Over the past decade, Florida’s apartment market was challenged by the crash of the broader real estate market during the Great Recession and a prolonged, anemic economic recovery. Most of the state’s metro areas were suddenly faced with a large backlog of foreclosed single-family homes and properties in negative equity, situations that many metros are still working through. And job growth was modest and came primarily in lower-paying employment segments such as leisure and hospitality. In economic turmoil, Florida’s major multifamily markets also suffered as owners and operators struggled to maintain occupancy and priced units more reactively.
In time, however, the state has demonstrated consistent economic momentum. Over the last five years, employment in the state grew on average of 2.4% annually. Most recently, Florida logged annual job growth north of 3.0% throughout much of 2015. Further, from 2012 to 2014 the state’s economy grew at a healthy, average annual rate of 2.3%. As such, healthy demand for apartments returned, lifting multifamily fundamentals, and sustainable levels of development for Florida’s major metro areas.
Robust Demand Returns
Statewide, the trend for occupancy is wholly positive for both more mature metros and secondary markets. Looking at more developed metros, Jacksonville and Tampa Bay have demonstrated the greatest gains in demand, yielding healthy occupancy of roughly 95% or above. This is supported by local economies’ growing momentum through job growth and notable corporate expansions and relocations. One great example of momentum in economic development is Johnson & Johnson relocating its shared services center to Tampa Bay. A longtime laggard in Florida, Tampa Bay has established itself as a late recovery market where real gross metro product has averaged 2.4% over the last five years. Another example is increased activity and a recent investment in expanding the Port of Jacksonville, a significant driver of economic activity to Northeast Florida, to make the port more competitive with others on the East Coast.
Now taking a look at smaller metros in Florida, Fort Myers/Naples and Sarasota/Bradenton have logged strong occupancy over the last five years, stemming from healthy economic growth of 4.2% and 2.8%, respectively. Despite being known as destinations for retirement, these metros have also seen notable corporate relocations. For example, in Fort Myers, Hertz recently built and opened a new worldwide headquarters, bringing with them hundreds of employees from New Jersey as well as attracting talent locally. Overall, these recent developments and others are strong demand drivers for individual metros and Florida overall.
Rent Growth Accelerates
With strong occupancy, operators have gained confidence to push rents more aggressively. The most notable movers in terms of rent growth are West Palm Beach, Orlando and Fort Myers/Naples. West Palm Beach has been able to sustain average annual rent growth levels of 5% over the last two years, though the sustainability of annual rent growth at this pace is questionable as it is well above regional and U.S. norms. Other areas of encouragement are Jacksonville, Tampa Bay and Fort Lauderdale. Specifically in Tampa Bay, new developments in downtown Tampa Bay (downtown is a key development opportunity to the metro) as well as parts of St. Petersburg are attracting renters of all types. However, Miami has struggled to maintain consistent rent growth over time, largely due to the rise and fall of the condo market, competition from the shadow rental market and vulnerability to international influences. Going forward, aggressive annual rent rates are likely unsustainable in the long run, and residents are at risk of being priced out at the top end of the market, especially in urban centers.
Apartment demand in Florida metros should remain healthy overall, though there is little room for occupancy to improve further for most metros. In terms of rent growth, metros currently experiencing sharp rent hikes (notably West Palm Beach, Orlando and Fort Myers/Naples) are expected to see rent growth normalize as owners and operators struggle to sustain such aggressive pricing — especially considering the composition of each of these local economies. Pricing in other metros have traced national trends and are likely to continue along the same path.