Investor interest grew markedly as rent growth accelerated to record highs in the first quarter of 2022. That pace of growth exceeded 30% year over year in markets like Palm Beach and Sarasota, but there was also a sharp uptick in rents, well over 20% at their heights, in the state’s three largest markets as well. Record rent growth achieved in the Miami, Orlando and Tampa markets fueled a fast and furious acceleration in multifamily investment sales volume in 2022.
Population growth of 1.9% in Florida between July 2021 and July 2022 also fueled intense renter demand in these areas. In fact, population growth in Florida expanded by the fastest pace in the United States, according to recent reports by the U.S. Census Bureau. This momentum further contributed to investor appetite for multifamily assets in Florida’s top markets.
In the Orlando apartment market there were 27 multifamily sales that topped $100 million in 2022, accounting for one out of every four deals in the market. That’s double the number seen in Orlando just one year ago, and more than nine times the number of sales in that high-price cohort in 2020. The number of total deals dropped between 2021 and 2022, but the average price increased significantly. Looking at deals totals in 2021 for properties containing at least 50 units, the average sales price was $62 million, but that skyrocketed to $85 million by the end of 2022, an increase of 27% in one year.
The pace of activity in the Miami apartment market has been quite different. Only 11 transactions north of $100 million closed in 2022, accounting for 3% of all multifamily deal volume in the market. This represents a decline over the previous year for deals at this price point. With that said, the average sales price was up in Miami as well. There were 36 transactions in 2022 for properties with 50 or more units with an average price of $102.9 million, compared to one year ago when there were 50 total trades averaging $80.6 million for properties with more than 50 units. So again, total deal volume was down, but the average price was up.
The Tampa apartment market was consistently in the state's top markets for rent growth, new construction and renter demand last year. However, it trailed the nearby Orlando market by a considerable margin when looking at the number of large deals closed during the year. There were 12 deals totaling $100 million or more in Tampa by year’s end, which matched the area’s performance from a year ago. Still, pricing was up there as well, but at the lowest rate of increase among these three major markets. There were 116 apartment trades during 2021 for properties with 50 or more units with an average sale price of $51.5 million. Deal volume was down in 2022 with 71 trades, but the average sale price had risen modestly to $57.8 million.
Looking back, even though the rate of rent growth began to taper off early in the second quarter of 2022, the Federal Reserve had yet to push interest rates far enough to create any meaningful concern on the part of borrowers. Renter demand was still solid and in-migration was fueling a brisk pace of population growth. While those metrics remain strong, investor sentiment is beginning to change.
The Fed’s multiple increases to the fed funds rate in the period since have raised the price of debt, which is eating away at first-year yield and expected returns. For that reason alone, investment sales activity during the first half of 2023 likely will be slower than it has been for the past two years, especially for higher-priced properties. That said, if interest rates remain high and debt remains expensive, apartment living could become increasingly attractive for new families and renters by choice. As a result, multifamily sector fundamentals in Florida are expected to remain healthy in both the near and long-term.