For many Sunbelt markets, steadily improving demand over the last two years has not been nearly enough to offset generational new supply volume. The temporary misalignment between supply and demand has sent average occupancy careening downward to the detriment of rent growth.

However, there are Sunbelt markets that are already on the other side of the deliveries peak for this cycle. For those markets, robust demand can begin to turn the tide on the average occupancy front and the light at the end of the tunnel appears closer than for those still in the throes of a supply deluge. The Greater Orlando area is such a market.

All numbers will refer to conventional properties of at least fifty units.

New Supply and Net Absorption

The Greater Orlando market saw new deliveries top 17,000 units in 2023. The level of new supply roughly doubled the average from the previous five years and represents the peak for this cycle. Approximately 11,000 new units have been delivered through the first nine months of 2024. Another 3,000 or so units are expected to be delivered in the final quarter of the year. With new supply likely to finish the year at around 14,000 units, the market has seen a decline from last year but has still been very active. Deliveries are expected to slow further in 2025.

Over the last twelve months, new supply has been especially clustered in two submarkets – both areas in the south of the market. The Hunters Creek – Dr. Phillips region led the way with just more than 3,200 new units introduced. Right behind, the Kissimmee area added around 3,200 new units. The remaining eleven ALN submarkets for Greater Orlando combined added slightly fewer new units than these two leading areas totaled.

While new supply has begun to recede slightly, apartment demand has surged. Net absorption in the last twelve months reached nearly 11,000 units after totaling only about 4,400 net units in the previous twelve-month period. Despite not being quite enough to end the average occupancy slide, a 0.9% decline in that metric over the last year was much smaller than the 6.7% decline from the previous period.

Encouragingly, the improvement in demand has not been a concentrated phenomenon. Net absorption has increased across the price classes, but the improvement has been especially pronounced outside the Class A space. For the Class B and Class C subsets, net absorption in the last twelve months more than doubled that of the previous period. For Class D, a net loss of about 150 leased units in the prior period was followed by net absorption of about 1,500 units over the last twelve months.

Average Effective Rent and Lease Concessions

While the substantial improvement in apartment demand was a welcome sight, it came along with continued softening of rent performance. A 1.9% decline in the average effective rent for new leases in the last year brought the average to $1,751 per month. The decrease was larger than the 1.6% slide in the previous twelve-month period. Although it is little consolation for operators dealing with elevated costs and unusually low occupancy, the average monthly effective rent remains about $200 higher than it was three years ago.

Interestingly, despite a larger decline in the last twelve months than for the market as a whole, properties that entered the year already stabilized did see a positive development. A 2.3% decline in the average effective rent was slightly smaller than the previous period’s 2.6% decrease. This moderate improvement came as demand within the subset showed the same robust turnaround present in the price class and market level data.

Part of the rent growth story has been the increased use of lease concessions in order to boost apartment demand. One-quarter of conventional properties ended September offering a discount for new residents. This degree of availability came after a 54% year-over-year increase. As recently as two years ago, only 5% of conventional properties were utilizing lease discounts as a tool. Not since early 2013 when lease concession availability was still declining from its Great Recession era peak has availability been so high.

The average value of lease concessions has also continued its rise during the last year. A 32% jump during that span brought the average to approximately 3.8 weeks off an annual lease – the highest level since 2011. Class D properties featured the highest average to close September at around 4.3 weeks off a twelve-month lease.

Takeaways

The Greater Orlando market is not without remaining challenges but is a positive example in the Sunbelt in the current environment. It is true that the market currently features its lowest average occupancy this side of the Great Recession and has suffered average effective rent declines in two consecutive twelve-month periods. However, it also appears to have turned the corner from the depths of the last couple of years.

Unlike last year when rent growth was negative and apartment demand remained tepid, this year’s suboptimal rent performance has come with a resurgence in demand exceeded in recent years only by an historic 2021 result. With new supply expected to winnow further in 2025, average occupancy improvement and a return of typical rent growth may be rounding into sight.

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