The Commercial Real Estate Alpha Site

– Excerpts from Marcus & Millichap

Elevated Demand Preserves Tampa-St. Petersburg’s
Record Low Vacancy, Diversifying Local Buyer Pool

Employment gains bolster in-migration.

Limited restrictions in Florida during the health crisis allowed the Tampa-St. Petersburg economy to recover more quickly than most major U.S. markets. The local employment sector is growing at a rapid pace, spurring robust in-migration, which is strengthening apartment demand to record levels.

Renters absorbed over 13,500 units in 2021, contracting vacancy to 2 percent and boosting effective rents by over 20 percent amid the largest supply wave in over two decades.

Market conditions are the tightest in recent history and there is little reason to expect
any setbacks this year. Tampa’s favorable tax rates and highly skilled labor force entice
many corporate relocations. Signode Industrial Group and ConnectWise will be moving
their headquarters to Tampa this year, further bolstering job gains in the metro.

Despite a bullish outlook on demographic growth, supply additions are expected to moderate this
year, benefiting projects in lease up and holding metro wide vacancy steady at a record
low. Furthermore, limited availability will sustain rent growth in the market, positioning
Tampa as one of the top performing apartment locales in the nation.

Regionally discounted pricing increases buyer competition. Lower entry costs relative
to other major Central and South Florida markets and robust rent growth are driving
sales activity in the metro. Competition for available assets is escalating sale prices and
compressing cap rates to the mid-5 percent range. Despite the downward pressure from
the rise in pricing, first-year returns in Tampa remain 50 basis points above the national
average, attracting yield-driven investors to the metro. These buyers are most active
in Southeast Tampa and Pasco County, where returns can rise well above the market
average.

Deal flow from institutional capital and private equity is also increasing as rents
surge in the region. Investors from these segments are most active in North Tampa and
Pinellas County, where luxury assets often garner sale prices near $180,000 per unit.

Firms will add 64,000 positions this year, building off the 4.8
percent rise in total employment registered in 2021.

Construction activity moderates this year following the addition of 8,000 units in 2021. Deliveries will increase the metro’s rental inventory by 2.2 percent.

Availability will remain unchanged at 2 percent as net absorption nearly mirrors completions in 2022. Last year a 220-basis-point decline occurred, lowering vacancy to a record low.

Tight market conditions will lift the average effective rent to
$1,635 per month, marking the 13th consecutive year of annual
rent growth in the metro.

Historically tight apartment fundamentals will draw further
interest from out-of-state investors and continue to elevate
competition for available assets.