Tampa Apartment Research Report ** Tampa Bay Metro Area, Second Quarter 2014
Growing Demand, Surging Stock Vie for Upper Hand
Apartment completions will outpace growing rental housing demand in Tampa Bay, leading to an increase in the vacancy rate this year. Despite the expected rise in vacancy to a level closer to long-term trends than the low readings posted recently, demand drivers in the metro remain vigorous and are growing stronger as new units come online. Employers in Tampa Bay have been adding more than 6,000 jobs per quarter since hiring resumed four years ago, and an average 1,900 new households were also formed quarterly over that stretch. As hiring accelerates, multifamily developers may indeed step up the pace of building, not slow it down. Other factors are also supporting an extended run of strong rental housing operations. A decline in the local homeownership rate for a variety of reasons, including foreclosures, has expanded the renter pool. Also, although thousands of apartments were completed over the past two years, rental inventory remains less than the level prior to the conversion boom, when the metro also had 120,000 fewer households.
The surge in apartment construction is also providing an outlet for some of the equity pursuing acquisitions in the metro. Some new complexes are being sold during lease-up and, in some instances, prior to completion and commanding prices of more than $200,000 per unit. New construction is also elevating interest in properties at all price points and quality levels across the market. Specifically, investor demand remains keen for 1990s or early-2000s properties that can be upgraded and re-leased at rents closer to those charged on new construction. Including these assets, cap rates on the wide range of properties that offer opportunities to add value start in the mid-6 percent range, with attainable terminal cap rates starting roughly 100 basis points higher. While local investors and larger equity players compete to acquire aspects in their respective spheres, debt capital has also become more abundant and competitive. The universe of lenders is expanding to offer borrowers additional options on terms and other forms of debt to meet specific capital needs to complete an acquisition.
2014 Annual Apartment Forecast
Employment: Employers will create 33,500 jobs in 2014 to expand payrolls 2.8 percent, exceeding last year’s gain of nearly 30,000 positions. With the projected increase, nearly 127,000 jobs will have been created since payrolls resumed growing in early 2010.
Construction: Builders will place in service 4,400 units in the market this year, exceeding the 1,917 apartments brought online in 2013. Developers are also on pace to draw permits for approximately 6,200 units of multifamily housing during 2014, a 25 percent rise from last year.
Vacancy: Slightly higher vacancy will be the near-term norm as new rentals increase across the metro to fulfill growing demand. The delivery of new rentals will exceed net absorption of more than 3,100 rentals in 2014, raising vacancy 50 basis points to 6.3 percent; a decrease of 30 basis points occurred last year.
Rents: The average rent will rise for the fifth consecutive year in 2014, advancing 2.5 percent to $915 per month, though new construction may lift concessions. In 2013, a gain of 2.4 percent was recorded.
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