Downtown Miami Condo Market Is Finding Its Footing
After experiencing several ups and downs, the city is becoming an attractive place for investors. For the first time since 2012, the condo pipeline has more units completed than under construction.
By Timea Papp
Downtown Miami’s real estate market has been through several real estate cycles but now signs point to a maturing environment, as demand for urban living is at an all-time high, according to a mid-year market report from the Miami Downtown Development Authority (DDA), compiled by Integra Realty Resources (IRR). The city’s downtown area is on stable ground, as condo absorption outpaces delivery and plans for further development are underway. The report analyzes Brickell, the Central Business District, the Arts & Entertainment District, Edgewater, Midtown, Wynwood and Overtown.
The current real estate cycle is past the halfway point for deliveries and the condo pipeline has more completed units (5,180) than the number under construction (5,078) for the first time since downtown has begun its post-crash rebound in 2012. The report suggests that unlike the past boom, developers are resisting the urge to overbuild as an effect of stricter requirements for loans.
A total of 3,365 condos are expected to be delivered by the end of 2017, with only 652 units to be completed in 2018 and 1,061 planned to arrive in 2019. Just two towers are expected to break ground this year—Missoni Baia and Aston Martin Residences. This is another indicator that developers are showing restraint as projects are postponed or repositioned, causing the housing pipeline to become increasingly thin. However, absorption has remained steady, as 70 percent of the condos under construction are already pre-sold, according to Senior Managing Director Anthony Graziano of Integra Realty Resources. Brokerages estimate that more than 80 percent of all completed units have been sold.
Time to invest
Sales volume has dropped about 50 percent in the past year compared to 2015, while the higher-priced condo product has fewer units per project. Graziano suggests that as a result, expectations on unit sales per month are much lower, creating the ideal environment for investors.
“The new condominium development market in downtown continues to project strength in the wake of fewer reported buyers. With 18 percent less inventory under construction resulting from recent deliveries, each new project close-out is a success to be celebrated in favor of less competition among the remaining projects,” Graziano said in prepared remarks.
The condo resale market experienced significant increases of the average price per unit up to 2015 when it started to decline. Pricing in the market, which includes all projects from 2001 to present, continued to drop from the 2015 peak of $457 per square foot to the mid-year 2017 value of $403 per square foot. Sellers are willing to lower prices in an effort to dispose of units left in the inventory from the previous boom. Per the report, transactions volume is quickly growing, with May 2017 marking the best month for closed deals in the past two years and the strongest in the last three years, with 142 closings and 160 pending. To reach pricing balance, the market needs to clear an additional 500-700 resale units currently listed.
Strong market fundamentals
The rental market is also enjoying stability, according to the report. A total of 969 Class A apartment units have come online in Miami since 2012, bringing the overall number of multifamily units under construction to nearly 3,600. Demand for urban living drives conventional apartment rates: rents of Class A apartment buildings are approximately 25-35 percent higher than that of older product, despite increased rental competition from newly delivered condominiums. This demonstrates that renters are in search of premium units and are willing to pay the price.
“The Miami economy remains relatively strong, and that’s showing through in the downtown condo and rental markets,” he added. “Prices remain stable, product quality continues to improve and developers are acting responsibly in pacing deliveries. Miami’s global real estate demand has proven to be undeterred by a strong U.S. dollar, a string of recent hurricanes and broader fears about economic volatility. The depth and diversification of global investment channels are more resilient and less volatile than in past cycles.”
The report indicates that continued multifamily demand will correlate to job growth and regional economic progress. The U.S. and Miami have weathered the storm, despite constant expectations of an ampler recession. The real estate market continues to cautiously expand and adjust to potential uncertainty.
Images courtesy of IRR/Miami DDA