The Real Deal Miami

Survey shows South Florida rental buildings holding steady

By Jane C. Timm | July 10, 2008 03:23PM

South Florida rental apartment buildings are taking a hit, but investors are still confident in their investments in that sector, according to a University of Florida survey of real estate professionals.

Capitalization rates, or the ratio between a property’s annual profit and its cost of investment, are lower in South Florida than the rest of the state. The cap rates for Broward, Palm Beach and Miami-Dade counties all hovered around 6.0 percent, compared to a 6.6 percent statewide rate.

But the cap rates have remained relatively steady this year, surprising the surveyors at the Bergstrom Center for Real Estate Studies at the University of Florida. The researchers had predicted a decrease in cap rates in light of the treacherous housing market created by severe overbuilding in South Florida.

“We actually went back and recomputed our data after we looked at the breakdowns of cap rates for Miami and some of the other areas of South Florida,” said Wayne Archer, executive director.

Survey respondents did predict that cap rates would decrease in Miami-Dade moving forward, Archer said. Survey respondents also predicted that Miami-Dade and Palm Beach counties would see future drops in apartment occupancy, which would lead to a lower cap rate, Archer said, but he noted that the respondents had a “positive outlook” in that the rates were steady.

There were other signs of decreasing demand. South Florida is also seeing a population decrease, which poses a threat to its real estate market, Archer said.

“School enrollments were down throughout Florida last year, suggesting some out-migration,” he said, adding that this could be due to job losses caused by the housing market’s tumble.

“People are probably finding roommates and demanding fewer units,” he said.

The survey was based on responses from 275 appraisers, brokers and consultants who were asked where they thought the market was headed.