As South Florida’s housing market shows signs of rebounding from a real estate downturn that first began in 2007, tenants are leasing more residential properties at a higher median rental rate than at any time in at least the last five years.
The strong demand — and increased cost — for residential rental properties comes at a time when cash buyers are actively investing, foreclosure filings are again on the rise and financing poses challenges for many people in South Florida.
Tenants leased an average of 200 properties a day in Miami-Dade, Broward and Palm Beach counties in 2012 at a median rental rate of more than $1,200 monthly for a 1,000-square-foot residence.
The 2012 leasing activity represents a year-over-year increase of about 10 percent compared to 2011 when tenants leased an average of 182 residential properties in South Florida. In previous years, tenants leased an average of 168 properties per day in 2010 and 157 properties daily in 2009 in the tri-county region, according to an analysis of rental properties listed in the Southeast Florida MLXchange.
At the current 2012 leasing pace, South Florida now has about 80 days of residential rental inventory available in the tri-county area, fueling expectations that additional price increases could be inevitable in the coming months as new rental developments are still several months — if not years — away.
The median rental rate for a residential property in South Florida increased by 4 percent on a year-over-year basis to $1.22 per square foot monthly in 2012 compared to $1.17 per square foot monthly in 2011.
In real terms, the rate increase means a 1,000-square -foot residential property costs about $1,220 monthly in 2012 compared to about $1,170 monthly in 2011. In previous years, the monthly median cost for a South Florida residential rental property was $1,150 in 2010 and $1,080 in 2009.
In the first quarter of 2013, landlords are trying to raise prices even more, actively asking a median price of more than $1,400 per month for a residential rental property with 1,000 square feet.
For cost-sensitive tenants, the residential properties located west of Interstate 95 appear to offer the best value based on a median monthly rental rate of $1.07 per square foot in 2012.
In the western portion of South Florida in 2012, Miami-Dade County was the most expensive with a median rental rate of $1.27 per square foot monthly while Broward and Palm Beach counties were priced about the same at less than $1 per square foot monthly.
By comparison, the median rental rate for a residential property east of I-95 topped $1.40 per square foot monthly, representing more than a 30 percent premium.
On a county basis east of I-95, residential rental properties transacted at a median price of $1.60 per square foot in Miami-Dade, $1.13 per square foot in Broward, and $1.12 per square foot in Palm Beach.
Despite the difference in rental rates, tenants leased slightly more residential properties east of Interstate 95 than to the west in 2012.
A factor contributing to the eastern portion outpacing the western section of the tricounty region is the availability of condo units that were built during the last boom and now owned by investors seeking to generate rental income.
During the last South Florida housing boom that began in 2003, developers created nearly 49,000 condo units east of I-95 in the region’s largest coastal markets. The new units increased the overall condo inventory to nearly 125,000 units in the largest coastal markets, according to an analysis of public records in Miami-Dade, Broward and Palm Beach counties.
An estimated 95 percent of the 49,000 coastal condos created during the last South Florida real estate boom were sold as of the end of 2012. Based on the current transaction pace of developer units, the remainder could be sold out by early 2014.
Strengthening economic conditions coupled with stepped-up foreclosure actions by lenders and rising rental rates in South Florida are prompting many developers to propose new condo and rental towers in the tricounty region. By some counts, nearly 15,000 new condos and 10,000 new rental units have been proposed for the coastal region.
Going forward, the unanswered question is whether financing will eventually become available at levels whereby purchasing real estate is once again an option for tenants who are faced with paying more to rent than to own a residence.
Peter Zalewski is a principal with the Miami real estate consultancy Condo Vultures.