South Florida Rental Market Strengthens
The South Florida housing market might be languishing, but according to at least one brokerage, the rental market remains robust, with low vacancies, rising rents and strong demand from both tenants and investors.
The National Apartment Index, an analysis of 42 apartment markets around the nation ranking areas based on criteria such as forecasted employment growth, vacancies, construction, housing affordability and rental growth, shows South Florida’s rental climate as growing.
In the 2007 index, New York City moved up four places to claim the top spot, surpassing last year’s leader, Orange County, Calif., which dropped to second. Fort Lauderdale ranked sixth, Miami, No. 13, and West Palm Beach, No. 15.
All three South Florida housing market segments fell on the list from last year due to instability in the local real estate market. But they still have strong underlying fundamentals that make real estate brokers bullish for the long term.
“The apartment market is strong,” said Kirk Felici, regional manager of the Miami office of Marcus & Millichap. “We’re seeing a lot more activity from investors seeking income-producing properties.”
Just a year ago, the condo conversion craze was reducing the inventory of apartments in South Florida. With less supply, there was greater demand by tenants for available apartments, and that led to strong rent growth in many areas. Now that the condo conversion craze is over and the condo market is in the midst of a slowdown, many analysts expect a number of condos to revert to rental stock.
That will occur either by developers abandoning plans to convert to condos or by speculators, who are being forced to rent their units because they can’t flip them and still have a Florida mortgage to pay. Still, even if these units are on the market as rentals, some say tenant demand here is strong enough to absorb those units and keep the market stable.
The Broward County apartment market is projected to have low vacancy rates and healthy rent gains in 2007. Marcus & Millichap projects that strong demand and a lack of affordable housing in Broward will cause rents to rise 6.1 percent, to an average asking rent of $1,163.
The Palm Beach County market is adjusting to the addition of apartments resulting from failed conversions. Still, the long-term outlook in Palm Beach County is positive due to the area’s solid job growth. Also, with houses less affordable, many people are returning to the rental market.
Rents in Palm Beach County are projected to rise 5.6 percent this year, to an average asking rent of $1,179. As in Broward County, both Class B and C apartment projects are currently in higher demand as condo converters seek to create affordable housing.
“Palm Beach County is a softer market than the other two counties,” Kristol said. “It has the most vacancies of the three counties and in my opinion, has the most issues to deal with.”
Marcus & Millichap projects the vacancy rate in Palm Beach County to increase to 5.2 percent this year. Broward is forecast to rise to 3.6 percent and Miami-Dade to 3.9 percent.
In Miami-Dade County, strong tenant demand is expected to offset any return of condominium units to rentals, and apartment owners are implementing rent increases and trimming concessions this year.
Asking rents are projected to increase by 5.8 percent, to $1,151 per month - much less than you could expect to pay each month as part of a Florida mortgage loan - and many real estate developers are now returning to apartment construction. About 1,000 additional rental units are expected to hit the market in 2007, up from 40 units last year.
