SOUTHEAST SNAPSHOT, MAY 2010

Tampa Multifamily Market

The Tampa market has passed through the most severe phase of the recession, a period during which the apartment vacancy rate climbed 360 basis points. In some Pinellas County submarkets, vacancy will surpass 11 percent this year as the local unemployment rate exceeds metro and state levels, while subdued population growth will reduce housing demand. Hillsborough County submarkets, meanwhile, will fare somewhat better as completions slow. Still, sluggish demand will be behind apartment performance, forcing owners to continue to offer concessions to maintain sufficient occupancy levels.

The metro area’s vacancy rate is expected to be among the highest in the country this year, and revenues will contract sharply. In 2010, employers will cut 4,000 jobs, a 0.3 percent reduction but an improvement from last year, when 51,000 positions were eliminated. Developers are forecast to complete 1,000 units this year, down from 1,400 new rentals in 2009. Planned projects total about 5,100 units, or 3 percent of existing stock. Although supply growth will ease in 2010, demand will remain weak, resulting in a 30 basis point increase in vacancy to 10.8 percent — which is still better than last year, in which vacancy climbed 180 basis points. This year, asking rents should fall 3.8 percent to $767 per month, compared with a 5.5 percent decrease in 2009. Effective rents slid 6.3 percent last year and will decline an additional 4 percent in 2010 to $713 per month.

After a slow start to 2009, transaction volume in Tampa increased in the second half of the year. Five times more dollar volume was closed in the second half compared to the first half. Investment activity will continue to accelerate in 2010 as the economic downturn wanes. More lender-owned properties will likely come to market as loan extensions fail to sustain some operators through an extended period of higher vacancy rates and lower cash flows. Sales of financially distressed assets will decrease values and raise cap rate expectations. For owners who plan to shed stabilized or cash-flowing properties within the next few years, 2010 may be an opportune time to sell before cap rates increase further.

Although the metro area has posted losses in both payrolls and population, investors continue to seek well-performing assets in most seasoned submarkets. Interest in properties in areas that are far from employment hubs, such as eastern Pasco County and Hernando County, will remain tepid in the near term.

— Bryn Merrey is the regional manager of the Tampa office of Marcus & Millichap Real Estate Investment Services.

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