Miami—Even though Miami did get caught in the housing boom and bust, its underlying economy is stronger than most other markets that saw itself in the same trouble.
“The long-term prognosis for Miami is stronger than some of the other housing boom/bust markets,” says Ryan Severino, CFA, senior economist, Reis Inc. “The really great strength about Miami is that it’s the gateway to business in Latin America—that’s a really strong economic support for Miami.” He points out that many multinational corporations that are involved in Latin America have their headquarters in Miami.
Additionally, he notes, Miami is “a fairly significant port market, and the widening of the Panama Canal is likely to be a continuing ongoing support for it in the future.”
While most “poster children” for the condo boom/bust have seen a tremendous negative impact from the shadow market, Severino tells MHN that Miami has not seen as much of an impact as people had assumed.
“The general consensus that I’ve seen emerging is that a lot of the impact that people thought would come to bear from the shadow inventory was more hype than anything else,” he says. “It seems like it hasn’t been the momentum killer in the way that people thought it [would be].”
The reason for this? First, he says, the renter demographic wants to live in younger, metro areas. “They don’t want to live in a detached single-family home in the suburbs or exurbs, so the single-family houses aren’t the immediate threat.” And as for the condo projects, Severino points out, they just don’t have the amenities that the renters demand. “If you’re young and want to live in a metro area, you want to take advantage of the kind of amenities that would be offered at a professionally managed apartment project. A lot of times with the conversions, they were older buildings that weren’t designed to be this sort of modern-day full amenity type buildings. They don’t compete as well.”
Market-wide vacancy has dropped 70 bps from the first quarter of 2010 to the first quarter of 2011. (Vacancy peaked in 1Q10 at 6.3 percent, says Severino, and 1Q11 saw vacancy rates at 5.6 percent.) While this is surprisingly low for the market, Severino points out that prior to the recession, vacancy was as low as 3.2 percent, so it is a rather significant movement upward.
While there is not a significant difference in asset class–Class A vacancy was 5.5 percent as of the end of 2010, while Class B and C assets saw 5.8 percent vacancies—Severino points out a significant difference between submarkets. The lowest vacancy rate in the market is in the South Beach/Bayshore submarket, at is 3.7 percent, while the highest vacancies were in the South Dade/Homestead submarket, at 9.9 percent.
Meanwhile, concessions are beginning to burn off. As of the fourth quarter of 2010, asking and effective rents were up 2.5 percent and 4 percent, respectively.
As far as the construction pipeline, only about 200 units are slated for completion this year, Severino reports. “If the demand side stays strong like we think that it will, you won’t have any headwinds from new construction until 2012, so there’s at least a good year or so before you have to start to contend with new supply coming into the marketplace. That should bode well for vacancy and rents for at least the next 12 months or so.”
Of course, he adds, “Miami is the kind of market where, if the apartment market did get hot, because it’s a bigger, more institutional market, you could see a decent amount of new supply brought online once things start to get going. From 2012 on, you could see relatively significant additions to new supply on the order of more than 1,000 units on a calendar year for the next four to five years. That’s the kind of thing where it might not completely derail a recovery in the apartment market, but it would definitely mute it.”
The investment market has also slowed considerably, with just 14 transactions, with a mean cap rate of 8.9 percent, tracked by Reis in 2010. Of these, only one Class A deal traded. “There’s a focus, in terms of what we’ve seen trading, on the lower-quality stuff,” Severino notes.