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Orlando - Occupancies Rising
Charles Wayne Consulting, IncORLANDO, FLORIDA (September 30, 2008): Based on our September, 2008 rental apartment census just released, the overall occupancy rate for Metro Orlando stands at 89.6%. Not good by most standards; however, in consideration of the turmoil that the rental market has undergone over the last two years, and in view of other indicators, things are not quite as bad as that one number might suggest. And better yet, the prospects are good that there will be measurable improvement moving forward into 2009.
Over the past four years, rental demand and supply have seen dramatic and unprecedented shifts. Beginning in 2004, condo conversions removed over 35,000 units from the rental pool, driving occupancies in remaining units to record levels (in excess of 96%). While some of those conversion units remained in the "shadow" rental market, the result was a substantially smaller commercial rental pool, high occupancies and rising rents. More recently we have seen the return of a substantial number of unsold conversion units back into the rental pool, sometimes in large blocks, or entire complexes that were withdrawn from conversion (at least for now). The surge in returning units over a relatively short period of time, coinciding with the general housing slowdown and loss of construction employment, have driven occupancies to their current low levels. This isn't the first time that this has occurred, nor the worst; the late 1980's followed by another period in the early 1990's saw even lower occupancies; and then there was the mother-of-all downturns in the mid and late 1970's when for a period of time a 60% occupancy was considered good!
To put current conditions in perspective, consider this:
- Over the last six months, the area has absorbed over 4,800 rental units.... units that are now occupied that were not six months ago.
- Out of the 604 rental apartment complexes contained within the RMR September Census, 231 had occupancies of 95% or higher.
- 28 complexes were at 100% occupancy
- 75 complexes were below 80% occupancy, but many of those are in lease-up (new units or returning units)
- Some geographic areas within Metro Orlando still exhibit strong occupancies, with one submarket above 96% (see attached table and graphic)
Looking ahead, market demand and supply trends over the next year are likely to
move occupancies up. The area will not see much more of the returning
conversion inventory ... that has essentially already played out. In addition, new
construction has remained at a modest level. As a result, the supply side of the
equation is more stable and will not contribute an excessive number of new units to
rentable inventory over the next year. At the same time, the demand side is
expected to strengthen, primarily for two reasons: First, employment appears to
have stabilized in the construction sector; most losses there have already
occurred, and employment growth, while anemic, is expected to also strengthen.
Second, rental demand will be strengthened as a result of the current turmoil in the
mortgage industry; fewer rental tenants will be lost to home buying as qualifying
and down-payment requirements stiffen. Taken together, the prospects are good
for occupancies to be on an upward path toward 91 %-92% by this time next year.
Semi-annual residential research and analysis conducted by Charles Wayne
Consulting, Inc. encompasses all commercial rental apartment complexes of 50
units or more located within Central Florida. A summary of findings is provided
below:
