After a historic run of growth that left Miami as the most expensive city to live in America last year, South Florida’s rental market has cooled slightly in recent months.

Vacancy is on the rise, the number of apartments being leased is down and the construction pipeline is expanding. But with the continued influx of out-of-towners relocating to South Florida, rents aren’t expected to go down this year.

“There were crazy rates depending on the market,” MG Developer Chief Development Officer Catie Naranjo said. “Now we're expecting that those rents — even though they've gone up quite, quite significantly — that they're not going to keep growing at that rate.”

Multifamily vacancy in South Florida hit 4.6% in the fourth quarter, up from 3.2% a year earlier, according to Lee & Associates. Developers delivered nearly 15,000 units to the market over the course of the year, and the construction pipeline grew from 36,408 units to 51,569.

But multifamily researchers and developers told Bisnow that the rising interest rate environment, plus construction costs staying stubbornly high, should slow down construction in the coming months.

“Because the debt and equity world is in a little bit of upheaval right now, it creates an interesting constraint on some new development,” Allen Morris Co. Chairman and CEO Allen Morris said. “That will limit supply, which I think will tend to hold rental rates a little bit higher, even though we're in a squirrely economy.”

Morris said high-end apartment rents in Miami have dropped about 5%, which is not as steep of a decline as in Atlanta, where high-end multifamily rents fell 9%. But, he added, both of those rental markets have already stabilized.

"Miami is in a pretty darn good position for stable multifamily rental rates," he said. "I think there'll be aberrations from month to month and quarter to quarter, but I think the constraint on new development and the influx of new residents are going to keep [the] multifamily rental rate pretty stable."

Morris and Lee & Associates principal Matthew Jacocks, who authored the firm’s multifamily report, said developers didn’t expect rents to continue growing by double digits a year, so higher interest rates and costs have started eating into the construction pipeline.

“A lot of projects are being tabled because people think you can't do pie-in-the-sky rents, it's just not going to be built. They’re going to wait till the numbers make sense,” Jacocks said. “And so then you have that slowdown, too, which is not stopping people coming here.”

The average rent per unit in South Florida was at $2,069 a month at the end of the fourth quarter, a new high, according to Lee & Associates. This year already, numerous businesses — from an unnamed global tech giant to law giant Mintz — have announced planned expansions to Miami, showing the resilience of the region’s growth, even amid economic turmoil.

The high-interest rate environment could keep rents at all-time highs beyond constricting new supply. First-time homebuyers are facing 6% mortgages — and rates haven’t stopped rising — making the idea of leaving the rental market a costly proposition this year.

“We're not seeing those really low interest rates we saw in the beginning of the pandemic when there was a buying frenzy on home,” Naranjo said. “I think we're in a different situation now where we're going to see a lot more people inclined to rent. And probably some homebuyers that bought during that time might even regret it at this point in time.”