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A tug of war is playing out in the Southwest Florida multifamily market.
On one side is the harsh reality of Hurricane Ian and rising interest rates. Both, according to a new report from California-based commercial real estate services firm Lee & Associates, have led to multiple deals either being delayed or outright failing over the past three months. “Overall transaction volume for multifamily has decreased over 60% from (the) prior quarter,” the Lee & Associates report found, “as cap rates adjust to the new leverage environment.”
But the other tug, in what’s becoming an oft-heard Florida story, lies in demand. Hurricane Ian has a role in that, too. “There are 30,000 people displaced throughout Southwest Florida,” says Lee & Associates Director of Multifamily Investment Division Thomas Webb, who wrote the firm’s third-quarter Southwest Florida Multifamily Report. “That group will fill up units, as will people moving from out of state.”
To that end, the pipeline for new construction continues to grow. Lee County alone has 4,247 market-rate rental units under construction and another 14,565 units proposed. Collier County has 1,829 units under construction with another 759 in the pipeline, while Charlotte County has 2,208 units under development, the report found. That’s nearly 20,000 new apartments in the three-county area.
Vacancy rates, meanwhile, are stubbornly low — another factor that impacts demand. In Lee County, the vacancy rate increased, slightly, from the second to the third quarter, from 7% to 7.4%. Collier County’s vacancy rate stayed the same, at 8.5%. Not even another increase in rental rates did much to dent occupancy. In Lee, average rental rents rose 9.1% over the same period in 2021, to $1,901 a month, the report shows. In Collier average rents rose to $2,431 a month, up 7.5% over 2021. Both counties have some of the highest rental rates in Florida, according to data from multiple other reports.
Webb believes demand will continue to win the day, even with interest rates, an economic downturn and other worries. The single-family homebuilding industry, for one, has been hit harder by interest rate hikes, he says. “As things have slowed down in the homebuilding sector, we are still in a position where we need more multifamily units.”
One core challenge he says to satisfy that demand, at least from a developer’s perspective, is locating ready-to-go sites that can handle midsize and large projects, 200 to 300 units. “Finding entitled and zoned land,” Webb says, “is the biggest burden out there right now.”
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