Real Estate Florida.)

TAMPA, FL-Slower job growth in the Tampa Bay market has already contributed to higher vacancy in the local multifamily sector. Now another factor is being added: hundreds of residential condominiums originally developed for sale now being marketed as rental apartments.

The vacancy rate for local apartments has risen from a solid 5% three years ago to 7% currently and could rise another two percentage points by the end of 2008, says Steve Ekovich, regional manager of Marcus & Millichap’s Tampa office. Asking rents, which advanced 1% last year, have stabilized this year at around $800 per month through the third quarter, he says.

Tampa’s apartment inventory expanded by 1.3% or 1,900 units, according to Marcus’ third-quarter research report. The total included more than 1,600 newly constructed units, plus hundreds of converted condos reverting to rental status.

“When you dump that much inventory on the market at once, it causes rents to go backwards,” Ekovich tells GlobeSt.com. He points out that unsold single-family homes are being put up for rent, creating even more downward pressure on reverted apartments along with those that remained as rental units all along.

The trend toward condo rentals accelerated in October, when developers of the 35-story Element tower in Downtown Tampa revealed that all 395 units will be introduced to the market as rentals early next year. Numerous units in the neighboring SkyPoint condo tower are already being rented out by individual owners.

The Place at Channelside, a 245-unit upscale condo complex in Downtown Tampa that was sold at auction late last month, is now being rented out by its new Canadian owners. Southwest Properties and Armco Capital, both based in Halifax, Nova Scotia, paid $21.9 million for 171 units sold at auction in a single lot Oct. 15, while the other 74 units remain independently owned.

Byron Moger, executive director of Cushman & Wakefield’s apartment brokerage services group in Tampa, conducted the Place auction and says Southwest/Armco came out the winner from among 90 bidders who toured the site. Keith Misner, executive managing director and national head of Cushman’s apartment group, adds that the sale reflects strong demand for high-quality assets in good locations.

“We think the property will do well in the rental market near term, while offering significant long-term capital appreciation to the buyer,” Moger says. He notes that the Place rentals could be a positive for Downtown Tampa, which previously lacked affordable condos and had very few apartments available for rent.

Adding to the increase in availability of apartments in the Tampa market is the anticipated construction of 2,000 new units this year, twice as many as were delivered in 2007, Marcus & Millichap reports. Plans are in the works for another 8,300 apartments, including 1,700 to be built north of the city in Pasco County.

Marcus also notes that third-quarter transaction velocity for apartments has declined 31% over the past year, following a 71% falloff in 2007. The pace of deals is expected to pick up as the apartment market returns to normal, with a median price of $64,000 per unit and cap rates in the mid-7% range.

Ekovich says the long-term prospects for apartment investors are favorable, with people who had become new homebuyers in recent years returning to rentals and a new influx of both young professionals and older retirees looking to rent. “The fundamentals here are still strong,” he says.

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