The South Florida Multifamily Development Pipeline
South Florida’s rental market has been one of the strongest in the country in recent years, with rents rising sharply. However, a significant increase in delivered units is expected in the South Florida development pipeline in the coming years. This raises the question: how sustainable are South Florida rents really?
An Increased South Florida Development Pipeline
According to CoStar Group, 31,027 rental units are currently under construction in the Miami multifamily market, representing the largest supply pipeline in Florida, as well as the seventh largest in the country. With over 16.7% of existing supply underway, Miami also boasts the largest supply pipeline relative to its existing inventory among markets comprising over 40,000 units. Tampa also has a robust construction pipeline of 17,626 units, and Fort Lauderdale follows with 9,826 units under construction.
Factors Driving the Increase in Delivered Units
There are several factors driving the increase in delivered units in South Florida. One factor is the strong population growth in the region. According to the U.S. Census Bureau, the population of South Florida is expected to grow by 309,800 people between 2020 and 2030.
Another factor is the low supply of existing housing in South Florida. South Florida has a long history of underbuilding housing, and this has led to a shortage of affordable housing units. According to the Florida Realtors, the average sale price of a single-family home in Florida was $572,753 in September 2023, up 7.5% from the previous year. This high price point is making it difficult for many people to afford a home, driving up demand for rental units. Developers are responding to this shortage by building more rental units.
How Will the Increased Inventory be Absorbed?
The absorption of multifamily units in South Florida depends on several critical factors, including the strength of the local economy, the rate of population growth, and the availability of alternative housing options.
Given the current economic landscape, where many markets are expected to experience an oversupply of rental units due to factors such as rising interest rates and a potential economic slowdown, the absorption of increased rental unit inventory is likely to be slower than in previous years. In markets like South Florida, where population growth remains strong, the absorption rate may be more resilient. However, in other markets, particularly those with weaker economies or declining population growth, the absorption rate could face significant delays.
For context, the U.S. economy’s GDP grew at an annual rate of 4.9% in Q3 2023, according to the Bureau of Economic Research. This healthy growth rate suggests the economy’s stability and resilience, providing a favorable backdrop for the absorption of new rental units. South Florida expects a 1.6% increase in households this year, faster than the original projection of national household growth of 0.5% for 2023.
The availability of other housing options, such as single-family homes and condos, will also affect the absorption rate of rental units. If single-family homes and condos become more affordable, then some renters may choose to buy instead of rent. This could reduce the demand for rental units.
Will Rents Continue to Rise in South Florida?
The increased inventory of rental units is likely to put downward pressure on rents, especially in areas with a high concentration of new units.
It is possible that rents will plateau or even decline in some areas of South Florida, especially if the new rental inventory is absorbed relatively slowly. However, it is important to note that the overall rental market in South Florida is still very strong, and rents are likely to remain elevated in many areas. For landlords, especially those offering older or less attractive units, the situation might require rent adjustments or the introduction of additional tenant incentives to maintain tenant appeal. In contrast, landlords with high-quality properties in desirable locations are more likely to retain their competitiveness.
The increased inventory of rental units could have a mixed impact on investors. On the one hand, it could lead to lower rents and decreased profitability. On the other hand, it could also lead to a more stable rental market, making it easier to attract and retain tenants. Additionally, investors who purchase units in high-demand areas will likely see good returns on their investment, even in a more competitive market.
