The Orlando apartment market continues to post strong demand thanks to an increasing number of new jobs in the area. The healthy market has pushed property values up for many multi-family properties.
However, big changes are expected over the next year when the largest number of new apartments in a decade will be delivered. The added supply will create a market of winners and losers. As a result, many complexes will be left over assessed for taxes.
How We Got Here
In the year ending August 2013, Metro Orlando added 19,400 positions to its jobs base. A good portion of the new jobs came from the hospitality services sector.
Looking at the annual figures at the end of the third quarter, the market was in balance. There were 2,420 new apartment unit completions, and 2,860 units were absorbed, according to MPF Research.
The occupancy rate hit 95.5% in the third quarter. It's a milestone because it's only the third time that the occupancy rate has gone above the 95% threshold since 2006.
Orlando will take on a new supply of 6,410 apartments in the year ahead. The new units will expand the multi-family base by an aggressive 4.1%. Prior to this run-up in development activity, Orlando averaged a more modest 1.5% inventory expansion pace during the past five years.
In preparation for the wave of new supply on the way, owners and operators have been reluctant to raise rents to the level that might be expected given the current occupancy rate. During the year-ending 3rd quarter 2013, rents climbed a modest 2.1% across the metro.
Property Tax Impact
As is typical, property appraisals are lagging behind in the Tri-county area, which makes up the bulk of the Metro Orlando apartment market.
Assessments increased an average of 15% for 2013. Based on continued rent growth and sales activity, a growth rate of 15% or more can be expected for Tax Year 2014.
It is vital that owners be proactive in reviewing their properties early on in the process to ensure any potential increases are mitigated to the fullest extent possible, especially in light of the added units set to hit the market.