South Florida Multifamily Continues Streak After Strong 2022
By Calum Weaver and Perry Synanidis February 24, 2023 8:00 amreprints
Multifamily fundamentals in South Florida remained enviable in 2022, as opposed to many other U.S. markets. The year marked the region’s second-highest year for multifamily sales, with 631 properties sold totaling just under $9 billion, according to a report by Cushman & Wakefield.
That’s slightly lower than last 2021’s $11.4 billion in sales, but still substantial. Pricing held strong in all three South Florida counties, and each experienced another year of record average per-unit sales: Palm Beach led the way with $385,215 per unit, followed by Miami-Dade at $350,874, and Broward at $312,369. Much of the activity in the multifamily market came from an influx of domestic capital, mostly made up of high-net-worth investors looking to get in to South Florida as they seek to move capital and sell assets held in other states.
Investor interest in South Florida, combined with the region’s bullish sals activity and multifamily fundamentals, caused rental rates to keep ticking upward. Miami-Dade had the highest rent growth in 2022 of any major market in the U.S., with a 6.8 percent increase to $2,000 per month on average. Closely behind at 5.1 percent, Broward also made headlines as a top 10 rent growth market nationally with rents averaging $2,204 per month. Even Palm Beach snuck into the top 50 markets with 1.7 percent rent growth and average rents of $2,388 per month in the area.
A business-friendly atmosphere, the climate and lifestyle, and existing and new infrastructure projects have more individuals, companies and investors looking to be part of the South Florida experience. South Florida added 64,374 residents in 2022, up from the previous year, and there were more than 100 corporate relocations. Both have contributed to the region’s unique position that includes a healthy office market, job growth, and rising rental demand and prices.
The pronounced migration to the region will continue to have implications for South Florida’s multifamily market. It’s expected that 18,500 new renters will enter South Florida per year over the next five years. Homeownership rates are also expected to dip slightly due to monthly mortgage rates outpacing the average rent in the market, with 50 percent of individuals entering homeownership and 50 percent choosing the rental route.
Some markets are posing a significant barrier to homeownership (notably Miami, which is ranked as the least affordable housing market in the country) which will also continue to fuel demand from South Florida’s growing renter pool. Since 2018, 49,717 rental units have been built, an average of 9,943 units per year. For the same five-year period, net absorption in South Florida totaled 52,060 units or an average of 10,412 units per year. New rental supply that came to market in 2022 to meet current and future demand did outpace net absorption by 6,552 units and cause vacancies in all three counties to rise slightly, to 4.7 percent in Miami-Dade (up 1.5 percent from 2021), 5.4 percent in Broward (up 2 percent from 2021) and 6.4 percent in Palm Beach (up 1.8 percent from 2021).
The South Florida multifamily market remains in equilibrium nonetheless and is likely to maintain its balance as development activity slows due to rising construction costs and less attractive financing options.
News headlines, inflation and fears of a recession can skew judgment, but despite inevitable bumps in the road, South Florida’s multifamily resiliency is unquestionable. South Florida’s multifamily fundamentals remain excellent, and rent growth is strong despite being below the records seen in 2021. Investors also recognize that there is still significant upside on deals, in particular ones that have notable loss-to-lease or value-add potential.
Looking forward, sales volume in 2023 is expected to deliver a strong performance in two areas: larger new construction properties and small-cap properties under $20 million. The second half of 2023 is predicted to see more transaction activity as debt markets settle and more buyers and sellers become aligned on pricing. Multifamily will continue to be a bright spot in the South Florida region, and many investors and industry experts are optimistic about the market in the coming year.
Calum Weaver is an executive managing director for Cushman & Wakefield’s Multifamily Group in Florida. Perry Synanidis is a senior financial analyst for Cushman & Wakefield’s Multifamily Group.