Construction Recovery Takes Metro Orlando by Surprise
- Apr 03, 2014
Orlando, Fla.—Central Florida’s residential market is most certainly experiencing a comeback in every domain imaginable. The ever-climbing payrolls, the average rent increase and the construction upswing will hopefully compensate for the little spot left on the overall prognosis by vacancy, which unfortunately also shows a slightly growing tendency, according to Marcus & Millichap’s Apartment Research Forecast.
2014 is expected to continue the pattern of the past couple of years and should put out the most significant influx of new units since the beginning of the recession. As urbanized living takes on, development activity in Orlando starts gaining momentum coincidentally, and as Lockheed Martin brings new residents, absorption figures are also supposed to climb by 3,900 units. Completions will jump to 5,700 units in eight different submarkets, mostly downtown and in south Orange County. To put it in context, 3,000 rentals were completed last year. Growth, however, doesn’t come without its headaches. The increase in construction influences the value of existing assets too and as competition rises, asset location becomes more and more important. Class B and Class C assets are expected to sell better than the high-end properties that produce lower yields. Even though a significant rise in demand is also foreseeable, a difference in favor of completions will inevitably fuel a 90 basis point rise in vacancy to 6 percent.
Contributing to the growth of rental demands due to happen is a recent increase in the number of the area’s younger residents—mainly in their early 20s—that improves hiring prospects, supporting a 3.4 percent increase in average rents to $955 per month. Migration of higher income tenants to luxury units is also likely. Healthy rent growth is offset however by elevated completions and this has led the city to a five-place drop to rank 36 on the Marcus & Millichap’s National Apartment Index for 2014. Payrolls in general continue to close in on the pre-recession levels. By the end of the current year, 35,700 positions will be created, up from 25,100 hires in 2013.
Charts courtesy of Marcus & Millichap