January 10, 2025

Multifamily Vacancy in Orlando Showing Signs of Steadying

Q3 2024

The Orlando multifamily market has been impacted by elevated levels of new development since the beginning of 2023, a trend that continued through the third quarter. Year to date, more than 12,000 units have come online in Orlando, similar to the full-year total deliveries in 2023. Operating conditions showed signs of stabilizing in recent months, with the vacancy rate inching lower during the third quarter. Rents have been volatile and have retreated from recent peaks, but average asking rents in Orlando remain over 11 percent higher than they were three years ago. While rapid supply growth has had its greatest impact on the market’s large Class A segment, market conditions are generally more favorable in Class B and Class C properties, where vacancies have tightened by 70 basis points during the past six months to 6.5 percent.

To this point in 2024, the Orlando multifamily investment market has run at a similar pace as it did in 2023, with transaction volume down significantly from historical averages. While the number of properties changing hands is light, the mix of properties that are trading has shifted considerably from recent years. Class A properties have made up about 50 percent of all sales after averaging closer to a 30 percent market share over the past five years. While pricing is down across the market, Class A pricing has fared best out all multifamily classes, dipping by just 10 percent this year to $244,400 per unit. In comparison, Class B pricing dropped 18 percent to $194,500 per unit and Class C pricing dropped 25 percent to $150,300 per unit.

Looking ahead

Orlando multifamily operating conditions are expected to start to steady in the coming quarters as the pace of completions begins to taper off. Deliveries in the fourth quarter are forecast to bring 2024 completion totals to a cyclical high for the region, but with the number of projects being added to the development pipeline diminishing, 2025 and 2026 will be lighter years for new construction. The vacancy rate should hold relatively steady in the fourth quarter before possibly decreasing in 2025. Area vacancy has not posted a calendar-year improvement in nearly a decade, so an improvement in 2025 would be a signal to operators that renter demand for units is outpacing new supply. Rents are expected to follow a similar path, dipping further at the end of 2024 in response to current market pressures before gaining a bit of momentum in 2025.

The investment market will likely remain fairly flat in coming quarters as transaction volume continues at a steady pace. With operating conditions in the region expected to post only modest fluctuations through the end of the year, internal market pressures are unlikely to cause any significant shift in investor sentiment in the fourth quarter and into early 2025. Larger changes may come about in the second half of 2025 as deliveries begin to slow from peak levels recorded this year and last year. Both rents and vacancies are projected to begin improving when construction slows in Orlando, trends that should support investor interest. Cap rates have remained in a fairly tight range throughout 2024 but may have to tick higher for more Class B and Class C properties to attract investor attention.