In what was an extraordinary year for multifamily nationally, Florida markets took four of the top five spots for market-level average effective rent growth in 2021, and all of the top three. Tampa found itself at number three overall with an annual gain of almost 30% for new leases. Rent growth has somewhat tapered in the new year, with a gain of just over 3% through February ranking Tampa tenth in the nation for the period. Even so, it is a reminder of how irregular the times are that a two-month gain of 3% represents a relative slowdown in rent growth.
Looking specifically at the last 12 months, March 2021 through February 2022, let’s have a closer look beneath the surface of Tampa multifamily. As always, all numbers will refer to conventional properties of at least 50 units.
New Supply and Net Absorption
Just under 7,500 new units have been delivered across the Greater Tampa market in the last year. This level of new supply was lower than in the previous 12 months, but roughly around the average for the prior handful of annual periods. The Downtown – South Tampa submarket led the way with more than 2,200 new units delivered, but areas such as St. Petersburg – Seminole and New Tampa – Wesley Chapel each added around 1,000 new units as well. In all, two-thirds of the 15 ALN submarkets for Tampa saw some level of new supply in the last 12 months.
While new supply has been generally stable over the last 60 months or so, apartment demand has not. Tampa has benefited from sustained population growth in excess of 1% annually for more than a decade, including robust growth in the 25 to 39 age group in the last few years. This growth has been at a time in which the US population growth rate has trended steadily downward. A strong labor market and rising household incomes have also contributed to Tampa’s strong multifamily demand. Median household income gained about 9% from 2016 to 2020, the most recent year of available data, while renter median household income gained about 7%. For context, median household income for the US as a whole in that time rose by 6%. Over the last year more than 13,000 net units have been absorbed across the market – a 50% gain compared to the previous year.
This surge in demand was not just a recent phenomenon though. Looking back over the last five annual periods for March through February, Tampa has experienced annual increases in net absorption of approximately 30% and 50% in addition to this past year’s 50% gain. The largest gains in apartment demand over the last 12 months have occurred in the Class D and Class A segments, while Class C properties were the only subset to suffer a decline in demand.
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Average Effective Rent and Lease Concessions
Average effective rent for new leases has appreciated approximately 30% in the last 12 months. That gain placed Tampa third in the country for rent growth in the period. The rent gains have been across the board from a price class perspective. Class B has led the way with an increase of nearly 40%, while both Class A and Class C have seen increases of just more than 30%. Even Class D has seen average effective rent rise by about 12% in the period.
Only two Greater Tampa submarkets, Tarpon Springs – North Port Richey and Winter Haven, failed to reach 20% average effective rent growth in the last 12 months – but both gained more than 10%. Sarasota – Bradenton, with a 40% annual gain, led all submarkets. In all, seven of 15 ALN submarkets for the Tampa market have added 30% or more to average effective rent since the start of March 2021.
A significant drawdown in lease concessions have certainly played a role in the rent growth. An 85% annual decline in availability left less than 3% of conventional properties offering a discount for a new lease by the end of February. An almost 50% annual decline brought the average lease concession value to less than two weeks off an annual lease. Only the Class A segment, with about 8% of properties, ended February with more than 3% of conventional properties offering a discount among the four price classes.
With population and median household income growth well above the national level in recent years, as well as an unemployment rate below the US rate and a labor force that is larger than it was pre-pandemic – Tampa multifamily has been well positioned.
From 2017 through 2019, average annual net absorption for the market was about 6,200 units. In 2020 and 2021, the annual average was around 11,000 net units. This dramatic surge in demand while new supply remained fairly consistent was the main driver of the explosive rent growth that has occurred over the last year or so. Even so, it should be noted that price pressure from that rent growth has appeared on the scene. Not only was Class C net absorption negative over the last 12 months, but market-level absorption in January and February has been dramatically lower than in the previous few years.
With a little more than 14,000 units under construction but not yet leasing, help is on the way. An increase in new supply to even out the imbalance between available units and apartment demand should alleviate some upward pressure on rents, though with an average construction time of about five quarters, the rebalancing will take some time. With absorption in the near term likely to fall somewhere between the 2017-2019 and 2020-2021 averages, a couple thousand more units under construction probably wouldn’t hurt either.