SouthEast Market Report Part 1 of 2
by Ethan Hamilton
Comprehensive Infographic of Analyzed Data for the SouthEast Market of Georgia, Florida, and Alabama by Madison
This market report is a review of the single-family rental asset classes in Atlanta, Jacksonville, Orlando, Miami, Tampa, and Birmingham
The Atlanta rental market absorbed 24,865 units between 2017 and 2018 giving it a net absorption rate of 1.08%. Even though the city had 44,440 housing starts or a ratio of about 2.15% of housing starts / total housing units, which is relatively high, it had a net decrease in the total supply of rental units of 44,154 units or about 5.39% of total rental units. Units being raised likely plays a role in this, but the high absorption of the rental market is the primary cause. The high absorption rate makes Atlanta a desirable place for investors. Atlanta also attracts investors with low tax rates and insurance rates with a YoY population increase of about 2%. This will drive an overall in housing demand as well as rental demand. The steady increase in population will also keep the trend of capital appreciation strong into the future and result in long-term yields that are much higher than the national average.
The Birmingham rental market has had an increase in vacancy rate as well as an increase in the total number of rentals resulting in an increase in the available supply of 10,194 units. A drastic increase in available supply like this indicates a weak rental market and means the area is being avoided by investors. The weak market is also indicated by the low number of new constructions totaling only 4,200 or 0.81% of all housing units. The demand for rental is positive but relatively low with 2,951 net units absorbed. Low homeownership rates indicate little room for capital appreciation for investors. The initial yields will be lower than national averages with a Price-to-Rent ratio of 14.82. As of now, investors should avoid the Birmingham market, but if supply continues to contract and demand continues increasing the market may become more appealing over time.
Jacksonville’s market offers yields that are close to the national average, but arguably slightly better with a Price-to-Rent ratio of 13.07. With low vacancy rates of 6.9% in 2018 that are continuing to improve investors shouldn’t have too much difficulty finding tenants. Investors in the Jacksonville market don’t have to worry about a drastic increase in supply coming from newly constructed units with only about 11,604 total, but might want to consider previously constructed units being added to the rental supply with 71,818 net rental units added to the rental supply. The demand for rental is relatively small with only 9,311 being absorbed into the market indicating that the overall rental market might weaken slightly. Jacksonville may not be appealing to investors when it comes to rental yields, but the returns will likely be favorable for investors if capital appreciation rates continue with their current trends. The Jacksonville rental market is best suited for investors seeking capital appreciation over the long-term, which is evident in the markets high homeownership rates. Investors should be cautious about the Jacksonville market because home values could have a tendency to be volatile which can most easily be remedied by having the flexibility to hold the property until prices rebound.
Orlando provides investors slightly below average yields on rental property investments with a Price-to-Rent ratio of 13.57, but has a promising growth outlook. After factoring in the added property insurance premiums investors will have to pay due to the areas likelihood of hurricanes, the net yields earned by investors are going to be noticeably lower than national averages. The demand in the market is strong with 26,721 units absorbed by the market and the supply is very weak with a net decrease of 1,177 rental units. Although Orlando doesn’t have the best rental yields, it remains an attractive investment due to its capital appreciation. Home values in Orlando increased almost 12% in the past year making it the market with the highest increase in property values in the country. This rate of capital appreciation is unlikely to continue into the future because the Orlando market is adding newly constructed units to the market at a rate of 2.5% of total units annually. The market has a large number of renters considering its low homeownership rate of only 56.6% as well as a low vacancy rate of only 6.3% indicating that it won’t be hard to find tenants for properties. Investors should also be prepared for more volatile home values given the tourist-oriented nature of the area and high employment concentration. Investors will also have the unique opportunity of using investment properties as vacation rentals to increase income, but this option will likely only be beneficial when the economy is good and people have more disposable income to travel.
The Miami market is absorbing rental units at a modest rate of 0.54% of total units, or 13,697 units, indicating a relatively weak but still positive supply. The new supply of units is high at 19,368 units but only makes up 0.76% of the total housing units. The initial yields on rental properties are higher than the national average with a Price-to-Rent ratio of 12.15. There could be an increase in the yields due to the net decrease of total rental units of 24,328 units. Miami is a suitable investment opportunity for investors looking to have investments in a large rental market with above average rental yields and potentially volatile yield growth.
The Tampa market has a strong demand for new rentals resulting in yields slightly higher than national averages with a Price-to-Rent ratio of 12.34 and a total of 25,169 net units absorbed. The area is attractive to developers with 20,508 new units built indicating that property values might rise in the future as overall demand for housing reaches equilibrium with the overall supply of units. The Tampa metro area is a good area for capital appreciation due to the sharp cyclicality of home prices. The volatility in home prices in this area is more suited to investors that are experienced and will not be easily shaken by a sharp decline in the value of their investment meaning it can offer high returns but investors should have a high-risk tolerance.