Orlando is a strong growth oriented metropolitan in the central region of Florida. It has consistently posted strong job gains, almost all sectors of its economy is expanding, and demand for housing has been strong. As the population booms due to job growth, demand for housing is expected to increase.
The U.S. nationwide homeownership rate has declined again during the first quarter of 2016, reaching its lowest level in nearly two decades. Obtaining a mortgage for a single family home is more difficult than before the recession due to tight credit standards On the other hand, the multifamily sector has been experiencing sustained growth. Tenant and investor demand for multifamily housing has been on the rise. Median rental rates have been increasing over the past two decades and demonstrate less volatility/sensitivity to recessions and economic downturns than single family homes and other commercial property, making them a relatively safe investment option. In addition, nationwide demand for multifamily housing has also been increasing as a fairly strong labor market increases employment opportunities for young adults, the key market segment for the apartment rental industry.
Orlando is famous for its tourism industry with heavy weights such as Disneyworld, Universal Studios, and much more. Yet Orlando’s economy has much more rich and diverse economic story than that. Years after the recession, Orlando has recovered tremendously with fantastic job growth in business and financial services, healthcare, construction, leisure and hospitality, and technology. GDP growth in the region has had a 4.5% compounded growth rate since 2001 and has had an overall growth of 77% in the same time period.
Orlando’s economy has recovered from the recession much faster than other local economies in Florida. The city’s economy has been thriving due to substantial investments in the expansion of Orlando’s tourism industry. Significant expansion projects in the area’s major theme parks should ensure strong tourism growth for the next couple of years. In addition, the University of Central Florida is also emerging as a potential economic driver. High wage employment growth has been robust with gains in technology, life sciences, and business services.
Employers in the Orlando metro area are expected to add more than 36,000 jobs in 2016 – growth of 3.1 percent, compared to 1.9 percent nationally. During the first quarter of 2016, about 11,500 new jobs were created, a strong growth that if sustained could easily push the expected increase to above 36,000 new jobs.
The unemployment rate in Orlando has been steadily declining in recent years. Since its peak in 2010, the city’s unemployment rate has dropped more than 7 percent. The current unemployment rate in Orlando is 4.5% which is below Florida’s state average of 4.7% and the US average of 4.9% (July 2016).
MAJOR EMPLOYERS & INDUSTRIES
Major industries in Orlando include Aviation and Aerospace, life science fields such as biotechnology, pharmaceuticals, and medical devices, finance and professional services, tourism, and finally technology. The region boasts many high paying jobs and tremendous job growth. Technology was the fastest growing industry in the metropolitan area posting 13% growth since the decade before, higher than the US average. Tourism is what Orlando is most famous for, welcoming 57 million visitors in 2014.
Orlando has experienced great population growth and is one of the fastest growing metropolitan areas in the country. The current population in Orlando Metropolitan area is 2,330,100 in 2015 (Census). From 2014-2015 the city added more than 50,000 people. In 2015, Orlando had a population growth of 2.9% which was considerably better than the 0.8% national average. Since 2000, the city has had a population growth of 41%. Net migration in 2014 was around 11,430 people. The median age is 32.9 years old, which is quite young and more likely to rent. According to the United States Census Bureau, the demographics is made up of 61.1% White, 26.9% Black or African American, 2.7% Asian and a small percentage of other races.
LOCAL MULTIFAMILY TRENDS
A surge in population growth and an expansion in employment has created higher demand for housing the metropolitan area. Multifamily has thus far not been held back by new development as demand has outpaced new construction in the last few years.
Vacancy remains tight throughout most submarkets, dipping below 3 percent in some areas during the last 12 months. The Kissimmee/Osceola County and University submarkets each posted a vacancy rate of 2.9 percent after declining 80 basis points and 40 basis points, respectively. The average vacancy rates currently stand around 3.8% (2nd quarter 2016).
LOCAL RENTAL ECONOMICS
The metro’s for-rent market saw a minimal supply of new units prior to 2013, paving the way for steady tightening and solid performance in the apartment market through 2015. The vacancy rate has been steadily falling and the rate of rent growth has been solidly positive since 2010. Fannie Mae believes that pent-up household formation is paving the way for much of the rent growth. Home prices have consistently increasing in Orlando, further incentivizing rental demand.
Cap rates have been on the downward trend for a few years now with average cap rates per door in the high sixes in 2011 and further compressing to the low sixes in 2015. According to CBRE, Orlando is a Tier 2 multifamily market. Class A multifamily posts low cap rates at 4.75%-5.25%. Class B stabilized properties go for between 5.50%-6.00% while value add class B goes for 6.25%-6.75%. Class C Stabilized can have around 6.50%-7.00% cap rates while value add class C post attractive 7.50%-8.00% caps. The cap rates in the Orlando area are competitive compared to many overheated class A markets that can have caps in the 4.00%-5.00% range.