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Apartment development has surged nationwide during the prolonged economic growth cycle that began in earnest in 2014, but few submarkets in the U.S. have seen the growth in multifamily rental product as Sarasota and Manatee counties.
On a per capita basis, the two-county submarket leads Florida and much of the nation in building and delivering new apartments, according to building permit data and analysis from real estate research CoStar Group and commercial real estate brokerages that track inventory.
In the two counties, 8,459 new apartment units were delivered between the years of 2015 and 2019, or roughly one in every five new units throughout the nine-county Gulf Coast region, according to CoStar.
Although both the Tampa Bay area and Southwest Florida’s three counties generated more apartment development, both of those submarkets contained less population overall at the start of the economic cycle.
“There’s been a stronger multifamily demand pool over the past decade than we’ve seen historically, and in Sarasota and Manatee counties, in particular, it’s just exploded over the past six to seven years,” says Brian Alford, CoStar’s director of market analytics in Central and West Florida.
Though population and job growth are most certainly behind much of the surge, apartment development in Sarasota and Manatee has also benefitted from government programs aimed at encouraging new product, macro-economic trends and shifting cultural tastes.
At the same time, the two-county area has been targeted by developers for apartments in large part because, traditionally, multifamily construction has been limited to for-sale condominiums.
For the past quarter century, new multifamily housing stock in Sarasota County, in particular, was almost exclusively focused on condos because they were considered either to finance and develop.
And unlike apartments, which require continual operation and maintenance, condos have built-in exit strategies that come with unit sales, another factor that contributed to their popularity.
But that trendline has changed as a result of numerous factors.
In Sarasota, city government instituted an overlay district over a few blocks just north of downtown in 2015 that tripled allowed residential density and led to the creation of more than 1,000 new multifamily rental units in projects such as Cityside, The DeSota and Arcos, to name a few.
The Rosemary Residential Overlay District was so widely embraced that city leaders last year began debating ways to put a similar provision in place after the original district sunset.
Elsewhere in Sarasota and Manatee counties, developers have targeted tracts near Interstate 75 for new multifamily rentals and drawn renters by offering upgraded amenities to projects like Anson on Palmer Ranch, Longitude 82, 50 Paramount, One Palm and Blue Heron Living, to name but a few.
“We always try to find markets to build in where the population growth is outpacing multifamily rental supply, and that’s certainly been the case in Sarasota,” says Peter Collins, co-founder and managing principal at Forge Capital Partners, a Tampa-based investment firm that jointly developed the 228-unit Arcos apartments in downtown Sarasota together with Tampa’s Framework Group.
“And another of the major factors that led us to that (downtown) site was there hadn’t been a lot of multifamily rental development there, for years,” Collins adds. “There was a real dearth of product. Certainly, there were million-dollar condos, but not a lot of market-rate workforce housing, and our research showed people were driving a great distance to get to the city to work.”
Added to that, socio-economic and cultural shifts toward renting have fueled Manatee and Sarasota’s gains, prompting retiring and empty-nester baby boomers to shed single-family homes and younger Millennials to brush off the idea of home ownership.
Sarasota as added 5,208 new apartments in all in the five-year period beginning in 2015, whereas Manatee County has seen 3,251 new units come online during the same time period, CoStar and other data shows.
In both counties, 2018 and 2016 were the most active years for new apartment development.
Sarasota commenced 1,358 new units in 2018; Manatee County 1,327 units. In 2016, Sarasota began 1,312 new multifamily rentals, building permit and other data indicates, while Manatee County started 792 new units.
At one point late last year, Sarasota was adding new units equivalent to 14.4% of its existing multifamily rental inventory — the highest rate in the nation save only for the Fort Myers area, in nearby Lee County.
Much of that gain, in turn, came from annualized population growth of 1.6% and job growth of 1.7%, against an unemployment rate of a historically low 3.2%.
Occupancy and rental rate increases, however, have far outpaced those figures.
In central Bradenton, for instance, average occupancy in Manatee’s largest incorporated area has climbed from 90.5% at the start of 2014 to 95.6% at the close of 2019 — despite the addition of more than 900 new apartments. During the same period, average rental rates rose 34%, to an average of $1,038 during the final quarter of last year, according to commercial real estate brokerage firm Newmark Knight Frank.
In the eastern portion of Bradenton, which also includes the fast-growing master-planned community Lakewood Ranch, occupancy dipped from the first quarter of 2014’s 96.3% average to 93.3% at the end of 2019, thanks in part to the addition of more than 2,000 new units.
But rental rates, meanwhile, climbed 38% during that period, to an average of $1,418 per month.
In downtown Sarasota, the rise was even more dramatic. Though average occupancy rates inched upward from 94.8% at the start of 2014 to 96.1% at the end of last year, rental rates soared — despite the inclusion of more than 1,200 new units.
Newmark Knight Frank data shows Sarasota average rental rates soared by 62% to an average of $1,614 monthly during the six-year period.
At Arcos, Collins says the complex, developed on a three-acre tract that had once been home to a retail garden center, is above 90% occupancy, and at rental rates that have exceeded projections.
“We’re a bit above our pro forma, with rents above $2 per square foot,” Collins says. “Still, it’s not as if we’ve outperformed the market. From our research, a lot of the other new properties also have generated similar numbers.”
Just as strikingly, Collins says more than half of Arcos’ renters are younger than 35 years old.
But the development surge has caused vacancy to hike, according to some analysis.
CoStar research shows that vacancy of apartments five years or older have risen from 6% to more than 16% since 2018, spurring many lenders and developers to rethink new offerings.
“The concerns there are warranted because the vacancy has crept up fairly dramatically with all the new inventory that’s come online in a relatively short period,” CoStar’s Alford says.
Still, developers like Forge Capital and The Related Group, of Miami, say underlying fundamentals that remain in place continue to encourage more development.
“There are more concerns in the Sarasota submarket than many other places around the state, but we’re continuing to look there,” says Arturo Pena, Related Group’s vice president of development.
Forge Capital’s Collins, too, remains bullish on the area.
“The trend toward re-urbanization has been ongoing for two decades now, and it’s here to stay,” he says. “I think Sarasota can support more multifamily development just by looking at the sheer population growth of the area.”
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