In the third quarter, South Florida’s apartment rent growth saw a slowdown, primarily attributed to a surge in construction leading to higher vacancies, as outlined in a recent report. Developers completed 13,388 apartments in South Florida during the first three quarters of this year, surpassing the 13,210 units finished in the entirety of last year. This increased supply tempered the market, resulting in a deceleration in rent growth. Additionally, elevated borrowing costs have dampened the investment sales fervor observed in 2021 and early 2022.
Net absorption of 7,780 apartments in the third quarter fell behind the net deliveries of 13,388 units, causing a decline in occupancy. Consequently, the vacancy rate rose to 5.4 percent from 4.6 percent in the same period last year.
While interest rate hikes by the Federal Reserve have impacted some planned multifamily projects, developers with secured financing are continuing construction. In Miami-Dade County alone, it is projected that 16,260 units will be completed by the end of 2024, with 4,364 of those units finished this year.
Despite the construction boom potentially leading to vacancies and reduced rents, prospective homebuyers, faced with high mortgage rates and limited housing inventory, are expected to drive rental demand. The business-friendly environment in Florida, coupled with the absence of a state income tax, will likely continue attracting new residents to the tri-county region.
In terms of rents, South Florida’s average monthly asking rent stood at $2,121 in the third quarter. This is slightly above the $2,126 in the previous quarter and reflects a 1 percent increase from the $2,099 recorded in the third quarter of the previous year. However, the rapid year-over-year rent increases seen previously have largely subsided.
Looking ahead, South Florida may face a prolonged period of housing affordability challenges due to incomes not keeping pace with rent increases. According to economists, for an average South Florida household to spend no more than 30 percent of its gross income on housing costs, it would need to earn around $111,780 annually. This far exceeds the area median incomes set by the Department of Housing and Urban Development.
As for multifamily investment sales, the volume in the first three quarters of this year reached levels comparable to 2014, experiencing a significant decline from the previous years. This decline is primarily attributed to higher borrowing costs, though some investors have found alternative approaches. Firms with substantial discretionary funds and those able to limit exposure to financing have remained active in the market. However, the overall sales volume in 2022 is markedly lower than in recent years.
