Jacksonville Multifamily Market: Florida’s Rising Star
- Feb 22, 2019
The Jacksonville multifamily market has been steadily expanding, though at a slower rate than other Florida markets. The development pipeline is stronger than ever, with nearly 5,000 units currently under construction, according to Yardi Matrix data.
In an interview with Multi-Housing News, Avison Young Senior Vice President Rosendo Caveiro explains how Jacksonville is becoming a more in-demand market for investment and development, and what are its advantages compared to Miami, Broward County or Palm Beach. He also shares his predictions on the metro’s multifamily sector for the year ahead.
What can you tell us about Florida’s multifamily markets?
Caveiro: Overall, multifamily properties in all of the major markets in Florida have fared very well since the recovery. Even properties in secondary markets have had moderate rent growth and steady occupancy. Multifamily has been the “go-to” product type to invest in for Florida.
How did these markets change in recent years?
Caveiro: The most obvious change during the past five years has been an increase in multifamily development. Consistent rent growth, stable to increasing employment, and the continued migration of young people and retirees to Florida’s coastal cities have fueled new development.
Which ones are the ‘hottest’ and why?
Caveiro: The “hottest” major markets for multifamily investment and development have been Miami, Broward, Palm Beach, Orlando, the Tampa Bay area, and now Jacksonville. The South Florida tri-county markets have been popular and favored by all types of investors from major institutional investors to large private capital investors and foreign capital.
The Central Florida markets like Tampa, and especially Orlando, have benefited from their top-of-market job growth and lower cost of living. Many investors feel they are getting a better return on their investment, long-term, by acquiring properties in Central and North Florida.
What factors are impacting the multifamily markets in the region?
Caveiro: For South Florida’s tri-county market, higher development costs, which go hand-in-hand with low capitalization rates upon disposition, are having an adverse impact on multifamily investors’ underwriting and zest to invest in South Florida. Sales price of multifamily properties are at an all-time high and selling at the lowest cap rates in the state. However, South Florida—particularly Miami—does not have the abundance of land for multifamily development as in other markets.
In major markets in Central and North Florida, land is more readily available and materially less expensive, especially to build garden-style, three-story rentals versus mid- or high-rise structures, which are substantially more expensive to build and more common in South Florida.
Another key factor affecting the multifamily markets is affordability. Rents in South Florida are the highest in the state and one of the highest in the country based on per capita income. It has become a challenge for many middle-class, working families.
Rents in Central and North Florida, especially in suburban markets, are more affordable. This in turn attracts people to markets such as Tampa, St. Petersburg, Jacksonville, Naples and Cape Coral/Fort Myers where there are also abundant employment opportunities and a lower cost of living.
How did Jacksonville’s multifamily landscape change in the past years?
Caveiro: Jacksonville has been the nation’s “sleeping giant.” During the past couple of years, it has roared and shown tremendous growth, popularity and sizzle. Job and population growth coupled with a low unemployment rate are keeping multifamily developers busy.
In 2017, approximately 1,500 units were completed as compared to 2018 where more than 2,500 units were delivered to the market. Additionally, 24 projects with 5,746 units are currently under construction, with another 68 projects with 15,000 units either planned or projected to be built in the next couple of years. In addition to a steady and emergent job market, growth in rental rates is one of the dominant factors in the surge in new multifamily developments. Rental rates increased by 4.3 percent in 2017 and jumped to 6 percent in 2018, according to Yardi Matrix data.
Jacksonville’s popularity and interest from investors and developers are exemplified in the number and increasing price of apartments. During 2016 there were 51 sales with an average sales price of $84,000 per unit. For 2018, there were 65 sales with an average sales price of $106,000 per unit. These were increases of 27 percent and 26 percent, respectively.
Name a few challenges investors currently face in the Jacksonville multifamily market.
Caveiro: Like the more popular and higher priced markets to the south, Jacksonville’s price appreciation and escalating popularity may begin to get too expensive for investors and developers vis-à-vis rent growth and occupancy.
Between domestic and foreign investors, who invests more in Jacksonville’s multifamily market? What attracts them?
Caveiro: Domestic investors are drawn to Jacksonville. Generally, foreign multifamily investors favor the South Florida markets and Orlando.
Tell us about the metro’s most sought-after submarkets by investors. What makes these submarkets stand out?
Caveiro: The top five best performing markets would be Orange Park, Oakwood Villa, Ortega Hills Meadowbrook and Bellair. These markets have achieved the highest rent growth and maintained occupancy levels in the mid- to high-90 percent range.
Nearly 3,000 units were delivered in 2018 in Jacksonville—a peak for this cycle—according to Yardi Matrix data. What supports this increase in supply? Are there any fears of overbuilding?
Caveiro: The increase in supply has been driven by job growth, rising employment and affordable land for multifamily development. There is always a fear of overbuilding, especially among the lenders who front the construction loans. However, developers of multifamily rentals, especially the institutional types, are well prepared and have sophisticated analysts that can gauge the market very accurately. As a rule, these types of developers seldom make errors.
What are your predictions for Jacksonville’s multifamily market for the year ahead?
Caveiro: We see a continued interest in Jacksonville. At this year’s National Multifamily Housing Council (NMHC) conference, many of the investors and developers we met specifically asked about product in Jacksonville. This had not been the case in prior years. We predict increasing rent growth, lower rent concessions, steady occupancy levels in the mid-90 percent range, and market value/price appreciation of existing rental communities.
Image courtesy of Avison Young