Across South Florida, developers are building a record number of multifamily units. The booming pipeline comes as the tri-county region’s leasing frenzy has slowed and unbridled rent growth has calmed.
By year-end, developers are expected to finish 23,863 units across South Florida, the highest number since 2002, according to Berkadia’s mid-year multifamily report. That’s a portion of the 34,934 units that are under construction.
At the same time, apartment occupancy has steadily declined in recent years. In the first half of this year, it reached 95 percent, a slight 10 basis point drop compared with the first half of last year, according to Berkadia’s mid-year reports for this year and 2023. This came on the heels of a 200 basis point occupancy drop during the first half of last year compared with the first half of 2022.
In the first half of this year, the average monthly South Florida rent hit $2,530, up 0.6 percent from the same period of last year, Berkadia’s most recent report shows.
As developers completed units in recent years, supply tempered demand, and slowed the leasing and rent growth of 2021 and 2022. South Florida experienced a 25.2 percent rent increase from mid-2021 to mid-2022, according to Berkadia’s 2022 report.
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Party’s over? South Florida apartment occupancy drops, concessions rise
Still, a record pipeline amid slower fundamentals does not spell doom for South Florida, according to Berkadia’s analysis. The report predicts that leasing will catch up to the hefty supply on tap, pushing up occupancy.
By the end of June, apartment absorption was 10,856 units, outpacing the delivery of 9,840 new units, according to the report. Overall, absorption for this year is projected at 25,870 units, more than expected deliveries. South Florida’s occupancy will tick up to 95.2 percent by year-end, the report says.
Headed south
Downtown Miami and South Beach have the biggest development pipeline, with 6,224 units under construction, according to Berkadia. Fort Lauderdale follows, with 4,309 units on tap.
At the same time, south Miami-Dade County’s submarket experienced the biggest jump in inventory, at 7.9 percent in the past year.
South Miami-Dade –– an area consisting of the municipalities of Homestead and Florida City, as well as the neighborhoods of Goulds, Leisure City, Naranja and Princeton –– is far removed from urban core markets such as downtown Miami and Brickell. It offers an ample supply of developable land that sells at a discount.
In May, Estate Companies and Midtown Group paid $14 million for a 20.8-acre site on the southeast corner of Campbell Drive and Northeast 30th Avenue in Homestead, with plans for a 354-unit apartment complex and commercial space. Others betting on south Miami-Dade include Raimundo Onetto’s Alta Developers, which plans a two-phase, 534-unit multifamily project in Princeton.
Tenants also are attracted to south Miami-Dade, as the submarket offers a reprieve on rent. The Berkadia report shows the area’s average monthly rent in the second quarter was $2,085. That’s less than the $3,286 average monthly rent in the downtown Miami/South Beach submarket.
South Miami-Dade’s second quarter apartment occupancy was 96.1 percent, down 60 basis points from the same time last year, according to the report.
Generally, submarkets with the lowest rents also experienced the biggest rate hikes this year. South Miami-Dade had a 4.7 percent increase in average rent, in the second quarter, year-over-year. On the flip side, the downtown Miami/South Beach submarket has the highest South Florida average rent at $3,286, though that market experienced a mere 0.5 percent increase in the second quarter, year-over-year.
South Florida’s apartment affordability crisis remains an issue, partly due to lagging income. Lawmakers have tried to address the problem through legislation such as the Live Local Act. But Berkadia’s report points out that a gap remains between the supply and demand of affordable housing. This heightens demand for Class B and C apartments, potentially increasing rents for these units, Berkadia’s report says.
Sales spree continues
Investment appetite for South Florida apartments grew over the past year.
In the first half of this year, 17 properties sold for $1.8 billion, combined, according to Berkadia. That’s up from the first half of last year, when 11 properties sold for $1.1 billion.
Brookfield Properties paid $107.5 million last month for the 444-unit Turtle Cove complex at 825 Cotton Bay Drive East in unincorporated Palm Beach County. The purchase was part of Brookfield’s 7,300-unit portfolio purchase of 23 properties nationwide from Miami Beach-based Starwood Capital Group, valued at $1.6 billion.
Also, Nuveen Real Estate sold the 197-unit The Manor complex at 601 Northwest 82nd Avenue and 501-537 Northwest 84th Avenue in Plantation to Clarion Partners for $49.4 million last month.
Despite this year’s uptick in investment sales, activity is nowhere near the 2022 bonanza. During the first half of that year, 33 properties sold for $3.9 billion.