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The 2008 foreclosure crisis, an improved job market, population gains, increased household formations — especially among millennials aged 21 to 37 years old — have combined to make the multifamily sector along the Gulf Coast one of the hottest in the country in the aftermath of the economic recession of the last decade.
Baby boomers, aged 52 to 70, have also played a significant role. Eager for greater flexibility and unwilling to take on the burden of home ownership, many Americans born between 1946 and 1964 have flocked to Florida and decided to rent, not own.
The trend has manifested itself nationwide, too, with home ownership now at its lowest level since the 1960s, at around 64%. That's good news for apartment developers trying to entice renters with modern amenities and more urban locations.
And while apartment vacancy rates have edged up in recent quarters throughout the Gulf Coast and the U.S., availability continues to hover around 5%, a scant figure that demonstrates the health of the sector.
From Tampa to Naples, the prognosis for multifamily projects remains robust, according to industry experts and developers.
At least 10,000 new apartments are planned or under construction, by regional players such as Mercury Advisors in Tampa and industry heavyweights like Crescent Communities, Carter & Associates and Pollack Shores Real Estate.
“Labor costs, land costs and construction costs are all growing, but there's still good absorption of units in this market because of the jobs that are being created and because of overall community development,” says Sean Williams, a senior vice president at commercial real estate services firm CBRE Inc. who specializes in multifamily deals.
“Investors see strong fundamentals here.”
And not just here. Nationwide, multifamily properties collectively posted a nearly 5% uptick in per-unit revenue, the best of any property sector. That's pushed apartments to the top of investors' most desired property type for 2016, according to a survey by CBRE.
But ominous signs loom for apartments, as well. Nationwide, new supply has exceeded new renter demand for eight of the previous nine quarters, according to real estate research firm Reis Inc., and the same is likely true in a few Gulf Coast submarkets where construction abounds.
Meanwhile, rent increases demanded by landlords also have exceeded wage growth for the past two years, forcing many renters to spend as much as 50% of their take-home wages to cover their rent checks. That is especially true in urban areas, such as St. Petersburg, where new high-rises have attracted younger residents but development costs have pushed rents north of $2 per square foot, in many cases.
Nationwide, monthly rents jumped 2.6% in March alone on a seasonably adjusted basis vs. a year ago, to $1,389, according to real estate research company Zillow.
That statistic, combined with a plethora of new units set to come online this year and next, has prompted some lenders to require higher equity stakes from developers when cutting new loans.
Still, Gulf Coast apartment developers say the population gains here, combined with a drumbeat of job growth that has remained steady for the past 18 months, modern amenities and finishes found in new communities and a lack of new construction from 2008 through 2013, bodes well for the vast number of developments that hope to launch this year and beyond.
“Rental demand in Florida is still pretty robust,” says Steve Robbins, a Tampa-based partner and co-CEO in Robbins/Elco Management, a firm formed to acquire and renovate multifamily projects. “There are some concerns the markets are heated in some areas, but there's still demand in most middle markets. Multifamily still seems to be the bullseye for many investors.”
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