There is an overall sentiment that the Southeast multifamily real estate market, and specifically Florida, is doing better than any other region in the United States. Despite record inflation, rising interest rates, increased construction costs and supply chain issues, investors, developers and lenders are becoming increasingly bullish when it comes to the Florida multifamily market.
A rising population count resulting in a swift pace of rent growth and tight apartment vacancy have led to increased out-of-state and international interest and capital being invested in the state. With competitive yields and better returns compared with alternative investments, investors view Florida multifamily projects as a sound opportunity.
Florida has been less stringent when it came to COVID-19 policies and lockdowns compared with restrictions adopted in the Northeast and on the West Coast. Limited and lenient state-wide restrictions in Florida during the health crisis allowed the state’s economy to recover more quickly than most major U.S. markets.
In addition to an established migration of retirees, Florida has attracted a younger population, with workers looking for warmer climates and relaxed COVID-19 policies. Similarly, massive migration from other regions is being fueled by the ease of doing business, a favorable regulatory environment, business-friendly tax rates, job growth and less fear of rent control.
Florida leads the nation in population growth, eclipsing the national pace with South Florida continuing to see 20- to 34-year-olds as the fastest-growing age group. An influx of highly skilled employees and surging home prices have prompted more of these individuals to choose and take advantage of the benefits of multifamily living, bolstering rental needs and demand for luxury rentals.
Rent Growth Skyrockets in Florida Multifamily Sector
In addition to the increased migration of workers, strong rent growth has spurred investor appetite for Florida’s multifamily market and has boosted out-of-state and international multifamily investment and development. Although rental rates in Florida continue to rise, they are still lower than other regions, including the Northeast. With the rise in remote work environments, which allow individuals to work from anywhere, lower rental rates in Florida are adding to the population growth in the state. Further, although rents are high, rental rates have not increased as much as home prices, making apartment living more attractive and residents more likely to rent than opt for home ownership.
South Florida is among the tightest apartment markets in the country, with conditions positioned to persist in the near term as the area attracts more workers, boosting the population count. Further, the vacancy compression during the pandemic came without the benefit of tourism, which will increase this year as travel restrictions ease.
Despite the sunny forecast, multifamily development in Florida does face many of the same issues hitting multifamily development across the United States. Challenges such as construction cost increases, supply chain issues and labor shortages have slowed the ability to rapidly bring new developments online. The effects of the conflict in Ukraine on cost and supply issues remain to be seen, but it is almost certain that the conflict will influence the real estate development industry across the country.
Responding to New Renter Demands
In previous years, amenities such as fitness centers, theater rooms and communal areas were highly prized by renters. However, thanks in part to the pandemic, these types of amenities are becoming less important to apartment dwellers. Remote work, also referred to as distance working, teleworking and working from home, has led to various changes in multifamily projects. For example, a major trend in multifamily projects includes co-working and shared working spaces with incorporated “micro working spaces” for when privacy is needed.
Micro working spaces include “Zoom rooms” with cameras and soundproofing for the most ideal online meeting experience. Such spaces allow residents to easily work from home without the need for a home office. This has presented opportunities for co-working companies to partner with multifamily developers and operators to set up and design co-working spaces.
In addition, in-unit amenities such as smart technology with easy interface to personal devices for connectivity, strong high-speed internet and Wi-Fi, and reliable cell phone reception are important features for tenants. Spaces once used for community rooms and theaters are now being used as storage spaces that can handle high-volume package deliveries, including cold storage spaces for groceries. Dedicated workspaces within units which include improved STC (sound transmission class) ratings and soundproofing to reduce room-to-room noise have become important features for those embracing an apartment lifestyle.
Employment, Post-Covid Migration Growth
Supply chain issues and labor shortages will continue to challenge multifamily developers. The inability to obtain construction materials, fixtures and appliances will likely lead to less customization and use of more “off-the-shelf” materials. In addition, labor shortages will lead to more simplified building designs to lessen the need for the level of expertise needed to design and build complex structures.
The employment sector is growing at a rapid pace, spurring robust migration to the market and providing a tailwind for multifamily metrics. Increasing rents will continue to strengthen the investor demand in Florida, which is already at record levels. Investors will continue to capitalize on favorable returns in Florida and the potential for near-term robust rent growth.
Solid fundamentals support a thriving multifamily investment market. Despite low vacancy levels, it is anticipated that construction will decline this year, providing investors with a selection of properties with capital improvement potential and an opportunity to acquire assets with upside rent potential.
Continuing migration, job gains, vacancy rates at historic lows, robust rent growth and soaring home prices will continue to fuel the Florida multifamily market. Due to this confluence of factors, as well as the tourist and hospitality sector recovering from the health crisis, Florida has become a target destination for private investors and institutional capital, elevating competition for available assets.
— By Jeffrey Margolis, a member of Berger Singerman’s executive committee and part of the law firm’s business, finance and tax team in Fort Lauderdale. Margolis represents and advises real estate owners, developers, investors and managers in a variety of transactional real estate matters. Berger Singerman has offices in Fort Lauderdale, Miami, Tallahassee and West Palm Beach.