Tampa Bay Multifamily Insights January 2024
Manuel Herrera The Multifamily Real Estate Group LLC.
Tampa Bay Multifamily Insights. January 8, 2024 As the new year unfolds, Tampa navigates a dynamic landscape within its multifamily market. While vacancies have surged to a decade-high of 8.5%, largely due to supply-demand imbalances, there are positive indicators amidst these challenges. Despite facing one of the nation's lowest home affordability indices, the region's resilience is evident. This imbalance has notably affected 3-Star properties, with higher-end 4 & 5-Star properties experiencing vacancy rates reaching 9.6%. The ongoing development pipeline, particularly in suburban areas like Pasco County, has contributed to this trend. Landlords are navigating rent adjustments, witnessing declines in luxury property rents while lower-tier properties see modest increases.
This Photo by Unknown Author is licensed under CC BY-SA
The forecast indicates limited rent growth for the upcoming months, yet there's an optimistic outlook for a potential return to around 5% rent growth by mid-2024. Despite complexities in multifamily deals attributed to shifting fundamentals and increased interest rate volatility, Tampa's robust employment growth rate of 3.00%—surpassing the historical average of 1.30%—presents a promising facet for stabilizing occupancy rates. Tampa's multifamily real estate sector, despite challenges, sits at the intersection of population growth, high employment, and housing market dynamics in 2024. Recent drops in mortgage rates below 7% and the city's impressive employment annual growth rate of 3% compared to the national average of 1.3% underscore a stable and growing local economy, which can potentially support multifamily occupancy rates, and further market expansion.
The region's consistent employment growth distinguishes Tampa from other major Florida cities, indicating stability and continued demand within the multifamily housing sector. In addition, addressing house affordability concerns has become a focal point for local government authorities, signifying a proactive approach to sustain and support the housing market's health. Without a doubt, economic uncertainty and fluctuating interest rates restrained multifamily investments in 2023, with around $1 billion traded in Tampa, notably lower than the $4.5 billion recorded in 2022. Buyers are cautious, underwriting lower rent growth assumptions while facing higher debt costs, making multifamily deals more challenging to investors and bankers alike. Despite this, investment activity remarkably increased in the third quarter of 2023, with $850 million in total sales volume, driven by several transactions exceeding $50 million. Certainly! The exceptionally low capitalization rate during 2021 and 2022 was an important reason as well. High property values relative to their net operating income, resulted in low demand and competitive investment scenarios in the recent past.
Figure 1 Courtesy of Costal.com
On the other hand, the recent increases in capitalization rates in the Tampa Bay multifamily market, suggests a positive evolution. This change indicates a healthy market responding to shifting investor sentiments and economic conditions. Indeed, rising cap rates sign a new phase, offering opportunities for recalibration in investment strategies in 2024. With this shift, properties with higher cap rates become more attractive, promising better returns and potential transactions. This adjustment fosters a more balanced market, reducing the risk of overheating and paving the way for stability. While this change may initially impact property valuations and financing dynamics, it presents a chance for buyers to negotiate more effectively and for sellers to adapt their pricing strategies. This shift signifies a maturing market that adjusts to ensure sustainability, ultimately leading to a more resilient and adaptable real estate landscape in Tampa Bay.
Tampa Bay’s Multifamily Fundamentals. Key drivers of a sound multifamily real estate market include: a strong job market, a thriving economy, a business-friendly environment, a balanced supply of affordable housing.
Market Performance
Job Market and population Growth.
Tampa. Bay's economy has notably thrived, emerging as one of Florida's most robust centers in recent years. The region's resilience is underscored by its focus on job creation and population expansion as key indicators of success. Additionally, Tampa's multifamily real estate market has demonstrated exceptional resilience, surpassing many national benchmarks. Supported by a remarkable employment growth rate of 3 %, over performing the national benchmark of 2.1% , the city has experienced a surge in demand for multifamily housing followed by a wave of new constructions. Furthermore, over the past decade, Tampa experienced an extraordinary surge in population, with a remarkable increase of over 412,000 individuals, reflecting an average of 790 new residents arriving weekly. This influx has significantly propelled the demand for housing and underlines the city's economic vibrancy. Finally, it is true that home affordability is likely to be an important issue in the immediate future, However, the multifamily market is finding its way through. I addition, Florida government has passed Senate Bill 102, that promises to free new possibilities for the develop of affordable multifamily development. The official initiative introduces liberal measures that combines tax incentives, availability of new spaces and less regulations, expressly excluding rent regulations.
Figure 2 Freddie Mac Apartment Investment Market Index
Figure 3 Freddiemac.com
Business Environment Greater Tampa area enjoys a business-friendly environment with low taxes and incentives, attracting numerous corporations and fueling job growth. Tampa Bay has a diverse economy with a strong base in healthcare, finance, and tourism. Tampa Bay is home to 20 corporate headquarters, including five Fortune 500 companies, and hosts over 500 foreign-owned companies from 40 nations. prominent companies headquartered or with significant operations in the Tampa Bay area include: Tech and Telecommunications: • •
Tech Data Corporation: A multinational distribution company specializing in IT products and services. Syniverse: Provides technology and business services for telecommunications companies worldwide.
