South Florida Multifamily 2019 Forecast



FUNDAMENTALS FUEL MULTIFAMILY GROWTH. 2018 was another banner year for the South Florida multifamily market. There were 265 multifamily sales totaling $3.9 billion – the third highest ever recorded in South Florida. Broward and Palm Beach Counties each had approximately $1.5 billion in sales and Miami witnessed $930 million. There were only six sales over 200 units in Miami. Price per unit sales marginally decreased in 2018 but were at the second highest levels recorded. We anticipate sales volume to remain at similar levels or and possibly decrease slightly in 2019. The biggest challenge is finding viable acquisition opportunities with more buyers than sellers in the market. $3 billion (77% of dollar sale activity) was in product built 1980 or newer. The market sale activity has shifted to newer product as many of the newly constructed multifamily buildings are stabilizing and selling to investors. Our team completed 24 apartment sales in South Florida in 2018 of which $1.2 billion (17 sales) were in new apartment sales. Older properties (for this report we are using pre 1980) are experiencing lower sale activity. This is not an indication of a slowing market. Quite the contrary, there is huge investor appetite for these type of properties, but there are limited acquisition opportunities. This is a natural market progression, as many of these pre 1980 deals traded multiple times already during this real estate cycle and have been significantly improved. Moreover, certain value-add properties are exceeding $200,000 per unit in value. With the delta in price between new construction and value-add properties diminishing coupled with limited value-add options, some investors have switched to seeking newer suburban multifamily properties which trade at higher price per unit but offer more amenities and features. Post 1980 properties and more specifically newly constructed apartments are experiencing record sale activity and will likely continue in the coming years as the construction pipeline for this asset class remains robust. 66 market-rate properties are currently under construction in South Florida with approximately 21,000 new units. We expect many of these properties to sell once stabilized. RENTAL DEMAND The demand for rentals is unprecedented and will remain this way for the foreseeable future. In 2018 South Florida witnessed a net absorption of 9,796 units, this was the highest net absorption in 12 years. There were 6,994 units completed in 2018 which meant South Florida experienced more new renters than units built resulting in occupancies increasing to 95.2%. The homeownership rate in South Florida has decreased from 69.2% in 2005 to 57.9% - near a 30-year low. Population grew by 238,130 in the past three years, with 78% of the increase attributable to people moving here. Over the next three years, South Florida is expected to see a positive net migration of 5.3% or 328,930 people. A growing population and lower homeownership means more people are renting. Its unlikely many of these renters will enter into the homeownership market. In the past five years, median single-family home prices have increased 36%, 33%, and 40% in Miami-Dade, Broward, and Palm Beach Counties respectively. Average home values are increasing at an even greater rate than rents, making ownership even tougher and rental demand even stronger. The average home in South Florida sold for $368,000 in 2018, with a 10% down a mortgage would be around $2,200 - $800+ more than average rent. RENTAL SUPPLY There are currently 20,971 units under construction in South Florida. For the most part, new rental supply has been quickly absorbed. There are certain submarkets that have several new buildings delivering in a short duration, causing slower lease-ups and concessions. Land and construction costs mean that almost all new construction is Class A product with rents from $2.00 to $3.00 per square foot. Workforce housing remains underserved. Despite an abundant amount of cranes that cover the South Florida landscape, new construction barely keeps pace with demand. If supply was a concern you would need to go back to 2013. Since 2013 there were 54,683 units built in South Florida. The 20,971 units under construction only account for 33% of the units in the current development cycle. The new supply thus far has not adversely effected the market even though 67% of the new supply has already been delivered.

Cushman & Wakefield MULTIFAMILY INVESTMENT SOUTH FLORIDA TEAM The MARKET LEADER in the sale, marketing & financing of multifamily properties and land development in SOUTH FLORIDA .

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