Fewer multifamily deals closing in SoFla, yet apartment rents up and vacancies low amid heightened demand

UPDATED, Jan. 17, 7:30 p.m.: Amid heated competition in South Florida’s multifamily market, the volume of apartment building sales has experienced a steady drop over the last two years. The decline reflects decreasing profit margins due to higher sale prices per unit, experts say.

There were more than 350 multifamily deals totaling more than $5.5 billion in 2016, said Calum Weaver, managing director for Cushman & Wakefield’s Multifamily Group, during a commercial real estate conference on Wednesday. A year later, investor appetite weaned with just under 300 multifamily deals representing a total value of $4.4 million. The decline continued in 2018 with only about 250 multifamily transactions taking place for a total of $3.9 billion.

“The market peaked in 2016 and has gone down gradually in the last two years,” Calum told attendees at the 2019 CCIM Commercial Real Estate Outlook Conference. “Still, the $3.9 billion in 2018 represents the third-highest transaction volume in South Florida during the last 13 years. We have been on a roll.”

Calum said while deal momentum is slowing down, asking rents are not and vacancy rates are at all-time lows. “We have seen record rental and vacancy rates the last nine years and we expect that trend to continue going forward. In the B and C Class space, you can get 20 percent rent increases.”

Florida’s population growth and a drop in the state’s homeownership rate is fueling the demand for more apartments, Calum added. “The key thing about multifamily is that the demand side is taking care of itself. Homeownership rate is diminishing so that means the demand for rentals is through the roof.”

During a separate panel discussion on 2019 development trends, Colliers International Executive Vice President Gerard Yetming said the homeownership rate in South Florida stands at 59 percent, 10 points lower than it was 10 years ago. “We have more and more renters,” Yetming said. “One of the biggest challenges is affordability. About 63 percent of the Miami metro households are cost-burdened rental households. That’s higher than New York City.”

With rising construction and land costs, developers have to find ways to boost income by allowing short-term rentals, building smaller units and renting individual units to multiple renters, experts said.

Evan Shapiro, a managing director with Property Markets Group, highlighted the company’s foray into just renting bedrooms and pairing up roommates with its X Miami brand. “Land and construction prices are not going down, so how do we make a viable business plan?” Shapiro said. “We do need to increase the rent per square foot, but how do we do it in a way we don’t harm the individual renter? You have smaller units or you have roommates.”

An earlier version of this story incorrectly identified Evan Shapiro’s company.