Calum Weaver Authored Cushman & Wakefield’s 2018 South Florida Multifamily Midyear Market Update
MIAMI, September 5, 2018 — Cushman & Wakefield has released its 2018 South Florida Multifamily Midyear Market Update.
The semi-annual report, authored by Executive Managing Director Calum Weaver of Cushman & Wakefield’s South Florida Multifamily Team, details the state of the multifamily market in the three counties comprising South Florida — Miami-Dade, Broward and Palm Beach.
The report finds record low vacancy rates in a South Florida multifamily market supported by a continuing trend of positive historic market fundamentals. Significant highlights of the report include:
- Through the first two quarters of 2018, there were 133 multifamily sales in South Florida valued at nearly $2 billion. While year-over-year sales activity slowed for the second year in a row, these values are still the third-highest ever recorded in the first half of any year.
- As a whole, sales activity in South Florida was split relatively evenly between Class A, B and C properties. Palm Beach County saw a majority of its activity in the Class A market, while the Class B and C markets were most active in Miami-Dade and Broward Counties.
- The number of value-add private capital deals, which historically account for as much as 30 percent of the annual South Florida multifamily sales volume, fell significantly in 2018, yet per-unit pricing did increase.
- 58 market-rate properties are currently under construction in South Florida with approximately 18,215 new units.
- In the first half of 2018, South Florida witnessed net absorption of 6,466 units, meaning more units were absorbed than the 3,572 units that were completed.
- Over the next five years, South Florida is expected to see a positive net migration of 555,000 people, necessitating the construction of 64,000 new rental units to keep pace. Through 2Q 2018, there were only 18,215 units under construction.
- Due to higher construction and land costs, new supply has almost exclusively been geared towards Class A+ product. Affordable, or Class B and C supply, remained drastically under served.
- For an eighth year in a row rents reached record levels in South Florida. In the past five years, effective rents increased by 24%, 23%, and 25% in Miami-Dade, Broward, and Palm Beach counties, respectively.
- For only the second time in 10 years, however, income levels grew at a higher percentage rate than rental rates. Stronger employment and income levels will help with affordability and bode well for multifamily fundamentals.
- Year-to-date vacancy rates decreased in all three South Florida counties. Class B and C properties currently exhibit the lowest vacancies ever recorded in South Florida. Cushman & Wakefield expects vacancies to remain low, albeit certain submarkets may experience short-term higher vacancies as new supply comes online.
- The availability of all forms of debt financing continues to be as plentiful as ever in recent years, with lenders specifically favoring multifamily over most other asset classes.
- Short-term interest rates are expected to increase, though investor consensus is waning that the Federal Reserve will be able to keep increasing rates steadily through 2019.
- Currently, spreads on 10-year, moderate- to full-leverage loans range from 155 basis points (bps) to 165 bps through the agencies. By comparison, during the previous real estate cycle, credit spreads on 10-year commercial mortgage-backed security loans were as low as 90 bps to 100 bps.
- Agency financing spreads tightened but remain volatile, with agencies now able to compete with life companies for Class A, well-located deals.
- Focusing on income growth and net operating income should be considered to alleviate any potential cap rate movement in the coming years.
“Multifamily investments remain the most desired and transacted property type in South Florida based on the strong market fundamentals and long-term positive outlook,” said Weaver. “63% of global capital is being raised to target real estate assets in North America. South Florida, as a gateway region for global capital, is awash with money seeking acquisitions.”
“Finding deals is the biggest challenge in the market, particularly value-add opportunities,” Weaver continued. “This is a natural progression, as many of these deals traded multiple times during this real estate cycle. As a result, investors with capital to deploy were finding themselves facing a dearth of for-sale assets to target in this space. In contrast, institutional deal activity, which, in general, is geared towards newer product, has more runway in the next few years because the construction pipeline for this asset class remains robust.”
“Debt markets remain open for business and still provide historically low interest rates,” reported Weaver. “We expect strong sales in Class A properties, while value-add properties remain hard to find but are well received if marketed correctly.”
“The effect on cap rates relative to further interest rate increases is the biggest potential threat to the current market,” concluded Weaver. “In the past year, interest rates increased ±60 bps and are now nearer to 5% than 4%. Previous interest rate hikes were offset by spread compressions, and there is a case that this can continue to an extent. There is still room to lower spreads to offset any marginal up-tick in interest rates. However, if we see another 60 bps increase in rates it will effect cap rates and pricing.”
About the South Florida Institutional Multifamily Team
Cushman & Wakefield Multifamily in South Florida focuses exclusively on meeting the needs of institutional and private owners of multifamily properties and land development throughout the region, including Miami, Fort Lauderdale, Palm Beach, Naples, Fort Meyers, Treasure Coast and the Keys. Our team is comprised of seasoned professionals with over 100 years of combined Real Estate and Investment Sales experience with over $20 billion in multifamily transactions. We are consistently ranked as the No. 1 Multifamily Team in South Florida. Our proven marketing process involves a highly structured, controlled and competitive offering, specifically tailored to the needs of multifamily owners and the local market. We have consistently produced maximum pricing by attracting and engaging the most aggressive investors for our property listings.
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries. In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.