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Committed to South Florida.
Director | Multi-Housing Group
305 509 8336
Palm Beach County Market | 3Q 2016
This report is aimed at helping landlords and investors maximize value in this real estate market and understand the inherent risk in the current market cycle.
Axiometrics, REIS, Certified Commercial Investment Member Institute (CCIM), Costar Group, Mueller, Multi-Housing News, National Multifamily Housing Council, National Real Estate Investor, South Florida Business Journal, Multifamily Executive, MPF Research, Real Capital Analytics, Moody’s, The Real Deal and US Bureau of Labor Statistics.
Multi-Housing Report Palm Beach County Market | 3Q 2016
Time to Monetize the value of your real estate while the market fundamentals are strong.
The Palm Beach County apartment market has remained in the Hypersupply phase of this
real estate cycle during the 3rd quarter of 2016 (3Q16). This market has posted its first
negative net absorption since 2009 with capitalization rate increasing by 14 basis points
from 6.29% in 2Q16 to 6.43% in 3Q16.
This Hypersupply phase is characterized by a decreasing rental growth rate from 0.4% in
2Q16 to 0.1% in 3Q16, increasing vacancy rate from 5.2% in 2Q16 to 5.6% in the 3Q16,
and rapid multifamily development with 4,428 units currently under construction within the
county. The Boca Raton and Delray Beach Markets have experienced the strongest rent
growth rate at 0.9% and 0.6% respectively, while West Palm Beach and North Palm Beach
posted the highest vacancy at 9% and 7% respectively during this 3Q16. Tenants’ desire to
save money over class A properties continues to push rents up for class B properties which
also has a trickle-down effect on class C Properties, which experienced the strongest rent
growth rate in the 3Q16.
This Hypersupply phase will affect the apartment market rent growth rate tremendously in
2017, especially the West Palm Beach, Lake Worth, and Boynton Beach submarkets which
already started to show signs of frothiness due to their low absorption level relative to the
number of units in the development pipeline.
Landlords need to assess how the upcoming administration’s policies will affect the capital
markets and property fundamentals in their respective submarkets. Landlords should
assess the following Issues:
• How will the economy will sustain growth and create demand for apartments?
• How will the rise in interest rate affect capitalization rate and property value?
• How will Immigration reform is likely to impact apartments occupancy?
• How to mitigate the recession phase as this cycle matures?
Market Analysis
The goal of this report is to help asset managers, landlords and investors maximize asset value and preserve wealth value by fully understanding and anticipating the trends of the current real estate cycle.
Revenue Analysis
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Development Analysis
Unlike Broward County, Palm Beach County is
not significantly affected by the recent
economic slowdown in Miami Dade County
where foreign money has started to dry up.
From October 2015 to September 2016, Palm
Beach County has experienced 19,400 jobs
gained (or 3.4% job growth) in non-farm
employment according to the US Bureau of
Labor Statistics. Such a modest gain in the
labor market has left its marks on the housing
market due to weak household formation
growth, declining rent growth, and increasing
vacancy.
The capital markets have recently been very
reluctant to finance new construction in South
Florida as lenders perceive the market as being
saturated with luxury units that households with
the area’s median income cannot afford. Such
a slowdown in construction financing does
confirm the nervousness of developers because
of the disproportionate amount of luxury units
being built compared to affordable units that
the market needs.
Currently Boca Raton has 1,794 units under
construction and has already posted a negative
net absorption of -13 units for the second
quarter in a row, whereas West Palm Beach
has 344 units under construction, and posted
its first negative net absorption of -13 units.
Landlord in oversupplied markets should closely
monitor their submarket property fundamentals
to remain competitive, as turnovers might be
higher than usual in 2017.
Landlords should pay close attention to the
1,029 units coming online in West Palm Beach,
Boynton Beach, and Boca Raton in the 1Q17.
Landlords should expect concession wars to
pick up as developers will be competing more
aggressively for tenants to occupy their units.
