Tampa Bay Multifamily Insights. November 2023 In Tampa, Florida, the multifamily market is experiencing a notable shift. Vacancy rates have reached a decade-high of 8.3% due to an imbalance between supply and demand, resulting in more units delivered than absorbed. However, recent data indicates a resurgence in demand, with nearly 3,800 units absorbed by the end of the third quarter of 2023, compared to less than 1,000 during the same period in 2022.
As new units enter the market, landlords lose leverage to increase rents. Average monthly rents remained stagnant through much of 2023, declining by 0.9% year over year. Submarkets like Southeast Tampa and Pasco County, leading in new construction, experienced the most significant rent declines due to an influx of new units during a period of subdued demand. Luxury communities saw the most significant rent decreases (down 1.7%), while B & C -Class properties continued to raise rates (up 2.1% over the year). Limited rent growth is expected to persist for the next six to nine months as the market works through a pipeline of 17,000 units. However, a return to prepandemic rent growth levels is anticipated by mid-2024 when supply and demand are projected to reach a better balance. Without a doubt, economic uncertainty and fluctuating interest rates have 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 finalize. 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. With this shift, properties with higher cap rates become more attractive, promising better returns and potential acquisitions. 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 4.1%, exceeding the national benchmark, the city has experienced a surge in demand for multifamily housing. 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 reacting 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 The 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 Data Corporation: A multinational distribution company specializing in IT products and services. Syniverse: Provides technology and business services for telecommunications companies worldwide. 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. 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. 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. Tampa Electric Company (TECO Energy): Provides electric services to the Tampa Bay area. Mosaic: A leading producer of concentrated phosphate and potash crop nutrients. 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 79.1% in multifamily permits, the market has a robust pipeline of new construction projects. While property prices continue to exhibit steady annual growth at 5.4%, overall, the Tampa Bay multifamily market presents exceptional potential and stands strong 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 Real estate markets operate on a local scale, shaped by the distinct features of each property. The Tampa Bay Multifamily market is no exception. Thus, to gauge the potential of a multifamily real estate venture, it's crucial to assess specific submarkets using various 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. In terms of Asset Value, five of those submarkets account for close to 60% of the total Tampa Bay Submarket asset value. Higher 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, Downtown Tampa, and Pasco County appear to be the most prominent submarkets in terms of dollars invested with a total of 30 billion dollars. Absorbing 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 November 2023, the Tampa Bay Market features a total inventory of 218,074 existing rental units. Notably, a significant portion of this inventory is consistent with asset value distribution. Approximately 60% is concentrated within five prominent submarkets: Central Pinellas, Southeast Tampa, North Tampa, Downtown Tampa, and Pasco County. 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. As reported by Costar Group inc. The Tampa Multifamily market has experienced a significant influx of new supply, with 6,763 units completed in the past year and an additional 17,500 units currently under construction. The ongoing construction represents a 12.0% increase in existing inventory, well above the national average of 5.6%. As a result, the market vacancy rate is expected to further increase to around 9% in the next two years, according to CoStar's forecast.
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.
Absortion Units 2,000 1,500 1,000 500 0 -500
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.
During November 2023, 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.
“As new units come into the market, landlords have adjusted their strategies due to increased supply, causing rent growth to stall at -1.1% yearly. Certain submarkets, like Southeast Tampa and Pasco County, experienced more acute declines in asking rents due to an influx of new construction. Interestingly, luxury communities faced a -1.9% decrease in asking rents while C& D properties managed a 1.6% increase.” (Costar 12/4/2023)
Figure 5 LAKE ELLEN DRIVE, TAMPA
Capital Market
While Tampa's multifamily investment volume has seen a recent decline, there's a silver lining in the market dynamics. Despite a shift in fundamentals like flattened rent growth and increased competition affecting vacancy rates, private buyers like Bell Partners and local investors such as Carter Multifamily are making strategic acquisitions. Bell Partners, for instance, acquired Lansbrook Village with a forwardlooking approach, focusing on renovations and neighborhood investments, signaling potential for growth. Although the market faces challenges due to economic uncertainty and interest rate fluctuations, there's anticipation for a more confident investment landscape once there's clarity on interest rate directions. In the meantime, while prices have dipped and cap rates have seen an increase, proactive strategies like value-add initiatives and operational improvements by key players like Carter Multifamily might pave the way for revitalizing the multifamily sector in Tampa.
Tampa's multifamily market stands as a testament to resilience despite encountering a significant
supply wave. As a substantial contributor with over 218,000 units, it continues to play a pivotal role in the broader US market landscape. The encouraging absorption of almost 3,800 units in 2023 signals a promising resurgence in demand, marking a positive shift compared to previous trends.
Furthermore, the gradual decline in property prices coupled with the decreasing cap rate suggests an evolving market that's adapting to prevailing conditions. This resilience and adaptability position Tampa's multifamily sector optimistically for future growth and potential opportunities as it navigates through these challenges. Despite facing challenges from a historic supply wave, Tampa's multifamily market remains resilient. With over 218,000 units, it's a key player in the US market. While the vacancy rate has increased, reaching 8.4%, it's important to note the market's positive absorption of nearly 3,800 units in 2023, showcasing a resurgence in demand compared to previous years, at the same time property prices are coming down, as cap rate drops
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The Multifamily Real Estate Group LLC. The Multifamily Real Estate Group operates 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. We are 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. Manny J. Herrera Founder and Senior Partner The Multifamily Real Estate Group LLC Manny@mregroup.co (813) 951 5880