ORLANDO, FL - The Orlando area has been prime apartment territory for years, with lots of service workers and high job turnover to keep the rental market thriving and growing. That changed with the rush to homeownership earlier this decade and the condo-conversion boom a few years ago. Buying homes was hot, as rising values and loose credit standards lured many longtime renters into making a purchase.
Now the sagging apartment sector is preparing a comeback, promoting the advantages of renting and the potential pitfalls of owning. For the next year or so, renters should be able to find better deals and stable or declining rates, industry specialists say, but that should add to the sector's marketing edge.
"There's a direct correlation between employment and apartment rents. Without job growth, it's difficult to have rent growth," said Cole Whitaker, an Orlando-based partner in Hendricks & Partners, one of the nation's leading multifamily-development consultants and brokerages.
Whitaker was among many industry experts who thought the economy would be showing signs of improvement by now, leading to rents firming up later in 2009. Instead, things are worse.
More than 10,000 construction-sector jobs disappeared from Metropolitan Orlando last year, and many of those workers were renters who have moved to other states in an effort to find work. Even Walt Disney World, the region's largest employer and arguably the largest source of local renters, has laid off more than 1,400 workers, a sign of just how hard the hospitality-and-service sectors are being hit.
Metro Orlando's apartment vacancy rate in March rose to 12.5 percent from 10.6 percent a year ago — a clear sign of weakness, according to a recent market report by Charles Wayne Consulting Inc. of Maitland.
The real-estate research and advisory company, which has been surveying the local apartment market twice a year since 1987, said the 12.5 percent vacancy rate is the highest for the area since September 1991. That, too, was during a recession, one that hit commercial real estate particularly hard; the local vacancy rate then went as high as 12.8 percent.
James B. Lewis, president of Charles Wayne Consulting, said in his recent biannual apartment-market update that "more and more tenants [are] doubling up or moving back with family to better deal with the bad economy."
For tenants who still have jobs and have stuck it out, though, rents are flat or declining in inflation-adjusted terms. A lack of rent hikes is bad for apartment investors and developers but good for renters, offering at least some breathing room during bad economic times.
Although taxes, insurance and other costs have gone up, apartment owners are unable to pass those costs on to renters right now. "Our boys are eating it," Whitaker said of the market's apartment owners and developers.
But Whitaker and other multifamily-housing specialists say there are some reasons to look for an early turnaround in, and a tightening of, Orlando's apartment market.
"We study 350 markets around the country, and our research shows that Orlando was one of the ones that went in on the front end of the downturn, and we expect it will come out on the front end of the upturn," he said. "The big question is when."
Shelton Granade, first vice president of CB Richard Ellis' Central Florida multifamily-housing group, agrees that the Orlando area will be among the metro areas leading a rebound and that savvy investors with cash are already beginning to make their move.
Banks that reclaimed projects from owners hurt by the credit crunch and softening rental market are increasingly looking to sell those complexes "to get them off their balance sheets," he said.
"Credit is [still] tight and there's so much uncertainty in the economy that transaction volume is down. But, fortunately, Fannie Mae and Freddie Mac provide apartment financing, so multifamily has the potential to be the "preferred" investment vehicle over other real-estate types at the moment, based on the availability of debt," he said.
In other words, with backing from the two federally supported mortgage giants, apartment sales or apartment projects might stand a better chance of getting financing at a time when other types of real-estate development face difficulties.
But local apartment experts don't expect a dramatic surge in construction, at least not in the foreseeable future. As of March, there were 3,888 apartment units under construction in the Orlando area, the Charles Wayne Consulting survey found, and though that was up a bit from last September, when 3,699 units were under way, it's down 42 percent from a year ago.
The all-time record year for apartment construction in the region was 1999, when the Charles Wayne survey found 14,155 apartment units being built, at a time when Disney World was expanding, the economy still humming and apartment-vacancy rates were bottoming out at 5 percent to 6 percent.
Source: OrlandoSentinel.com