PBC Non-Form Employment Numbers – Sept 2015-2016
Sector Gain/Loss Rate
Professional and Business Services 4400 4.1%
Trade, Transportation, and Utilities 1700 4.3%
Education & Health Services 4600 5.0%
Leisure and Hospitality 4100 5.3%
Construction Services -200 -0.9%
Government Services 100 0.6%
Multi-Housing Report Palm Beach County Market | 3Q 2016
-0.5%
0.0%
0.5%
1.0%
1.5%
2Q15 1Q15 4Q14
Revenue Growth Comparaison
West Palm Beach Palm Beach County
South Atlantic Region United States
Palm Beach County Rent Details
Unit Mix Avg. Rent Avg. SF Avg. Price/SF
Studio $ 1,057.00 630 $1.68
One Bedroom $1,111.00 785 $1.42
Two Bedroom $1,393.00 1,147 $1.21
Three Bedroom $1,670.00 1,439 $1.16
Average $1,307.75 1,000.25 $1.37
0.0%2.0%4.0%6.0%8.0%
10.0%
Vacancy Rate Comparaison
1Q16 2Q16 3Q16
-2.0%
-1.0%
0.0%
1.0%
2.0%
1Q16 2Q16 3Q16
Revenue Growth Comparaison
Palm Beach County Northern PBC West Palm Beach
Lake Worth Boynton/Delray Boca Raton
.
Palm Beach County Building Inventory Analysis: Class-A Buildings
Year Completions Vacant Units Occupied Units Absorption Asking Rent Rent Growth Net Rent
2010 217 1,648 22,531 740 $1,327.00 2.9% $1,236.00
2011 318 1,356 23,141 610 $1,351.00 1.8% $1,277.00
2012 308 1,310 23,495 354 $1,381.00 2.2% $1,308.00
2013 1,959 1,686 25,078 1583 $1,461.00 5.8% $1,368.00
2014 1,176 1,797 26,143 1065 $1,501.00 2.7% $1,404.00
2015 1,362 2,100 27,202 1059 $1,567.00 4.4% $1,454.00
1Q16 807 2,038 28,388 786 $1,572.00 .3% $1,466.00
2Q16 0 2,066 28,539 54 $1,586.00 .4% $1,478.00
3Q16 0 2,329 28,276 -105 $1,573.00 -0.6% $1,453.00
Palm Beach County Inventory Analysis: Class-B & C Buildings
Year Completions Vacant Units Occupied Units Absorption Asking Rent Rent Growth Net Rent
2010 0 2,416 27,413 343 $942.00 0.0% $856.00
2011 0 2,255 27,574 161 $948.00 0.6% $876.00
2012 0 1,735 28,094 520 $975.00 2.8% $918.00
2013 0 1,506 28,323 229 $999.00 2.5% $948.00
2014 0 1,293 28,536 213 $1,039.00 4.0% $993.00
2015 0 1,204 28,625 89 $1,081.00 4.0% $1,037.00
1Q16 0 1,052 28,777 51 $1,087.00 0.5% $1,046.00
2Q16 0 1,104 28,725 -18 $1,094.00 0.4% $1,053.00
3Q16 0 1,082 28,747 96 $1,096.00 0.6% $1,056.00
Palm Beach County Buildings Characteristics (Data Metrics: 348 properties with 50 units or more)
By Age Percentage Criteria Low Average Medium High
Before 1970 4% Year Built 1966 1994 1992 2016
1970-1979 7% Property Size 54 Units 246 Units 224 Units 548 Units
1980-1989 28% Distance to Highway .1 Mile 0.9 Mile 0.8 Miles 2.8 Miles
1990-1999 24% Distance to CBD 2 Miles 12.8 Miles 11.3 Miles 26 Miles
2000-2009 22% Distance to the Beach 0.7 Mile 3.9 Miles 3.8 Miles 11 Miles
Post 2009 16% Concessions 0.0 Month 0.58 Month 0.6 Month 1.4 Month
Expense Ratio 34% 39% 40% 52%
Inventory Analysis
Realizing potential,
delivering results.
Multi-Housing Report Palm Beach County Market | 3Q 2016
.
