South Florida Multifamily 2020 Forecast

MULTIFAMILY INVESTMENT SALES ANALYSIS | SOUTH FLORIDA GRAPH 1 :: SOUTH FLORIDA HISTORICAL PRICE/UNIT VERSUS PRICE/SF SO TH FLO IDA HISTORICAL PRICE/UNIT VERSUS PRICE /SF

MU LT I FAM I LY I NVE S TMENT | SOUTH F LOR I DA T E AM

$250,000

$240

Miami-Dade

$220

$225,000

Broward

$200

$200,000

$180

Palm Beach

$175,000

$160

$150,000

$140

$125,000

$120

$100

Price Per SF

$100,000 Price per Unit

$80

$75,000

$60

$50,000

$40

$25,000

$20

$0

$0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Average per Unit

Average Per SF

* $1MM+ multifamily sales

Source: Cushman & Wakefield

SOUTH FLORIDA HISTORICAL TRANSACTION VOLUME VERSUS NUMBER OF TRANSACTIONS

GRAPH 2 :: SOUTH FLORIDA HISTORICAL TRANSACTION VOLUME VERSUS NUMBER OF TRANSACTIONS

$6.0

375

Miami-Dade

$5.5

Broward

$2.5 Dollar Volume Billions $3.0 $3.5 $4.0 $4.5 $5.0

300

Palm Beach

225

150

$2.0

Number of Transactions

$1.5

75

$1.0

$0.5

$0.0

0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Dollar Volume

Number of Transactions

* $1MM+ multifamily sales

Source: Cushman & Wakefield

RECORD NUMBER OF UNITS UNDER CONSTRUCTION There are 26,999 units under construction in South Florida, as of end of 2019 which is a record amount for the region and represents 7.5% of the current apartment inventory. As these units come online, some submarkets will experience slower lease-ups, higher concessions and downward rental pressures as several new buildings will be delivered in a short duration. Vacancies marginally increased in 2019 as new supply outpaced absorption. Will the market experience decreasing rents and higher vacancies as the under-construction units get delivered? The short answer is no. There are several reasons for this: 1) New rental supply is quickly absorbed. In the last five years, there were 42,582 units built in South Florida. During this time, we have experienced record rents and near record low vacancies. The new supply thus far has not adversely affected the market even though 71% of the new supply has already been delivered in the current cycle. 2) The market is playing catch up. In the 90’s and 2000’s there was very little multifamily development. Developers focused on condo development during this period and the market was starved of new multifamily supply. New multifamily

construction is needed to fill the void in the market place. 3) Condo conversions. Condo conversions in the mid 2000’s eliminated over 20,000 net rental units in South Florida 4) Population growth . In the past five years South Florida’s population increased by 362,800. During the same period, 42,582 new apartment units were built. This means one unit has been built for every 8.5 net new people to the region. Over the next five years, South Florida is expected to see a positive net migration of 356,200 people. Using the same ratio, the region would need over 41,807 new rentals to keep pace with the population growth for the next five years. See previous page in rental demand for more info. While the amount of under construction units is causing concern to some investors, we believe the number of units being built is not enough. More construction is needed to meet the demands of a growing population with a diminished homeownership rate. What needs addressing is how to find the right balance between what is being built and what is needed in the market place. 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 drastically underserved.

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