• Healthcare and Pharmaceuticals: • •
WellCare Health Plans, Inc.: A managed care services company focusing on governmentsponsored healthcare programs. Lincare Holdings Inc.: Specializes in home healthcare services and medical equipment.
Finance and Insurance: • • •
Raymond James Financial: A diversified financial services company providing investment banking, asset management, and more. Tampa Bay Banking Company: A regional bank headquartered in Tampa Bay. United Insurance Holdings Corp: A property and casualty insurance company.
Retail and Hospitality: • • •
Bloomin' Brands: The parent company of popular restaurant chains like Outback Steakhouse and Carrabba's Italian Grill. Hooters of America: Headquarters for the famous restaurant chain. Lazydays RV: A major RV dealership and service center operator.
Energy and Utilities: • • •
Tampa Electric Company (TECO Energy): Provides electric services to the Tampa Bay area. Mosaic: A leading producer of concentrated phosphate and potash crop nutrients.
Other Industries:
• •
Jabil Inc.: A global manufacturing services company. Cott Corporation: Involved in the production of private-label beverages.
These corporations play significant roles in their respective industries, contributing to the economic landscape of the Tampa Bay region and beyond. Additionally, Tampa's multifamily market leads the nation in permits and property prices. With an annual growth rate of 18.8% in multifamily permits, the market has a robust pipeline of new construction projects. Despite an overall deceleration of -6.9% in property prices, the Tampa Bay multifamily market showcases exceptional potential and remains robust among national real estate markets..
OUR APPROACH We approach every transaction as a collaborative process. We focus on three core dimensions: market knowledge, transparency, Integration, and collaboration as showed by the many roles involved in every transaction.
The Tampa Bay Submarkets Multifamily real estate markets operate within specific local parameters shaped by demographics, economic variables, and social infrastructure, all influenced by the distinct characteristics of each property. The Tampa Bay Multifamily market aligns with this pattern. Therefore, assessing the potential of multifamily real estate demands a thorough evaluation of particular submarkets using a diverse set of key indicators. These indicators encompass asset value, inventory units, units under construction, absorbed units, vacancy rates, market rent, rent growth, sale price per unit, sale volume, and cap rate. Through a detailed analysis of these indicators and their interconnectedness, investors can glean valuable insights into the submarket's potential. Within the Tampa Bay multifamily real estate landscape, there are thirteen distinct submarkets, each characterized by its unique traits and investment opportunities. Among these, seven submarkets are situated within Hillsborough County, the fourth most populous county in Florida. Additionally, three submarkets belong to Pinellas County, renowned as one of Central Florida's affluent areas. Finally, the remaining two submarkets are in Pasco and Hernando counties, each offering its own distinct investment landscape.
Asset Value Overall, measuring asset value in the multifamily market is crucial for investors, lenders, and stakeholders as it supplies a quantitative and qualitative assessment of a property's worth. It helps decision-making, risk management, and portfolio optimization in the dynamic real estate industry. High asset values write down a robust and potentially lucrative market for multifamily real estate investment.
Figure 4 Asset value in billion
Central Pinellas, Southeast Tampa, North Tampa, Northwest Tampa and South Tampa appear to be the most prominent submarkets in terms of dollars invested with a total of 30 billion dollars. Representing 75% of the new construction units as well.
OUR APPROACH We approach every transaction as a collaborative process. We focus on three core dimensions: market knowledge, transparency, Integration, and collaboration as showed by the many roles involved in every transaction.
Inventory Units Measuring inventory units in a multifamily market is crucial for investors as it provides valuable insights into supply and demand dynamics, market trends, rental market dynamics, risk assessment, competitive analysis, and portfolio management.
As of January 2024, the Tampa Bay Market features a total inventory of 219,800 existing rental units. Notably, a significant portion of this inventory is consistent with asset value distribution. Approximately 60% is concentrated within four prominent submarkets: North Tampa, Central Pinellas, Southeast Tampa, and West Tampa.
A high concentration of asset value and rental units in a multifamily real estate market suggests strong demand, a desirable location, as well as a well-established rental market. However, investors should be prepared for increased competition and evaluate the potential for future growth and portfolio diversification within the submarket.
Under construction units
If new construction leads to an over-supply of units, it can result in low asking rates due to competition and potential challenges for investors. Conversely, if new construction aligns with or slightly lags demand, it will support a healthy balance and potential for growth. Assessing this balance is crucial in understanding the impact on the multifamily market.
