Following a year that saw record levels of investment sales activity across multiple sectors, total deal volume for the first four months of the year is down markedly in Florida. Comparing the period of January through April of this year to the same period a year ago shows a combined decline of 64% in overall investment sales volume for all property types in the state.
While total four-month investment volume is down at least 50% in every sector, the greatest decline during that period was in the multifamily sector, where sales activity declined by 78%. While it is no great surprise that investment interest for apartments has slowed given that investor returns are smaller due to declining rent growth and increasing yield requirements, the rate of decline has nonetheless been steep.
Steady population growth in Central Florida and North Florida ensured strong renter demand through early 2022, which allowed rents to move up quickly and kept investor attention on the multifamily sector. One year ago, the Orlando apartment market was top in the nation for multifamily rent growth, growing by an annual pace of nearly 25% at that time. But that pace of growth has slowed to the single digits, and the list of top markets is now dominated by several Midwestern cities.
The resulting loss in potential revenue has partly derailed investor sentiment for apartments in the near term, as deals are no longer penciling attractively like they did in 2022.
Elevated interest rates and the impact of stubbornly high inflation are also compounding the issue, and those headwinds will likely persist throughout 2023. For these reasons, apartment sales activity in Orlando was down approximately 79% during the first four months of the year.
That being said, Orlando was ranked eighth nationally for multifamily sales volume for the trailing 12-month period ending with the first quarter of 2023 and was the only Florida market in the top 15 markets for multifamily investment activity.
The fast-growing Jacksonville market has felt the winds changing to an even greater degree, with total multifamily sales volume down 82% from January through April this year compared to the same period one year ago. That decline in volume is not indicative of distress, however, but is more a testament to the robust pace of sales activity during 2022. Deal volume is down only 54% when compared with the same period in 2019.
Florida’s industrial sector has proven resilient over the last few years due to record-low vacancies and strong rent growth. However, cracks are beginning to appear. Industrial sales velocity in Florida has slowed markedly over what traded between January and April in 2022, but it remains flat when compared against the same period in 2019. Price discovery is becoming more of an issue due to higher financing costs coupled with a gap between seller expectations and what a buyer is willing to offer in an uncertain economic environment.
Declining sentiment over office investment due to the impact of wider structural changes on the sector is also weighing heavily on transaction activity. Overall, office sales volume in Florida is down 50% for the first four months of 2023, with volume in Orlando down nearly 70%.
