Limited construction and steady demand for rental housing will remain the distinguishing features of the Orlando metro apartment sector over the final months of 2012.
With vacancy dipping below 6 percent in the third quarter, many property owners will exercise greater pricing power to raise rents, especially at properties serving the metro’s major employment hubs. Further improvement in the local job market will support additional tenant demand in 2013 as developers start to roll out new projects after a lengthy stay on the sidelines. Beyond the properties slated to come online next year, planned market-rate projects contain about 13,000 units. However, it remains unclear how many of the projects under consideration will actually advance to ground breaking. Despite general improvement in the capital markets over the past year, construction loans remain challenging except for the most qualified sponsors. Also, local construction employment has been decimated, placing added pressure on builders to cost-effectively assemble experienced crews should a backlog of projects develop.
Transaction velocity is rising as the pool of investors grows deeper and more diverse. Domestic buyers account for most of the activity, while Canadian and Israeli capital are also becoming active across the asset-quality and price spectrum. Orlando’s appeal as a market for international capital will continue to grow due to its name recognition abroad and its sizable airport that offers relatively easy access between the metro and international locales. With many active investor pools, assets in locations with solid intrinsic demand drivers often generate multiple bids and deals can be executed quickly. For example, Class C properties in downtown Orlando or in nearby Maitland or Winter Park can trade at cap rates in the mid-8 percent range, while Class B assets transact at approximately 100 basis points less. The pool of active lenders providing acquisition financing is also expanding. GSEs, and local and regional banks generally offer five-year terms, but life insurance companies recently demonstrated a willingness to underwrite longer terms for quality assets and sponsorship.