Tampa, Fla.—Job growth, combined with a decline in the homeownership rate, is fueling demand for rental apartments in Tampa, Fla.
“Tampa is reporting positive job growth in 2010, the first time since 2007,” reports Patrick Dufour, vice president of ARA’s (Apartment Realty Advisors) Tampa office. “We’ve added 15,000 new jobs, as of October year-to-date.”
The Tampa-St. Petersburg-Clearwater metro had a 12.6 percent unemployment rate, as of November 2010, which, while up from the month previously, is still down from the peak of 13.2 percent in January and February, according to the Bureau of Labor Statistics.
The Tampa market saw job growth across a variety of sectors. “Tampa has a large financial services component, which really cut jobs early in the recession but that employment sector has stabilized and there’s no further job losses going on right now,” says Dufour. In addition, the metro has a large medical services job sector and is a haven for corporate back-office operations.
As Dufour notes, the Port of Tampa, which supports 100,000 jobs and generates $8 billion annually, recently renewed its long-term contract with the Panama Canal to increase its shipping capacity. Meanwhile, MacDill Air Force Base has received $1 billion in new investments over the last two years. And the market is also experiencing investment in its infrastructure, including a new elevated roadway connection from the Port of Tampa to I-4, an expansion of Interstate 275 from West Shore to Downtown Tampa, a new terminal at Tampa International Airport and a high-speed rail project that will run between Tampa and Orlando.
Overall occupancy for the Tampa multifamily market increased 1.5 percent from the third quarter of 2009 to the third quarter of 2010, to 91.5 percent after leveling off at 90 percent through most of 2009, Dufour tells MHN.
Meanwhile, Tampa is experiencing three straight quarters of effective rent growth, with third-quarter 2010 year-to-date annualized rent growth of 1.5 percent, according to ARA Florida’s 2010 Review/2011 Forecast. While concessions are burning off to some extent, the market is also starting to see some real rent growth, says Dufour.
In 2010, new apartments totaled 1,271, one-third of the metro’s historical average. Meanwhile, 1,479 new apartments are slated for delivery in 2011, and two-thirds of these units are affordable housing projects.
Class A assets are outperforming the overall market, with Class C assets the poorest-performing asset class, Dufour reports. At the same time, the ARA report notes that North Hillsborough had the strongest occupancy of Tampa’s submarkets, at 94.1 percent, while Central St. Petersburg and Brandon follow at 93.9 percent. Central Tampa saw the highest increase in occupancy, 8.1 percent, from the third quarter 2009 to the third quarter 2010, followed by Clearwater and University South, with increases of 3.7 percent and 2.7 percent, respectively.
Total transaction volume, for projects with 150 units or more, for 2010 was $425 million. Of this, 62 percent traded in the second half of the year—$263 million compared to $162 million in the first half of the year.
According to ARA’s report, the number of transactions declined in 2010, with 18 transactions, compared to 21 transactions in 2009. Total dollar volume, however, increased by 13.5 percent.
“We had a return of institutional-quality assets, core and core-plus product, that sold in the second half of last year,” says Dufour. “That, as well as improved asset valuations, helped that total transaction number increase more dramatically than the number of transactions.”
Class A and B properties experienced a 100-bp decline in cap rates throughout 2010. Cap rates for Class A assets are in the high-5 to low-6 range on in-place numbers, while Class B assets are trading in the low-6 to 7 percent range.
“In 2009 private buyers really dominated the market; in 2010, lower yield requirements and the availability of low-rate, low-leverage debt allowed the institutional buyers to outbid most of the private buyers for quality investment product,” says Dufour.
The one potential threat to the investment sales market, he adds, is “any potential increase in interest rates and subsequent increase in cap rates. We saw a dramatic cap rate compression in 2010 with the amount of capital that came back into the market … so that’s what really helped drive those sales in the second half of the year.”