Rising Rental Rates Not Exactly Good News For Owners

, Daily Business Review

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Elliot Shainberg, Franklin Street’s senior director and specialist in multifamily brokerage
Elliot Shainberg, Franklin Street’s senior director and specialist in multifamily brokerage

South Florida apartment rental rates grew 10 percent to 15 percent in the last two years and are likely to keep trending upward in 2014. But industry watchers say that's not necessarily good news for building owners.

Broward rates grew 2 percent to 3 percent in the last quarter, according to data from Franklin Street Real Estate Services. And in the fastest-growing infill locations, such as downtown Miami, average rents reached $2.25 per square foot—up 29 percent from about $1.75 two years ago.

"It's simple economics—supply and demand," said Bill Hahne, broker owner of Hahne Real Estate in Miami Beach. "The rental supply is half what it was last year. At all price points, whatever category clients are looking for, we as real estate agents just don't have as much to show them."

As tight mortgage lending conditions continue to steer residents toward renting, apartments are in short supply.

"There's an inventory issue," said Jay Phillip Parker, CEO of Florida brokerage at Douglas Elliman Real Estate in Miami Beach. "There's not a lot of multifamily inventory on the market, so it's pushing rental prices up."

This spike in rental income should have been good news for apartment building owners. But analysts say that hasn't been the case, and some developers say property values remained flat despite rising rents.

"Income and expenses are going up proportionally," said Elliot Shainberg, Franklin Street's senior director and specialist in multifamily brokerage. "Whatever rise we're seeing in income streams is being offset by debt and mortgage payments. Property values aren't going down, but they're not going up either."

Rising Costs

That's thanks in part to a 15 percent spike in construction and operating costs, said Michael Wohl, partner of Pinnacle Housing Group, a Miami-based developer of market-rate and affordable housing.

"Costs are seriously on the rise," said Wohl, whose developments include Crystal Lake in Hollywood, Highland Gardens in Deerfield Beach and Pinnacle Village in Pompano Beach. "And on the affordable housing side, we can't pass these increases onto the client. We absorb it."

For the Related Group, construction expenses rose 5 percent to 10 percent in the last two years. But a company official there said the increases aren't due to rising commodities costs.

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