What a difference a year makes. This time last year the multifamily industry was riding high on a wave of historic apartment demand and rent growth after a bumpy 2020. This year, robust apartment demand is growing ever smaller in the rearview mirror and rent growth finally sputtered to a belated halt in October. Florida in general, and the Greater Tampa area specifically, were at the forefront of the action last year and have similarly been especially impacted by the shifting market conditions of 2022.

All numbers below will refer to conventional multifamily properties of at least 50 units. Additionally, the ALN Tampa market includes not only the city of Tampa, but the surrounding region to include areas such as Sarasota, Clearwater – St. Petersburg, and Lakeland.

New Supply and Net Absorption

With just over 10,000 new units delivered through October of 2022, the new construction pipeline has output significantly more new units than in any other year of the last decade across the Greater Tampa region. For context, the previous five-year average for this portion of the calendar was approximately 5,300 units.

40% of the newly delivered units were located in only three of the 15 ALN submarkets for the region. The New Tampa – Wesley Chapel submarket has added about 1,500 new units, the Brandon area has added just under 1,400 new units, and the Downtown – South Tampa region saw a little more than 1,300 new units delivered. No other submarket has added 1,000 or more units so far this year and one-third of submarkets have had no new supply.

While new supply was reaching a decade highwater mark, apartment demand was doing just the opposite. Roughly 2,000 net absorbed units through October of 2016 was the previous trough for this portion of the calendar of the last 10 years – this year’s net absorption total finished October in negative territory by 400 units. In other words, there were 400 less leased units in the Greater Tampa area to end October than to open 2022. Unfortunately for the Tampa area, 2022 has seen three monthly periods fall into the bottom 10% of months since the start of 2017 for net absorbed units. Additionally, the year has simultaneously had three months in the top 10% of that period for new units delivered.

Add the 10,000 new units delivered to the negative net absorption and the result has been a staggering 4.5% drop in average occupancy for the region. Average occupancy finished October a little below 91% – lower than in any month since January of 2012.

From a property price class perspective, Class B and Class C properties have struggled the most on the average occupancy front. A 5% loss through October brought Class B average occupancy to just over 88% to end the period. For Class C, a 6% decline in the period brought average occupancy down to just over 90%.

Average Effective Rent and Lease Concessions

Two factors in particular probably helped to propel rent growth upward for months after apartment demand had waned. One was the sizeable influx of new units that tend to be priced near the top of the market and drive the average rent up. Even so, for properties that entered 2022 already stabilized, average effective rent growth through October topped 8%. The other factor was the unusually large disparity between the rent for new leases versus the existing rent for annual leases that came up for renewal this year.

Though rent growth momentum slowed considerably this year, an average effective rent gain for new leases of more than 9% for the Greater Tampa region so far in 2022 topped any other year of the last decade. Aside from the incredible 25% gain in 2021, only the 9% appreciation in 2014 was even above the 7% threshold in that ten-year period.

In October, for the first time since May 2020, monthly market-level average effective rent declined – though only by 0.1%. The average unit still closed October leasing for approximately $1,810 per month for new residents, up more than $500 per month from just 24 months ago.

As would be expected in the current environment, lease concession availability has skyrocketed so far this year on a percentage basis. Coming into the year less than 3% of conventional properties were offering a lease concession for new residents. This level of availability was by far the lowest to open a year in more than a decade. By the end of October, only 8% of conventional properties were offering a discount for new leases, but that represented a nearly 250% increase from the start of the year. In the coming months, it is safe to expect that number to continue to rise at a fairly rapid pace.

Takeaways

The Greater Tampa multifamily industry has faced an unfortunate confluence of factors this year that have taken a significant toll on industry performance. First is the simple supply – demand imbalance that has plagued the market since 2020. In 2020, and especially in 2021, net absorption far outpaced new supply and drove average occupancy upward to a decade high of over 95%. This year, an undoubtedly necessary influx of new supply could hardly have been more poorly timed from an occupancy perspective given that the market has seen the worst apartment demand in more than a decade – and by a wide margin.

A perceived lack of “flight to affordability” in the data is commonly cited as a reason why price pressure has not been a major component of tepid apartment demand this year. This interpretation flies in the face of common sense in an environment in which Greater Tampa has seen average effective rent growth climb 40% for new leases since the start of 2021 while inflation-adjusted wages have declined. It also ignores any other way to interpret the data.

Only Class A demand has even approximated that from previous years while Class C and Class D have each shed net leased units this year. This dynamic could indicate a heightened ability of residents in premium properties to absorb rent increases at a time when the relative dearth of single-family purchase options is keeping them in multifamily. Meanwhile, increasing affordability constraints outside the premium space could be leading to household consolidation among those residents rather than a move down the price class scale.

Though 2022 has been a challenging year for Tampa multifamily, big-picture fundamentals remain encouraging. The new supply that has been unfortunately timed was nevertheless needed and will benefit the market over time. Additionally, Florida and the Tampa region specifically should continue to be in-migration draws in the coming years. The rent gains captured over the last 18 months or more should also soften the blow of conditions in the current environment. Acute rent growth of its recent magnitude was not healthy or sustainable.

Lastly, although much has been made of the decreasing affordability of the high-growth Sunbelt markets, this narrative leaves out half of the story. Affordability is not an issue evaluated in a vacuum; market affordability should be viewed relative to other markets.

While it is true that Tampa has been a top five market from rent growth since the start of last year, the area moved from the 31^st highest average effective rent for a new lease to open 2021 to the 20^th highest by October of 2022. A big jump to be sure, but still well behind the coastal Gateway markets. Media coverage decrying Florida affordability also tends to downplay to impact of the tax environment and other cost of living line items. Context is key.

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