Florida's Tampa Bay Matures Into Major US Apartment Market

By Paul Owers

Once-overlooked Tampa Bay on Florida's Gulf Coast is fast becoming a coveted U.S. market for apartment investors, although the region's robust demand could be what finally curtails its record-setting sales pace.

Investors were slow to discover Hillsborough, Pinellas, Hernando and Pasco counties in central Florida, in part because of how much the sunshine state was hammered by the Great Recession, noted Brian Alford, an economist tracking the region for CoStar Market Analytics.

But Tampa Bay’s apartment sector has been booming since 2015, with population gains and job growth driving yields higher than the national average. Two recent deals have helped push Tampa Bay’s price-per-unit average to about $143,000, surpassing Dallas-Fort Worth's $131,000, Houston's $120,000 and Las Vegas' $136,000, according to CoStar data. Tampa Bay still trails New York's average price per unit of $395,000, Miami's $208,000 and Chicago's $197,000.

Year to date, Tampa Bay has hit nearly $2.5 billion in apartment sales, putting the region on pace to break the record set in 2018 at $2.77 billion, CoStar records show. But the strong activity this year has compressed yields below the national average and below other major U.S. markets, such as Chicago, Minneapolis and Philadelphia, Alford noted.

“I think we’re going to see a bunch of investments next year, but this probably will be the peak year for sales volume,” Alford said. “Surging prices are good for owners, but it’s really eroding market yield. Demand is still going to be strong, but it’s that yield that investors will start chasing elsewhere.”

Tampa Bay set an all-time high for price-per-unit this month when the 500 Harbour Island apartments in downtown Tampa sold for $103.45 million, or $440,213 a door, becoming the first complex in the area to pass the $400,000 plateau.

That easily beat a deal earlier in September, when another downtown complex, Novel Riverwalk , sold for $123 million, or $312,000 per door, which eclipsed the previous record of $285,000 per unit at The Element in 2017.

“The capital markets view Tampa’s growth and fundamentals very favorably, and the continued transformation of downtown Tampa is very appealing to investors,” Jones Lang LaSalle’s Matt Mitchell said in a statement. The brokerage represented Forge Capital Partners, which sold the 235-unit Harbour Island to Northwestern Mutual.

Meanwhile, the $3 billion Water Street Tampa mixed-use development is helping to revive the downtown in Florida’s third-largest city, which saw little new construction in the years following the Great Recession.

The 53-acre waterfront project will include three apartment towers, retail, hotels and more than 1 million square feet of office space. Built over eight to 10 years, Water Street is kicking off a wave of new construction in the city that will host the Super Bowl in February 2021.

While downtown Tampa and downtown St. Petersburg are seeing a flurry of new apartment buildings, there still is room for new construction in other areas of the four-county region, according to Zach Ames, senior director at the Franklin Street brokerage in Tampa.

Investors are taking note of projects in Brandon, outside of Tampa, and in Wesley Chapel near the line dividing Hillsborough and Pasco counties, he explained in an interview.

“Eight years ago, Tampa Bay may not have been on people’s radar, but today it is,” Ames said. “I don’t think we’re overbuilt, even though it may seem that way. There’s still a shortage of housing.”