Miami Rent Growth Increases, So Does Vacancy

An increase in completions leads to higher vacancy in Miami, though the city retains the third highest occupancy in the nation.

effective rent trendsAlthough last year’s healthcare and government cutbacks brought stagnancy to job growth in Miami-Dade County, employers should accelerate hiring in 2014. This could lead collaterally to a significant rent growth in the residential market, according to Marcus & Millichap’s Apartment Research Forecast. But as a result of completions, vacancy will also rise. That said, Miami vacancy rates are still currently the third lowest in the nation.  This has led the city on an eight-place climb to rank 13 in on the firm’s National Apartment Index for 2014.

employment trendsThe recession did not seem to disturb net migration, and household formation has also remained strong over the past few years. The metro area continues to attract new residents as well as visitors. This will keep pressure on demand for rental properties and will lead to the creation of new jobs in the hospitality and retail domain. The projected 2.3 percent growth in employment means the addition of 23,500 workers in the area and expanding the payrolls will support a healthy absorption. Although, even with wage and salary growth sufficient to enable owners to slightly raise the rents, the increase in average rents will not reach last year’s powerful 4.9 percent.  Finishing at a foreseeable $1,233 per month would still mean a 3.5 percent gain in 2014.

supply and demandTherefore, absorption of apartments remains solid across the metro, and areas such as Coral Gables, Hialeah and West Miami will retain very low vacancy. Upticks are expected however, as new rentals enter the market and the inevitable seasonal demand variations come forward. Developers will complete 2,000 apartments this year, pushing the vacancy rate to 3.3percent — up by 30 basis points in contrast with the 10 bps down-tick in 2013. Roughly 2,500 rental units were completed last year. Despite all the additions, the projected apartment boost will leave rental stock well below the peak level prior to the condo conversion boom for at least a few years to come. To give some sense of scale, the double of this year’s completions would be required every year over the next decade or so in order to restore the inventory to that stage.

(Charts courtesy of Marcus & Millichap.)