ORLANDO-Orlando’s apartment market continues to struggle, with vacancy rates still rising and rents falling, according to Marcus & Millichap’s Market Update on the apartment market for the first quarter 2010.
A number of trends keep the downward momentum going in the Orlando apartment market. Declines in hospitality and leisure employment have negatively impacted Class B and C product, while tenant demand for Class A product has remained relatively strong. Five of Orlando’s 11 submarkets posted vacancy rates of less than 10% in first quarter 2010, though the lower rates may have been achieved through concessions. Still, the fact that there are still many foreclosures in the pipeline, fuels demand for rental apartments.
Only 950 rental units are scheduled for completion in 2010, compared to 2,176 in 2009 and more than 3700 units the year before. This would be good news for the rental market, except for the fact that there is a significant pipeline of stalled, planned projects and shadow stock in some submarkets, which could hobble a recovery, according to the Marcus & Millichap report.
Unemployment is still high in Orlando, where 1,000 jobs are expected to be lost in 2010, although the jobs picture is improving. More than 50,000 jobs were lost in 2008 and also in 2009. Meanwhile, professional and business services employment increased by a total of 1300 jobs in fourth quarter 2009 and first quarter 2010, 800 of which were added in first quarter 2010. The increase may partly be the result of a rise in temporary employment, which is typically a leading indicator of permanent hiring, according to the Marcus & Millichap report.
While the recession is expected to ease this year, apartment vacancies will go up 70 basis points to 11.9% following an 120 point basis climb in 2009. At the same time, asking rents are expected to decline by 4.5% to $804 this year and effective rents will go down by 5.3% to $732 per month.
Given all the bad news in Orlando’s apartment market, one would think that investors would not want to buy rental properties in the area. But, according to the Marcus & Millichap, the growth in the number of renters in the years to come and the expected stabilization of housing markets in the Midwest and Northeast--which will gradually restore typical relocation patterns for the area--will both help the rental market. In the near term though, high vacancy rates and declining rents are taking their tolls on property values.
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