In the Tampa market, the influx of new multifamily construction has significantly impacted vacancy rates, which rose to 8.8% due to approximately 7,600 newly delivered units. An additional 16,000 units currently under construction are expected to further pressure vacancy rates in the near term. However, demand from renters is anticipated to match these new units in the coming quarters, stabilizing vacancy around 8.5% in the long term. Despite a decrease in construction starts over consecutive quarters due to weakened market fundamentals and challenges in securing construction financing, Pasco County leads in new construction, followed by Southeast Tampa. These areas, witnessing growth in residential, retail, and industrial sectors, have experienced rising vacancies, and reduced rental prices due to the delivery of numerous units in recent years.
While it's true that the supply of new units in the Tampa multifamily market has outpaced demand in the second quarter of 2023, it's reassuring to know that new construction capital is wisely being distributed to submarkets with the highest potential. Specifically, Pasco County, Southeast Tampa, South Pinellas, and North Tampa are receiving significant attention, which is clear indication of the direction of Tampa's multifamily market expansion.
12 Month Absorption Units
The 12 Month Absorption Units metric calculates the net change in occupied units during a 12-month period, considering both new leases and units becoming vacant. A positive absorption writes down that more units were leased than vacated, showing a healthy demand and a potentially strong market. Conversely, a negative absorption suggests that more units became vacant than were leased, saying weaker demand or potential oversupply.
Positive absorption rates in Southeast Tampa, Pasco County, Downtown Tampa, South Tampa, and Downtown Saint Petersburg indicate robust demand and active leasing, which bodes well for those areas. Conversely, negative absorption in places like East Tampa, West Tampa, Northwest Tampa, and North Tampa might signal higher vacancies or a slower pace of leasing.
Rent Growth
Overall, rent growth is an essential metric in the multifamily real estate market as it reflects the interplay between supply, demand, and market dynamics. It influences investment decisions, property performance, and market competitiveness, providing valuable insights for stakeholders in the multifamily industry.
Annual Rent Growth Increase 10.00% 3.20%
6.00%
2.00% 0.00% -2.00%
Total
1.30% 0.10% 0.00%
8.00%
4.00%
Decrease
4.00%
-0.60%
-0.70%
-1.00%
-1.20% -1.30% -1.70% -1.80% -2.00%
-4.00%
During January 2024, annual rent growth in Tampa's submarkets showed a mixed landscape, with Downtown Saint Petersburg leading with a solid 4% increase, followed by East Tampa at 3.2%. South Pinellas, particularly Southeast and Hernando, experienced moderate growth of 1.3% and 0.10%, respectively, while South Tampa maintained stability with no change. However, Southeast Tampa saw a decline of -2%, joined by West Tampa and North Tampa in experiencing reduced rent growth. The remaining submarkets showed minimal fluctuations in rental prices. To fully comprehend these trends, it's crucial to factor in variables like vacancy rates, asset values, and broader market conditions, which offer a more comprehensive understanding of the rental market dynamics across Tampa's submarkets.
Capital Market Despite recent challenges, Tampa's multifamily investment sector has showcased resilience and adaptability. While there's been a decline in investment volume over the past year, amounting to $1.8 billion, it's important to recognize the context. In 2021, the market reached remarkable heights, boasting a sales volume nearing $3 billion, driven by robust renter demand and unprecedented rent growth. Although multifamily fundamentals have shifted, marked by stabilized asking rent growth and increased competition due to new supply, Tampa's market remains dynamic. Yes, vacancy rates have hit a decade high, and there's an interplay of economic uncertainties and fluctuating interest rates. Yet, amidst these challenges, there's an opportunity for evolution and innovation. It's true that multifamily deals face more complexities, with a widening gap between buyer and seller expectations. However, this climate has also encouraged a significant shift in the investment landscape. While institutional capital has taken a back seat in recent transactions over $50 million, private buyers have stepped up, emerging as influential players in the market. This signifies an adaptable and diverse investment landscape, showcasing the resilience and potential for strategic growth in Tampa's multifamily sector.
Thank you for reading our report.
I am Manny J Herrera, a Real Estate Agent representing Dalton Wade Real Estate Group, and founder of the The Multifamily Real Estate Group LLC. We are actively seeking opportunities for acquiring multifamily properties within the Tampa Bay area. I would be happy to explore the potential for mutual collaboration. We operate on the principles of transparency, market expertise, and a collaborative approach involving various stakeholders including Real Estate Agents, Bankers, Title Insurance Companies, Property Management Firms, and Syndication Specialists. Our shared vision prioritizes not only buyers and sellers but also tenants and the community at large. Our mission is to transform the multifamily property market, offering a streamlined platform that empowers investors and property owners while adhering to the highest standards of efficiency and security. I am enthusiastic about the possibility of working together and would appreciate an opportunity to discuss potential synergies at your earliest convenience. Thank you so much for your interest in the Multifamily Real Estate Report. Best regards,
Manny J Herrera Dalton Wade Real Estate Group. The Multifamily Real Estate Group LLC