SOUTHEAST SNAPSHOT, NOVEMBER 2008

Orlando Multifamily Market

The metro Orlando area is projected to see the best employment growth in the country over the next 1, 2 and 5-year periods, according to the fall 2008 M/PF Torto Wheaton Research Report. With 183,000 new jobs expected by 2013, multifamily owners and investors should see corresponding fundamental growth in rents and occupancy during that timeframe. So far this year, fundamentals in the metro Orlando market are largely unchanged, but are several points off the highs seen during 2005. Gross occupancy registered 92 percent through midyear, down slightly from 92.4 percent at the end of the first quarter. Average effective rents also remained relatively flat this year and currently stand at $838 per month. 

Much of the projected improvement moving forward will come from the stabilization of the condo shadow market toward the end of this year. Those condo to apartment reversions are largely absorbed now from a rental standpoint, which should help boost fundamentals in the second half of 2008. In 2009 and 2010, Orlando is expected to see annual rent growth return to the 3 to 5 percent level. The supply/demand balance also looks favorable, as apartment developers are challenged to find well-located, infill sites. Those fundamental factors, coupled with Orlando’s continued job and population gains, bode well for this high-growth area.

Despite strong demand, new construction of market-rate units is relatively modest, with only about 2,600 apartments scheduled for completion in 2009. With a total rental pool of approximately 140,000 units in Orlando, these new deliveries will represent less than 2 percent of rentable units — far less than the annual deliveries of 9,000 and 10,000 units seen in 1999 and 2000, respectively. The Morgan Group, Wood Partners and Lane Development all have communities being delivered in 2009. However, new construction over the next few years is projected to be limited due to the scarcity of multifamily-zoned sites and the increase of impact fees. Local impact fees are $10,000+ per unit in some counties, which has helped push total replacement cost for wood-frame, garden-style communities to more than $140,000 per unit. Those barriers to entry, while challenging to developers, should help increase demand for the existing stock of Central Florida apartments.

The 496-unit Colonial Grand at Hunters Creek sold for $58 million in Orlando.

Despite the challenges presented by the credit crunch and the national economy, buyers continue to show strong interest in Orlando multifamily assets. From January to September 2008, the MSA has seen more than $539 million in apartment sales. Of particular note was the September sale of Colonial Grand at Hunters Creek, a 496-unit property built in 1997 that recently traded for approximately $58 million. Underwriting for all apartment acquisitions is largely based on trailing, in-place operating income, and Fannie Mae and Freddie Mac are providing attractive financing for solid multifamily assets.  

The outlook for Orlando is strong, as the city continues to produce jobs and lead the state of Florida in job formation. Higher-wage, white-collar jobs are expected to grow 15 percent by 2010 with strong gains projected in health care, biotech and animation. Two independent economic research companies estimated that the new University of Central Florida medical school could generate $1.4 billion a year for Orlando. The city of Orlando and Orange County have also passed a $1 billion development plan to build a new arena and a new performing arts center. Those projects are beginning this year and are expected to create more than 10,000 new jobs during the next 3 years. These strong economic drivers should help lead to a healthy apartment market in 2009 and beyond.

— Shelton D. Granade and Luke Wickham are part of CB Richard Ellis’ Central Florida Multi-Housing Group in Orlando.

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