IRR-Orlando Mid-Year Viewpoint 2015 Local Market Report - Multifamily
The Orlando apartment market continues to remain strong where demand continues to outpace completions. There are currently 30 apartment communities under construction. Due to the large amount of additional supply coming on-line in the market, vacancy rates are projected to increase slightly over the short term. However, rental rates are expected to increase while demand trends continue to remain positive.
The demand generators that are fueling market growth is the return of strong population growth, job growth, and the strong recovery of the Orlando tourism market (62 Million Visitors in 2014). According to the U.S. Census, the Orlando MSA was the 16th fastest growing metro area in 2014 with a population increase of 50,000 new residents. According to Sean Snaith, a UCF Economist, Central Florida is going to be one of the fastest growing regions moving forward. The important of this, other than the obvious additional need for housing, is that a large amount of new residents tend to rent before buying when entering into a new area. This is a positive attribute for the multifamily market.
In regards to sale activity, there continues to be strong demand for well positioned core Class A properties within the market. As evidenced, sales volume has increased over 15% over the past year. However, due to the strong trends within the Orlando metro area, many investors have turned to “value add” deals that provide higher returns through renovation and repositioning of the property within the market. Due to the overall demand for multifamily properties within the market, capitalization rates have compressed.
New development is occurring in every sub-market as developers are capitalizing on the positive market trends, focusing on sub-markets with strong existing or emerging demand drivers, such as the Lake Nona area near the newly constructed Medical City or South Orlando Market near the Tourist Corridor. As discussed, demand near the SunRail station stops has also spurred development. Finally, Downtown is now emerging as a prime focus for development. This is driven by the nationwide preference for urbanized living, employment opportunities returning to the market return, as well as, longer commute times and relatively high fuel costs. In addition, with the state of the Interstate 4 expansion project, many residents are moving closer to urban areas in order to avoid the projected congestion. Overall, new construction activity is expected to bring over 6,000 new units to the overall Orlando MSA, which will bring inventory closer to the former peak 10 years ago, before the conversion boom.