Multifamily Florida - Summer 2011 - (Page 9)
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Apartment transactions are now found in FAA’s monthly online newsletter, e-Connect. Marcus & Millichap compiled market reports for some Florida markets.
Renewed hiring in many employment sectors will sustain a strong performance in the Jacksonville apartment market in 2011, although a repeat of last year’s substantial drop in vacancy will likely not occur. Rather, the market will settle into a more sustainable cycle of demand growth spurred by household formation, not the release of pent-up demand that took place in 2010. Demand for Class A apartments led the turnaround last year, but the lower-tier segment came on strong in the second half, accounting for 57% of all net absorption during the period. As additional residents become employed during 2011 and uppertier vacancy tightens in high-demand areas, Class B/C vacancy will decline further. Demand for Class B/C rentals will likely continue to surge in the Southside, Bay Meadows and East Jacksonville submarkets as upper-tier availability tightens before spilling into nearby Lake Shore and Southeast Jacksonville. While Jacksonville remains a low-velocity market, several sales last year involved large, lender-owned properties, and these deals will continue to occur in 2011 as operations improve and construction stays minimal. Distressed assets in the market typically sell for less than $30,000 per unit, providing an attractive entry point for investors and an opportunity to raise the value of an asset through improving occupancy. Cap rates vary widely due to the proportion of distressed sales but generally start at about 9% for most stabilized Class B/C properties. Resurgent property performance in the market’s lower tier will attract investors, and lenders will eventually make more financing available for this type of product. Properties in southeastern Duval and northern St. Johns counties will garner the greatest interest from investors when listed, but buildings in beach communities may also merit inquiry. Many assets in these locations offer stable operating histories and the benefit of high residual value due to more expensive land.
increase. Contraction in construction and local government C employment, however, will continue to weigh on employment BA SC trends. Last year, 1,500 jobs were cut marketwide. Construction: Developers will complete only 400 units in SW 2011, down from 792 units in 2010. Builders completed an SE average of 1,400 rentals annually last decade. Vacancy: Strengthening tenant demand and minimal construction will generate a 110 basis point decline in vacancy this year to 9.8%, a lower rate than at the start of the recession. Vacancy plummeted 350 basis points during 2010. Rents: Asking rents will rise 1.4% to $781 per month in 2011, and effective rents will advance 2% to $748 per month. Last year, asking rents fell 1.2%, while effective rents remained virtually flat, resulting in a slight reduction in concessions.
Recent improvements in tenant demand have set the Tampa apartment market on the path to recovery, and a significant decline in vacancy remains on track for 2011. Strong demand for upper-tier rentals in submarkets such as Central Tampa, Clearwater, and Westshore fueled the initial stages of recovery last year. Continuing a trend that started in late 2010, though, demand will shift to Class B/C units due to job growth in sectors such as trade, and leisure and hospitality. This shift is evident in results so far this year, as the Class B/C sector accounted for more than 60% of positive net absorption in the first quarter, compared with less than half of absorption six months ago. Projected improvements in vacancy and rents will encourage developers, but deliveries in 2011 will have a limited effect on operating results. Completions will likely increase next year, however, as 1,200 units were permitted over the past six months. Areas to monitor for construction include Central Tampa, where a significant planning pipeline exists, and infill sites in north-central Hillsborough County. Additional strengthening in property performance will broaden the investment market for Class B/C or lower-grade assets as 2011 progresses. Steady demand for high-quality Class A product in areas such as Central Hillsborough and Pinellas counties, though, will persist. Some recent deals involving stabilized Class A properties have priced at more than $100,000 per unit, but other REO and distressed assets can trade for less than $40,000 per unit. Cap rates for stabilized Class A product start in the low-6% range; low cost per unit remains the primary factor driving other transactions. With the recovery under way in the Class B/C segment and owners increasingly able to withdraw concessions, cap rates for this product type could compress from their current range
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Employment: Led by stronger hiring in the education and health services, trade, and financial services sectors, employers will create 9,000 jobs in Jacksonville during 2011, a 1.6%
Table of Contents for the Digital Edition of Multifamily Florida - Summer 2011
In the News
HUD’s Office of Healthcare Programs Making Progress in Delivering Senior Housing and Healthcare Loans More Efficiently
Is It Just Me, Or Does Everyone Seem Angry These Days?
Smart Marketing by Partnering With Corporate Housing Companies
Injuries on Your Property
Product/Service Council Directory
Multifamily Florida - Summer 2011