Orlando Apartment Research Report **
Orlando Metro Area, Second Quarter 2014
Demand Remains High as New Apartments Arrive
The Orlando economy is expanding at the most vigorous pace in years, although new rental demand will likely not fill enough of the new apartments coming online to avert an increase in the vacancy rate. Rental completions will reach one of the highest levels in several years during 2014, resetting inventory nearly all of the way back to the former peak before the conversion boom. While an increase in the vacancy rate this year appears unavoidable, bright prospects for further demand growth will shorten the duration of rises in the vacancy rate related to spurts in supply. Many households have recent foreclosures in their credit histories, precluding a near-term re-entry into homeownership. Also, single-family homes have become less affordable. Following a gain in the first quarter this year, the median price of an existing single-family residence is nearly 38 percent higher than three years ago when the median price bottomed. Wages and salaries, though, have grown by substantially less over the same stretch.
Despite the upswing in development, fluid capital markets are maintaining a highly favorable investment climate in Orlando. Investor demand remains keen, with well-priced assets typically generating multiple offers when brought to market. As equity continues to vie for deals, debt providers are also active, competing on terms and proceeds to finance apartment transactions. The low cost of capital offers a wide spread to Class B-minus and Class C cap rates, which sit at around 8 percent. In addition, higher leverage is enabling many property owners to sell and trade up to newer properties. For investors with long-term hold strategies, the window remains open to finance assets with low-cost 10-year loans. Buyers are expanding their search for properties across the entire metro, but areas such as downtown and the growing Lake Nona medical hub garner unwavering interest. In addition, the SunRail commuter rail, which recently opened, may have long-term effects on commuting patterns and neighborhood preferences that will open new areas for multifamily development and investment.
2014 Annual Apartment Forecast
Employment: Led by job creation in the expanding private sector, employers in the metro will add 36,300 jobs in 2014, marking a 3.4 percent increase in payrolls. In 2013, 35,800 new hires were made.
Construction: Multifamily building continues to ramp up. Developers will complete 6,500 units in 2014, expanding rental stock a hefty 4.1 percent. Nearly 3,300 rentals were brought online last year.
Vacancy: Completions will overwhelm a sizable increase in demand during 2014, raising vacancy 100 basis points to 6 percent. The vacancy rate decreased 40 basis points in 2013 on far fewer completions and net absorption of 3,700 units.
Rents: The average rent in the metro will advance 3.4 percent this year, to $945 per month, the fifth consecutive annual increase. A gain of 2.4 percent was recorded in 2013.
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