SOUTHEAST SNAPSHOT, NOVEMBER 2004

Orlando Multifamily Market

Steven Ekovich First Vice President Marcus & Millichap

The Orlando, Florida, apartment market is gaining steam due to strong renter demographics and a revived and bustling economy. Improvements in fundamentals and a restrained construction cycle have come together to raise investor interest in multifamily acquisitions. Both local and national buyers are attracted to multifamily properties that serve workers in Orlando’s business services community in the Maitland area as well as those located in submarkets to the south, which house the theme parks’ expanding work force. This has resulted in record-high prices for multifamily assets.

Metro-area apartment owners are benefiting from recent job growth as many new employees are becoming first-time renters. Local employers are on target to add 25,000 new positions by the end of 2004, representing a 2.7 percent increase in total area jobs. Leisure and hospitality sector payrolls are on pace to grow by more than 20,000 employees by the end of 2004. Strong growth in business and professional services and financial activities is concentrated in the office complexes and corporate headquarters along the Interstate 4 corridor north of Orlando, particularly in the Maitland area north of downtown Orlando. Multifamily properties in the northern suburb of Maitland continue to attract renters who wish to live near their white-collar jobs.

Multifamily construction in the Orlando area has slowed significantly when compared to recent years, and developers will complete only 2,250 units this year. Together, the Southeast/Airport and the Southwest/435 submarkets will account for half of 2004’s completion total. Developers are attracted to these regions due to accessibility to theme parks to the south of the Orlando central business district. There are more than 5,000 units filling the construction pipeline, the majority of which are located in the southern portion of the metro area. When delivered, the apartment inventory will have grown by 4 percent, which is high by most metro standards, but will be easily absorbed in Orlando where in-migration forecasts are strong. More than half of the local construction volume is made up of affordable apartment product rather than Class A multifamily units.

The average asking rent in the Orlando area is on target to increase $23 in 2004 to $778 per month. Although local market rents are low compared to other Eastern seaboard cities, rent growth is occurring more rapidly. Submarkets with the highest rents in Orlando are those in close proximity to the major employment centers. Areas near theme parks support rents as high $919 per month. Residents near the Maitland Office Park attract residents willing to pay an average of $800 per month. This year, the most significant rent growth — 4.4 percent — is found in the Southwest/435 corridor, adjacent to Disney’s property. Effective rents are beginning to gain momentum as increases will be recorded in every Orlando submarket by year-end.

Occupancy is rebounding strongly in Orlando and should improve by another 60 basis points to end the year at a metro-wide average of 92.3 percent. Gains in occupancy are the result of stronger demand associated with an increase in local in-migration and higher employment growth. Demand is outpacing new deliveries and, as a result, absorption is on track to measure more than 2,900 units in 2004. The highest occupancy rates in the region are found in the more mature submarkets to the north, such as West Altamonte Springs and Northeast/ 436/551. Higher rates of absorption, however, are found in the apartment communities to the south where tourist-based employment is centered and where the majority of available developable land is located.

After a slightly negative trend over the past 3 years, the median sales price in Orlando is on track to increase by more than 20 percent, to $52,000 per unit, by year-end. The $5 million-and-greater segment of the market is accounting for a larger share of activity than usual, with sales of garden-style properties containing more than 200 units being the rule rather than the exception. This has prompted many sellers to put together portfolios that are being greeted with strong interest from out-of-state investors.

— Steven Ekovich, first vice president and regional manager, Marcus & Millichap’s Orlando office

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