Absorption Analysis
1Q16 2Q16 3Q16
Markets Units Built Absorption Units Built Absorption Units Built Absorption
Palm Beach County 807 838 0 33 0 -13
Northern Palm Beach County 0 6 0 37 0 9
West Palm Beach 807 738 0 23 0 -13
Lake Worth 0 2 0 5 0 -5
Boynton/Delray Beach 0 27 0 -23 0 9
Boca Raton 0 65 0 -9 0 -13
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Palm Beach County Construction Analysis
Name Address Unit Type # of Units # of
Buildings
# of
Floors
Status Completion
Atlantico Alton Rd, Palm Beach Gardens Apartments 353 2 5 Construction Jun-17
The Quaye 12300 Central Blvd., Palm Beach Gardens Apartments 341 29 3 Construction Feb-17
3 Thirty Three Downtown 331 Fern St, West Palm Beach Apartments 205 1 19 Construction Dec-16
Parkland Apartments 312 23rd Street, West Palm Beach Apartments 105 1 4 Construction Jul-16
Casa Del Sol 4330 Gun Club, West Palm Beach Apartments 34 1 2 Construction Sept- 16
Villages at Lake Osborne 2430 Lake Worth Rd, Lake Worth Apartments 118 3 3 Construction Nov-17
Aura Seaside 1400 S Dixie Hwy, Lantana Apartments 246 2 5 Construction
500 Ocean 101 S Federal Hwy, Boynton Beach Apartments 341 1 6 Construction Dec-16
Quantum Lakes Park Ridge Blvd., Boynton Beach Apartments 80 4 2 Construction Feb-17
High Ridge Landing 3145 High Ridge Rd, Boynton Beach Apartments 184 8 3 Construction
Cortina N Congress Ave, Boynton Beach Apartments 350 4 4 Construction
Depot Square 1740 NW 2nd Ave, Delray Beach Apartments 296 9 3 Construction Jan -18
Delray Preserve 2001 N Federal Hwy, Delray Beach Apartments 188 7 4 Construction
Uptown Delray 190 SE 5th Street, Delray Beach Apartments 146 2 5 Construction Dec-16
The Danburg 6780 Congress Ave, Boca Raton Apartments 282 5 7 Construction Dec-17
Altis Boca Raton 5700 N Military Trail, Boca Raton Apartments 398 Construction Jun-17
Palmetto Promenade 300 E Promenade Park Rd, Boca Raton Apartments 378 3 10 Construction Apr-17
101 Via Mizner 998 S Federal Hwy, Boca Raton Apartments 366 1 12 Construction Nov-16
850 Boca 850 Broken Sound Pkwy, Boca Raton Apartments 370 1 5 Construction Apr - 17
Total Units 4,428
Multi-Housing Report Palm Beach County Market | 3Q 2016
.
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Palm Beach County Sales Comparables
Name & Address Sale Date Sale Price $/SF $/Unit Cap Rate # of
Units
Total SF Year
Built
Palm Hill 5101 Palm Hill Dr, West Palm Beach 11/4/2016 $13,750,000 $81.13 $64,252 7.50% 214 169,488 1984
Elysium at Osprey Oaks 7085 Merganser Ct, Lake Worth 10/17/2016 $5,974,000 $138.76 $161,459 5.80% 37 43,053 2013
Serenity Place 100 Claremont Ln, Palm Beach Shores 9/30/2016 $1,699,000 $201.97 $169,900 5.25% 10 8,412 1964
Via Delray 5482 Via Delray, Boynton Beach 9/29/2016 $ 5,083,520 $125.71 $137,392 6.50% 37 43,437 1973
South Apartments 712 South F St, Lake Worth 9/26/2016 $510,000 $65.48 $63,750 7.80% 8 7,789 1973
Banyan Apartments 809 815 817 2nd St, West Palm Beach 9/21/2016 $575,934 $61.47 $47,995 11.25% 12 9,369 1960
Lantana Palm 303 S Broadway, Lantana 9/21/2016 $575,000 $124.03 $82,143 6.10% 7 4,636 1957
Boston Terrace 3895 Everett Court, Lake Worth 9/15/2016 $740,000 $108.79 $61,667 6.75% 12 6,802 1973
Henrietta Place 612 8th St & 617 7th, West Palm Beach 9/15/2016 $1,000,000 $64.54 $52,631 7.50% 19 15,494 1963
Pat Reeves Village 1318-1320 Henrietta, West Palm Beach 9/7/2016 $950,000 $84.07 $50,000 7.25% 19 11,299 1965
Moon Quadplexes 805-817-821 S H St, Lake Worth 8/30/2016 $775,000 $79.07 $64,583 7.00% 12 9,801 1970
Lilac Park 10034 Plant Dr, Palm Beach Gardens 8/19/2016 $1,700,000 $76.56 $121,429 5.25% 14 22,206 1963
Blue Heron Apartments 1500 W Blue Heron Blvd, Riviera Beach 8/12/2016 $4,300,000 $70.43 $58,904 6.75% 73 61,056 1967
