A major theme that we’ve been tracking both on the ALN blog and in our monthly newsletter for 2022 is the downshift in apartment demand compared to the sustained pace of rent growth. The cooling of demand so far in 2022 has been about as broad-based as the demand explosion was in 2021. One of the markets that has been a bit more resilient on that front has been Orlando.
As always, all numbers will refer to conventional units of at least 50 units.
New Supply and Net Absorption
New supply through April decreased some from last year’s roughly 4,700 new units delivered in the same period. Despite that, the approximately 3,700 new units delivered this year has still been the second-most for the period in the last five years. Seven of the 13 ALN submarkets for Greater Orlando have seen some level of new supply, with Downtown Orlando leading the way with about 1,000 new units.
The area has seen a cool down in apartment demand compared to last year, but the change has not been nearly as dramatic as at the national level. About 2,800 net absorbed units represented a 32% decline from the same period last year but was otherwise more than in any other year of the last five for the first four months of the calendar. For context, national net absorption was down 70% compared to last year through April and net absorbed units so far this year has been the lowest in the last five years – by a wide margin.
The change for Orlando has specifically been within the Class B and Class C subsets. Both the top and bottom price tiers have actually outperformed the same portion of last year, but Class B net absorption has fallen by 57% and Class C has declined by more than 70%. The fact that the middle two price classes have struggled is likely an indication of price pressure on apartment demand.
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Average Effective Rent and Lease Concessions
As already mentioned, apartment demand has slowed down this year but rent growth has not. This has been the case both nationally as well as for the Orlando market individually. Over the last 12 months average effective rent for new leases has risen by almost 30%. Just in the first four months of 2022, average effective rent growth has been nearly 6%.
It has not been the case that just one or two submarkets, or just one specific price class, has materially skewed the average up. No submarket failed to reach 4.5% average effective rent growth from January through April. Four submarkets, led by the 9% gain in the Clermont area, have already topped 6% for the year. Similarly, from a price class perspective Class A has been in its own category with a 10% gain in the four-month period, but all four price classes have added at least 4.5% at the average.
Only 5% of conventional properties were offering a new lease discount to close April. That rate of availability marked the lowest for any April since 2018 and a dramatic decline from the 26% offering a concession package to end April of 2021. The average concession package stood at just two weeks off a 12-month lease to end the month – the lowest of any April in the last five years.
While it’s true that Orlando has resembled the national trend so far this year of lower multifamily demand paired with continued remarkable rent growth, there has been a major difference in scale. National apartment demand has been 70% lower this year through April compared to last year versus a 32% drop for Orlando. This means that so far in 2022, Orlando has reverted back to a more typical level of absorption after an outlier year in 2021, whereas the national picture is one of a major under-performance of even the more typical pre-2021 years.
Though occupancy has begun to soften slightly, Orlando still closed April at 94% average occupancy. Combined with a small slowdown in deliveries compared to last year this has resulted in lease concessions continuing to recede rather than reappear in a market with lower demand than a year ago. With a tight labor market, strong population growth, and higher than normal average occupancy – only the dramatic rent growth of the last year and increasing macroeconomic challenges represent potential headwinds for the area this year.