Supported by low vacancy, positive rent growth, rising rates of household formation, and the confluence of other factors contributing to demand for rentals (including frequently described factors in the single-family market), the Broward County apartment market is springing back to life with new construction. Indeed, net absorption, alongside no new supply, ran at 1,607 units over the past year and a half. The total for the first half of 2012 alone, including second quarter’s 286 units, was 576. Vacancy ended the latest quarter at 4.5%, down 40 basis points for the period, down 130 year-over-year. An additional 73 units of positive net absorption in July, accompanied by no new supply additions, shaved 10 more points from the rate. Measured by the year, meanwhile, rent growth has been positive since 2010 and now is accelerating markedly. At $1,149 and $1,097 per month, asking and effective averages for second quarter were up fully 1.3% and 1.6% for the period and were up 2.0% and 2.7% year-to-date. Small gains followed in July; additional substantial growth is expected.
“Apartment conditions have improved sufficiently to raise the potential of a new construction cycle,” states Marcus & Millichap’s third quarter 2012
report on the local market. While no new market-rate units delivered in 2011 and none is expected for 2012, Reis reports 2,043 market-rate units under construction county-wide in six projects per the date of this report. The latest to start, breaking ground in May, was the 350-unit Toscana Apartments in Davie. A completion date was not disclosed. The largest under way, also without a specified completion date, is the 501-unit Nexus Sawgrass Apartments in Sunrise. Interestingly, the lack of recent market-rate construction completions has been accompanied by considerable activity in the subsidized/low-income sector. Reis expects 1,137 units of this type to complete construction all told in 2012 in five projects, all of which had delivered by the end of August.
As explained in Special Real Estate Factors, meanwhile, a tight land supply impedes the development of multi-building, low-rise garden complexes with their large acreage requirements. Demand for apartments, then, may be diverted to projects requiring less land. A striking case in point is the 42-story, $120 million, Class A Las Olas Tower, in planning by Crocker Partners for downtown Fort Lauderdale, as reported by the South Florida Business Journal and other sources in September 2012. Per report date, Crocker was seeking an equity partner for the project. “The unparalleled offering will set the stage for luxury multifamily development in the city, tapping into rapidly increasing demand by both millennials and seniors to live in the only truly ‘walkable’ offering in the market,” according to an announcement by Jones Lang LaSalle. If built, the tower would be nearly three times the height of the next-tallest rental building in the county—and the first high-rise luxury project developed in Fort Lauderdale in nearly a decade. “We expect to secure significant interest from institutional equity that has previously shied away from this market due to lack of prime product,” stated a Jones Lang LaSalle executive. Low Class A vacancy is cited as a contributing factor. Reis puts second-quarter Class A vacancy in the Fort Lauderdale city submarket at 3.0%.
With no new supply delivering, the vacancy rate should end 2012 at about 4.0%. Gains of 4.1% and 5.2% are forecast for the mean asking and effective rents for the year. In 2013, the new supply now under way will begin to arrive online. The result that year and in 2014 should be a balance of supply and demand, stable occupancy at high rates, and persistent strong rent growth.