Boca Manor 2500 N Federal Hwy, Boca Raton 8/4/2016 $13,500,000 $151.41 $158,824 5.15% 85 89,160 1969
Lajoya Place 4575 24th Place S, West Palm Beach 8/1/2016 $775,000 $75.61 $59,615 8.15% 13 10,250 1971
Averages: 95.19 $86,019.47 6.43%
Valuation Analysis The apartment market is still experiencing a
shortage of apartments due to the severe
shortage of construction during the last
recession. The current high development
cost environment has skewed the delivery of
apartments coming to the market, and the
newly built apartments are mostly luxury
units that command premium rent instead of
the needed affordable units. Such a
mismatch between the needed affordable
units versus the delivered luxury units is
negatively impacting the overall strength and
equilibrium of the apartment market. Certain
submarkets in South Florida will likely
experience a correction within the coming
year due to oversupply of luxury units, price
bubble, and an imminent increase in interest
rate.
Our team recommends apartment owners
with considerable gains on their properties
that cannot afford a sale to monetize their
profits by refinancing while property
fundamentals are strong, and capitalization
rates are at historically low level.
Sales Analysis
Expert Insight The policies of the incoming administration are likely to affect the apartment market through its
impacts on the job market and the investment environment in the following instances:
• The enactment of a Comprehensive Tax Reform is likely to benefit investors, thereby
supporting GDP growth and promoting job creation, which should be a positive for
apartments.
• The expected changes in the Dodd-Frank Act should remove some of the burdensome
regulations on the financial market consequently providing more liquidity and perhaps
stimulating the single-family home buying market, which may not be a positive for apartment
properties.
• Infrastructure Spending is expected to increase productivity and add value to surrounding
properties which should ultimately promote jobs and resulting in demand for apartments.
• An Increase in the Federal Funds Rate and Interest Rate is expected to discourage asset
bubble, which may lead to higher capitalization rates and a decrease of property value, at least
in the short term.
• The stronger dollar will deepen the pullback of foreign money in the South Florida property
market which may decrease competition and reduce real estate value.
• As a rule of thumb, commercial property markets trail the residential property markets by
about 18 months; with residential having peaked in 1Q16, investors should expect the
commercial market to soften in 2017.
Overall, there are valid reasons for landlord to be optimistic about the apartment market during
the upcoming administration; however as we are already in the Hypersupply phase of this real
estate cycle, it is imperative that landlords remain diligent in monitoring the real estate market.
Multi-Housing Group
Economics/Entrepreneurship
University of Miami
Cell 305 509 8336
Call us today! 561 471 8000
Let our expert advisors
maximize your asset’s
value by managing risk.
.
Let our Multi-Housing Team
maximize your asset’s value
and protect your wealth.
Feel free to contact us at 561 471 8000
Director | Multi-Housing Group
Economics & Entrepreneurship
University of Miami
Cell 305 509 8336
Fax 561 640 7855
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Multi-Housing Report Palm Beach County Market | 3Q 2016
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305 509 8336
1601 Forum Place Suite 200
West Palm Beach, FL 33401
561 471 8000
951 Yamato Road Suite 102
Boca Raton, FL 33431
561 394 5200
