Orlando has recently been overshadowed by Tampa and Miami, as its southern and western neighbors dominated migration and property performance headlines throughout 2021 and 2022. Orlando performed well during that stretch, however its heavy reliance on tourism and hospitality has led to a more volatile period both from an employment perspective as well as a multifamily perspective. As demand cools and new supply surges forward, property owners and operators are faced with a mounting challenge to maintain occupancy and increase rents. The job market is once again on solid footing, and Florida remains a favorable state to do business in, however migration patterns are slowing and political risks are increasing. Domestic migrants who initially came to Orlando with high salaries were able to absorb rent increases that did not overwhelmingly impact their budget, but now three years after the first wave of COVID migration, rents cannot rise as rapidly. Higher insurance and operating costs are also impacting property performance, which has resulted in tepid results across the metro.
Traffic and Leasing
Traffic across the Orlando MSA remains strong as the average property sees more than 10 tours per week, outpacing the national average by almost two tours. Leasing is also performing well and the average property is getting 3.5 new leases per week. The metro conversion ratio of 33.5% is slightly above the national average.
The South Central and Maitland/Winter Park submarkets lead the metro in traffic. The average property in these submarkets is recording more than 13 tours per property per week, and traffic is up by almost two tours per property compared to this time last year. Maitland/Winter Park ranks second in the MSA, averaging 4.4 new leases signed per week.
Overall, demand is strong as only two submarkets, East Altamonte/Casselberry and Southeast/Airport have seen traffic decline in the past year. Similarly, all but three submarkets, East Altamonte/Casselberry, Lake County and West Altamonte Springs, have had new leases signed per week grow in the last 12 months.
While the leading indicators traffic and leasing have performed well of late, occupancy has struggled mightily. Across the Orlando metro, occupancy is down 1.81% on average since this time last year. Occupancy also fell roughly 20 basis points in the last month, a period of traditionally strong occupancy growth.
Only one submarket, the southern end of Osceola County, experienced rising occupancy in the past year. The largest declines were in Kissimmee, where occupancy has fallen 2.9% annually. Not far behind is Lake County, a submarket that has lost 2.8 points of occupancy and has an overall occupancy rate of just 93.1%, the lowest in the metro.
Orlando’s overall availability to rent remains somewhat healthy as the average property has 13 units available to rent over the next 60 days, however some submarkets including Maitland/Winter Park have ATR above 20.
Recent deliveries in the Southwest, South Central, and Maitland/Winter Park submarkets have weighed heavily on occupancy and ATR. Current construction is more heavily concentrated south of Orlando in the Kissimmee submarket and will likely limit growth in that submarket for the next few years.
Net effective rent on a same-store basis in Orlando fell 1.3% over the past year. Several markets in the sunbelt have seen rents go negative on an annual basis, as a general cooling from 2021 envelopes the region. For perspective, rents increased by 41% between November 2020 and September 2022.
At the submarket level, Orlando is split between growth and decline. Five of the 13 submarkets in Orlando posted growth in the last year, while the other eight saw rents fall.
Southern Osceola County, the only submarket with rising occupancy, also led the MSA in rent growth over the past year.
Given the significant new supply, it is no surprise that the South Central submarket lagged all other submarkets as NER declined 5% in the past 12 months. The Southeast/Airport and Southwest submarkets also saw rents decline by 4.2% and 2.1% respectively.
As rents have fallen, concessions have increased, growing by 58% market-wide in the past year. All but a few submarkets have rising concessions, and the largest increase in concessions is concentrated where new supply is coming online.
Developers are active in the Orlando market, and the current supply wave has had a negative impact on apartment fundamentals, especially in the Maitland/Winter Park and urban core submarkets.
The next wave of supply is likely to hit the Kissimmee area, as the submarket has an ample number of projects currently in the planning phases.
However, the overall new supply picture in Orlando appears to be balanced. There are projects spread across the metro area, and while some submarkets may face short term supply pressure, the market should absorb the current construction pipeline fairly well.
There are currently only 77 projects under construction across the metro. While there are more than 350 projects in planning, many of these will be cancelled or significantly delayed as rising construction and borrowing costs make deals impossible to pencil.
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