As the cycle wears on, compression in apartment performance is expected as a general rule of thumb. For the U.S. apartment market overall, performance is more tempered than in previous years, but the delta between the outperforming West and the regional laggard – currently, the Northeast – has eroded.
While performance has compressed among every region, the South region has shown relative resilience compared to other regional performances. Annual rent growth of 2.8% a year ago is only marginally higher than the 2.5% increase in mid-2018. By comparison, the Northeast, Midwest and West regions have current performance sitting anywhere from 120 basis points (bps) to 160 bps below previous performance.
Part of the reason the South has seen less deterioration is a broad acceleration across Florida markets. The following table highlights the year-over-year change in annual rent performance among top 50 U.S. markets that are in the South region.
Topping the list is Houston, which is a market that has had plenty of coverage discussing its impressive post-hurricane rebound following the oil slump. But amazingly, the next six are Florida markets, all of which have seen annual performance improve by 80 bps or more.
Orlando has enjoyed a fantastic run for the latter part of the current cycle. Rent performance has really accelerated over the past two years – a trend that runs counter to the nation overall. Most other major markets are coming off their peak, while Orlando is now at a peak, bolstered by very strong job growth and a surge in the millennial population.
Tampa has also seen notable improvement. While this market is down from the phenomenal 6.9% rent growth in 2015, it has managed to return to 4%-plus territory for the first time in four quarters. A slowdown in completions – 4,018 units delivered annually in mid-2018, compared to 5,244 in mid-2017 – has afforded the market some room to work through its supply peak.
Jacksonville has been equally impressive. The northeastern Florida market saw annual rent growth reach 5.0% this quarter. This market has, by and large, been fueled by two broad factors: solid employment growth and manageable supply levels. Since the onset of 2013, annual employment growth has averaged 3.1% – equal to nearly 20,000 jobs added on an annual basis. Over that same period, inventory growth has averaged just 1.6%, or about 1,700 units delivered, on an annual basis.
The broader South Florida region comprises numbers four through seven on the list, with Miami leading the region, followed by West Palm Beach and Fort Lauderdale. While these markets are lagging the other major Florida markets, annual improvements of 80 bps to 140 bps shows there is still some momentum in the region. This may be somewhat of a surprise to some after the three markets together saw rent growth slow all the way to 1.2% in 2017.
Even more surprising is that there are other secondary Florida markets that have seen larger improvements than the region’s second-place Orlando.
Sarasota-Bradenton has seen rent growth improve 370 bps after mid-2017 saw the market achieve a rather weak 0.6% annual growth mark. Further north in the Florida panhandle, Pensacola saw a 270 bps improvement when the market landed at 3.9% in 2nd quarter 2018.
Lakeland has benefited from improvement in nearby Orlando and Tampa, but this small market has been boosted by the fact that supply has been effectively non-existent this cycle.
Down on the southwestern coast, Fort Myers and neighboring Naples have seen growth improve year-over-year. However, whether that momentum will continue is another question. In both markets, supply is increasing and employment growth has slowed substantially. As such, expectations are that rent growth should slow in the coming quarters.
Only four of the state’s 16 markets have seen either zero improvement or a decline in performance. Gainesville is still strong at 4.4%, but that level was unchanged from the prior year’s mark. Deltona-Daytona Beach and Port St. Lucie both saw a slight decrease in performance. But at 3.7% and 4.1%, respectively, performance in these two markets can still be considered strong.
It almost feels disingenuous to call Palm Bay’s 110 bps decline a true slowing, as the resulting 2nd quarter 2018 annual growth mark was still among the nation’s best at 6.7%.
If any single Florida market might be considered a laggard, it is the Florida capital of Tallahassee. Volatile employment growth – especially considering the market is anchored by slower growth employment drivers like the state government and Florida State University – coupled with recently increasing supply have likely contributed to the slowdown in Tallahassee.