MARKET SNAPSHOT: With its Softening Fundamentals, Tampa is Not Forecast to Bounce Back Until 2011

By Erika Schnitzer, Associate Editor Tampa, Fla.—Tampa’s apartment fundamentals have softened considerably, according to Marcus & Millichap’s 2009 National Apartment Report.Asking rents are forecast to fall 0.8 percent, to $834 per month, while effective rents will decline 1.5 percent, to $779 per month. “Before the credit crunch hit and before the employment numbers started to soften, it was a 2 to 3 percent annual rent increase market, but I don’t think anyone realistically thinks we’ll return to that until 2011,” Jeffrey Meyer, senior investment associate and director of Marcus & Millichap’s National Multi Housing Group in Tampa, Fla., tells MHN.Vacancy is predicted to increase by 130 basis points, to 9.7 percent, in 2009. In the Class B and C sectors, vacancy is forecast to increase 180 basis points. “Even in historically strong-occupancy submarkets, we’ve started to see deterioration to the mid-80s,” notes Meyer.While 900 units are slated for delivery this year, this is significantly fewer than the market typically adds to its inventory—in 2008, Tampa saw the addition of 2,300 apartments. For current owners, Meyer notes the construction slowdown has been positive, however. “In the ‘90s and early 2000s, there was significant overbuilding in certain submarkets, but that’s not a problem anymore,” says Meyer. “There are a few deals floating around, but there aren’t that many and the pipeline is relatively skinny.” The shadow market has had a considerable impact on the apartment market, though Meyer notes that much of the product was absorbed in 2007. But with the high number of recent foreclosures in the Tampa-St. Petersburg metro area, many former homeowners are continuing to rent single-family homes rather than apartments.In terms of investment opportunities, the National Apartment Report notes that assets in South Shore communities are anticipated to offer solid first-year returns, based upon proven operating histories. In addition, Myer notes that the Westshore Business District has seen some additions to rental inventory. He says, “Westshore is desirable because of the availability of water views, the relative abundance of Class A office space and the substantial barriers to entry that characterize the area.”In addition, the buyer demographic has shifted from the typical real estate investor to a non-traditional private buyer with a more long-term outlook. “I get calls daily from investors looking to jump into the market who want to get product in Tampa Bay because, in the long run, once you get through this hump, Tampa Bay is a strong market,” says Meyer. Class A communities are trading at cap rates of approximately 6 percent, while Class B and C properties are in the 7.2 to 8.0 percent range. Meyer notes that cap rates in the area were in the 5 and 6 percent range just a few years ago, even amid “the condo conversion craze.”Meyer believes that Tampa will not see a true recovery until 2011, but once the market does turn, he believes that the biggest driver will be the University of South Florida and that job growth and rental demand will stem from Northeast Tampa as a result.According to the firm’s annual National Apartment Index (NAI), a snapshot analysis that ranks 43 apartment markets based on a series of 12-month forward-looking supply and demand indicators, Tampa moves down 14 places this year—to No. 41—due to rising vacancy.(Click here to read last week’s Market Snapshot on Sacramento, Calif.)