Orlando Apartment Market Looks Strong

Even when Florida home loans are suffering in some area of the state, and even as a cooling housing market is rumoroed to be hitting the country, Orlando real estate remains hot. Need further proof of this fact?

It can be provided by the National Apartment Research Report for 2006, released by Marcus & Millichap Real Estate Investment Brokerage Company. This survey states that Orlando’s apartment market will remain robust throughout 2006, thanks to strong employment growth and limited new supply.

Investment in Orlando apartments is dominated by condo-conversion deals, says Steven M. Ekovich, first vice president of Marcus & Millichap and regional manager of the firm’s Orlando office. He adds that conversion buyers remained active at the end of 2005 and are expected to maintain a steady pace of acquisitions this year, buoyed by strong demand for affordable housing.

Factors at play in Orlando market

Several factors, aside from condo conversion taking many apartments out of the market, are affecting the local apartment market, says Robert Miller, executive vice president of CB Richard Ellis:

• There’s not much land suitable for new apartments available at the moment
• It’s tough to get land zoning for multi-family use
• Condo and real esate developers can afford to pay more for the limited amount of land left in Central Florida

“We are in a negative situation relative to new apartments,” says Miller.

His opinion is echoed by the following findings of Marcus & Millichap’s Orlando Apartment Research Report:

• Apartment vacancy is forecasedt to decrease by 80 basis points - to 4.5 percent - by the end of 2006. Strong demand for apartments, along with a reduction of rental inventory due to condo conversions, will fuel the decline.

• Orlando boasts one of the fastest-growing employment markets in the country, with a 4.3 percent expansion forecast in 2006. The construction and the leisure and hospitality sectors are expected to create the most jobs this year, adding 13,000 and 11,000 jobs respectively.

• Deliveries are projected to fall to 1,230 new apartment units in 2006, compared with about 2,500 units added last year. High construction costs have encouraged investments in existing rental properties, while a strong housing market has stimulated conversion of rentals to for-sale units.

• Falling apartment vacancies will allow owners to raise asking rents by 3.7 percent this year to $845 per month. A decline in concessions will cause average effective rents to rise 6.3 percent to $807 per month.

• Transaction velocity and pricing will remain high as demographics, declining housing affordability and the cost of new construction continue to support condo conversions.

More than 10 percent of the market has been lost to condo conversions, which is equivalent to about 18,000 units, says Miller. However, he adds that the “shadow effect,” in which condos come back on the market as rentals, is extremely popular right now.

As for the future, Miller says that despite the explosion of condo conversions onto the real estate scene, conversions are not likely to cause the decline of new apartment development.

This is positive news for anyone seeking an affordable Florida home loan in the area. The influx of new condos removing apartments from the market will be slowing down as the years goes on.