The days of apartment owners in the Tampa Bay area giving away free rent are on the wane.
Gone are the multitude of signs advertising reduced rent and no security deposit. Enticements aren't needed in today's market.
Multifamily buildings are now the hottest commodity in the real estate market, and the National Association of Realtors expects the sector to be the top performer in commercial real estate next year.
More consumers are looking to rent apartments, which makes the properties all the more enticing to investors. Vacancy rates, already shrinking, are expected to drop even more in 2011. Rents will inch upward, putting more money in investors' pockets.
Local experts attribute the rebound to an improving economy, the lack of new construction in the past three years, and an increase in foreclosed and financially troubled buildings, which are often priced to sell quickly.
John Burpee, the head of a commercial real estate firm that is one of the region's largest apartment property managers, said multifamily buildings receive numerous offers within hours of being listed for sale.
"The market is hot for all (multifamily) assets," said Burpee, president of NAI Tampa Bay. "We've stopped giving away free rent. The tenant market came back."
Locally, sales of buildings with 10 or more units are up nearly 38 percent this year. In the first nine months, the area had 52 sales worth $421 million, according to CoStar Group, which does commercial real estate analysis. That's compared to just 38 sales worth $148 million in the same period of 2009.
Investors are targeting properties with middle to lower rents, instead of luxury buildings. Many of the high-end buildings are not available or, if they are, lenders are skittish about loaning that much money, experts said. And the lower rents at the older buildings also translate to higher occupancy rates.
Darron Kattan, a managing director at Franklin Street, a Tampa-based full-service commercial real estate company, said the firm's multifamily work has increased dramatically this year. He predicts the market will gain even more momentum by the end of 2011, as the economy slowly improves.
"Multifamily is always the favorite product of groups of investors," he said. "It's the safest place to put money."
A tremendous influx of foreign investors, Burpee said, is scouring the area for multifamily buildings because their money is worth more here. Burpee expects a new wave of buildings to sprout by the end of 2012.
Burpee pointed to the Gamla-Cedron Group, Israeli-based investors who recently bought the 158 units at Preserve at Temple Terrace, the group's fifth area purchase in the last 18 months.
"There is very, very little product in the pipleline," he said.
Construction of new apartments is way off from the peak of a few years ago, which makes existing units all the more attractive to investors.
Only 1,200 new units in the Tampa Bay area have been completed in the last six months. Another 1,168 units are under construction and 2,474 units are proposed, according to Real Data Apartment Market Research in Charlotte, N.C.
The slowdown in building apartments has also influenced the area's vacancy rate, which dipped from an all-time high of 10 percent in May 2009 to 8 percent last month, Real Data said.
With fewer shovels in the ground, rents will only climb in the next year. The area's average rent is currently $825 a month.
"More people are chasing the same amount of units," said John Rymer, president of Rymer Strategies, a Tampa real estate advisory and research company. "Apartments don't get built in a year."
Another trend is also emerging.
Burpee said he is seeing a better pool of tenants emerge with jobs and better credit, allowing mangers to be more selective in whom they choose. He speculated that many of them two years ago may have feared leaving home or walking away from multiple roommates because of the shaky economy. That's all changed.
"The move-in with mom and dad has gotten tiresome," Burpee said.
Mark Puente can be reached at firstname.lastname@example.org or (727) 893-8459.