South Florida Multifamily 2020 Forecast



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At the beginning of the last decade, the headline for the Weaver Report was “Begin Again in 2010.” Even the most optimistic sentiment would have been hard pressed to envision such a strong decade of multifamily performance in South Florida. Ten years ago, the average sale values for apartments in Miami-Dade, Broward and Palm Beach counties were $84,400, $61,500, and $50,200 per unit, respectively. By the end of 2019, those values rose to $180,000, $214,400 and $167,700 per unit. A new decade provides fresh perspective. Encouragingly, the South Florida multifamily market provides excellent fundamentals that ideally position the region for long-term growth. Last year there were 250 multifamily sales totaling $3.4 billion – the fifth highest ever recorded in South Florida. Overall sales decreased for the third year in a row from the record of 2016. There are fewer deals available in the market which has slowed sale volume. The biggest challenge is finding viable acquisition opportunities with more buyers than sellers in the market. In 2019, Broward County witnessed $1.65 billion in sales – almost 50% of the total for multifamily sales in South Florida. The average price per unit sale in Broward was a record $214,000. Palm Beach and Miami-Dade each had total sales around $850 million. We anticipate sales volume to remain at similar levels in 2020. For the second consecutive year, 77% of total dollar sale activity ($2.6 billion) was in product built 1980 or newer. Sale activity began shifting to newer product as many of the newly constructed multifamily buildings stabilized and sold to investors. With over 27,000 units under construction, we expect this shift to continue with strong newly constructed apartment sales in 2020 and beyond. Additionally, we are starting to see more new construction completions for small multifamily projects (100 units and under) being developed by local, private developers. There are currently almost 1,100 units under construction in the tri-county area within sub-100-unit projects. Over the next two years, we anticipate more new properties with under 100 units to be delivered. There is pent-up private capital demand for these types of properties, so we anticipate strong sale activity for newly constructed projects of this scale. Sale activity for older properties (for this report we are using pre- 1980 stock) decreased in 2019, but this was not an indication of a slowing market. Quite the contrary, there was huge investor appetite for these types of properties, but there were limited acquisition opportunities. This was a natural market progression, as many of these pre-1980 deals traded multiple times this real estate cycle and were significantly improved. Moreover, certain value-add properties were exceeding $200,000 per unit in value. The diminishing delta in price between new construction and value-add properties, coupled with limited value-add options, prompted some investors to seek newer suburban multifamily properties, which predominantly trade at a higher price per unit but have similar cap rates to older value-add opportunities.

RENTAL DEMAND FUELED BY POPULATION GROWTH Rental demand continued to be strong in 2019, and with good reason. South Florida remained a great place to live and work. The region’s population grew by 362,800 over the past five years, with 75% of the increase attributable to people moving here. In the next three years, South Florida will see a positive net migration of 5.7% or 355,572 people. Another way to consider demand is looking at the amount of new household formations - the number of new households created each year. Household formations in South Florida are expected to increase to over 45,000 each year in the next five years. Assuming, this projection materializes, at 60% enter homeownership and 40% as renters (consistent with current homeownership rates) that represents over 18,000 new renters per year in South Florida. In 2019, South Florida witnessed a net absorption of +5,584 units. There were 7,359 units completed in 2019, which resulted in marginally higher vacancies in Miami Dade and Palm Beach. Broward vacancies decreased by 50 basis points as net absorption outpaced new supply. While net absorption was below previous years, we anticipate continued robust net absorption forecasts for the next two to three years, similar to the five-year average of 7,100 units per year. HOMEOWNERSHIP RATES INCREASED FOR FIRST TIME IN 10 YEARS A growing population and lower homeownership rate were the two biggest drivers of rental demand in the past 10 years. In 2019, for the first time in a decade, the homeownership rate in South Florida increased from 57.9% to 59.9%, year over year. This is still significantly below the 2005 homeownership rate of 69.2%. If homeownership rates continue with an upward trend, it could negatively affect rental demand in South Florida. However, we do not currently foresee a paradigm shift in the homeownership rates. Some renters with higher incomes may transition into homeownership, but for most renters the economics are not viable. In the last decade, median single-family home prices increased 82.5%, from $200,000 to $360,000. Average home values are increasing at greater rate than rents, making ownership even tougher and rental demand even stronger. The median home price in South Florida in 2019 was $358,806. With 10% down, the mortgage would be around $2,200 at that price, which is $700+ more than the average rent in the market. ABSORPTION LEVELS ARE STRONG BUT LAGGED COMPLETIONS IN 2019

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