MARKET SNAPSHOT: Demand for Professionally Managed Apartments Increases as Shadow Market Declines in Miami

Miami—While the rental market in Miami is showing signs of a rebound, the condo market may still have yet to hit bottom in many submarkets of Miami-Dade County.

Occupancy has improved across most markets in the Sunshine State, with a 2 percent increase, to 94.9 percent, in Miami from the fourth quarter of 2009 to the first quarter of 2010, according to Avery Klann, principal in the Boca Raton, Fla.-based office of Apartment Realty Advisors (ARA).

Meanwhile, effective rents are slightly down, with about one-half to one month of free rent in concessions still being offered.

The impact of the shadow market has declined, Klann tells MHN, with a 71 percent year-over-year increase in sales on condos and single-family homes relieving some of the pressure on the market. (Though Klann does caution that there does continue to be some level of distress on the for-sale side, with approximately 40,000 condos still on the market).

“On the rental side, we’ve seen property performance pick up quite substantially,” notes Klann. “I think part of that is due to people becoming renters by necessity; as they are foreclosed on or have a job change, they are more inclined to gravitate toward a professionally managed rental as opposed to a shadow [rental], which is stoking demand.”

And, in terms of the phenomenon of residents renting out condos instead of traditional Class A apartments, Klann believes this is a thing of the past. “People have started to hear the horror stories of individuals who are renting from absentee owners and finding out that their condo unit has been foreclosed on and the bank is requiring them to move elsewhere,” he reports. “Right now there’s a lot of dislocation in the market with banks foreclosing on individual units that the end-user is preferring to rent from more stable institutionally managed apartment communities,” he adds.

The construction pipeline in Miami-Dade is virtually nonexistent, with the majority of the product already developed. The question, however, is how long it will take to have all the units absorbed. “Miami-Dade was where the condo-conversion trend took off, so the apartment supply was pulled out of the market permanently, via condo conversions,” Klann points out.

In terms of sales, condominiums are down about 50 percent from the pricing peak, and institutional properties are off about 25 to 30 percent from peak, Klann reports, adding, “the next phase of product that we anticipate coming to market will be fractured condos and those projects in somewhat of a distressed nature.”

While the Miami-Dade market still has its condo supply to absorb, however, there are some bright spots for the near future. “Miami has always been viewed as a safe haven for investments for international buyers,” asserts Klann. “As the world economy improves, Miami will act as a gateway to the international community, which should result in job growth.” Furthermore, the lack of new supply to the marketplace will prove to be a positive sign when demand returns.