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Some very interesting information from Michelle Rumore via Costar with some silver linings at the end.

Region’s Pipeline Drops Below 3,500 Units for First Time in Over Two Years

By Michelle Rumore

Like many areas in Florida, Lakeland’s multifamily market has had to contend with a significant supply wave, pushing the region’s vacancy rate to an all-time high.

The second quarter of 2024 was a record in terms of quarterly completions, with just over 1,700 units hitting the market, beating the previous record of 1,625 units set in the second quarter of 2023.

New completions have outpaced Lakeland’s rate of absorption, the change in the number of occupied units, by nearly two units to one over the past year. The disparity between supply and demand has caused the region’s vacancy rate to increase to 15.8% as of August 2024, an all-time high. This is despite Lakeland having one of the most robust rates of absorption, relative to the size of the market, in Florida.

Polk County, which encompasses the Lakeland metropolitan area, has consistently been among the top counties, not only in Florida but the U.S., for population growth over the past several years. Much of that is from in-migration from other states, with nearly 30,000 people moving to Polk County between 2022 and 2023, according to the latest information from the U.S. Census. That in-migration has fueled positive renter demand over the past several years but the area has been unable to keep up with the rate of new supply.

Roughly 2,300 units have been absorbed here over the past year, including 740 in the second quarter of 2024 alone. In fact, the second quarter was one of only a handful of quarters over the past decade when absorption surpassed 700 units. Renters have shown a clear preference for higher-quality 4- and 5-star properties, accounting for 85% of the units absorbed over the past year.

However, the bulk of new units have been 4- and 5-star as well, with 3,400 units. The 4- and 5-star market has had an above-20% vacancy rate for three consecutive quarters and will likely remain so over the coming quarters.

The run-up in the region’s vacancy rate, up over 500 basis points from year-end 2023, has had an adverse impact on asking rents. Lakeland’s monthly average asking rent has been declining for two consecutive quarters and is down 1.7% from this time last year to $1,600 per month. The decline has been most acute in the Davenport area, where rents have decreased by nearly 4% year over year. The bulk of new construction is occurring there, with vacancy increasing to 26% on almost 2,000 units being completed over the past year.

But vacancy and rent growth are poised to rebound in the near term in Lakeland. As multifamily fundamentals have started to wane, so too has the construction pipeline. As of August, roughly 3,300 units are under construction, down from 6,000 units this time last year. Groundbreakings slowed over the first half of this year with less than 1,200 units, compared to over 1,000 units in the first quarter of 2023.

As new completions slow, especially starting in the latter half of 2025, Lakeland should see significant improvements in its overall vacancy rate. However, it is unlikely that vacancies will drop back to the single digits soon. A more competitive rental market could make it difficult for landlords to push rates over the near term. Rent growth could return to positive territory by mid-2025, but at around 2%, nearly half the 10-year average.