Job Growth Key to Orlando Apartment Market’s Strong First-Half Performance
Orlando’s multifamily market is in the midst of a golden era of sorts, as it sits squarely at the intersection of strong employment growth, an increasing population, a major demographic shift and a variation in lifestyle preferences. Together, these factors provide a tremendous tailwind for future strength in the local apartment market. While the national multifamily market continues to perform at a high level, Orlando is starting to show up on the radar of more institutional investors due to its recent outperformance and tremendous growth prospects.
According to recent data from MPF Research, Orlando is on pace to see 5.6 percent rent growth in 2015, followed by 4.7 percent growth in 2016. The strong momentum in the MSA is being driven by a rapidly expanding and increasingly diversified job market. Going forward, the picture looks even brighter. MPF Research ranks Orlando as the No. 1 metro in the nation for job growth through 2020, with a growth rate (2.7 percent), more than twice the national average (1.1 percent).
Unlike previous cycles, today’s growth is spread more evenly across employment industries, resulting in a more diverse, dynamic labor market. The highest growth sectors are forecast to be construction, healthcare/bio-tech, business services, finance, technology and hospitality. As an example, the Lake Mary Heathrow Office Park has seen tremendous white-collar growth as Verizon, Deloitte and Mitsubishi-Hitachi have all expanded recently and plan to add a combined 2,200 jobs in the coming years. As of May 2015, this helped to produce an unemployment rate in the Orlando MSA of 5.2 percent. According to the U.S. Bureau of Labor Statistics, Orlando’s unemployment rate was less than both the state of Florida (5.7 percent) and the U.S. overall (5.5 percent).
Orlando’s strong employment gains have mirrored the MSA’s impressive population growth. Florida recently surpassed New York as the third most populous state in the country, and the population of the Orlando/Kissimmee/Sanford MSA is on pace for 7.8 percent growth over the next five years. Orlando continues to remain one of the top travel destinations in the world as well — the city attracted a U.S. record more than 62 million visitors in 2014.
These employment and population gains have the multifamily market poised for strong fundamentals. Based on MPF Research data, average occupancy as of first quarter 2015 in the Orlando market was 96.1 percent, up 350 basis points from 2010. Average rent stood at $967.70 and is forecast to finish the year at $1,010.39, making it one of the top-performing metros in the country. Meanwhile, market demand outstripped supply in the first quarter, absorbing 1,260 net units against 1,197 deliveries.
Construction activity is projected to increase throughout 2015, with the market inventory forecast to rise by 4,709 units. Although that’s an increase from the depths of the recession, it’s less than half of annual peak deliveries seen during the previous 15 years.
Strong fundamentals in the market are creating a much more liquid sales environment. There is strong buyer interest from those groups with large chunks of capital to place and those that have been priced out of the gateway markets. Not surprisingly, total sales volume in the Orlando multifamily market has increased significantly over the past five years. Total sales volume in 2010 topped out just shy of $645 million, while 2014 saw over $1.74 billion in transactions occur.
At the halfway point of 2015, the market has already witnessed over $1.2 billion in sales, on pace to break the $2 billion mark by the end of the year. Recent deals that helped drive this figure so far in 2015 include Century at Waterford Lakes ($53.3 million), Park at Laurel Oaks ($54 million) and Art Avenue ($47.1 million). These types of high-dollar, high-profile deals provide strong evidence of investors’ voracious appetite for multifamily assets in Orlando.
Overall, Orlando has all the necessary ingredients in place to drive economic growth into the foreseeable future. According to MPF Research, the Orlando multifamily market is forecast to experience 3.5 percent average annual rent growth through 2020 while occupancy is expected to average 95.3 percent. This should allow investors in Orlando’s apartment market to be well-positioned to benefit from continued strength throughout the remainder of the decade.
— By Shelton Granade, Executive Vice President, CBRE’s Central Florida Multi Housing Group. This article originally appeared in the August 2015 issue of Southeast Real Estate Business.