South Florida's Mixed Market Bag
South Florida residential is doing as well as everyone thinks, retail has come back strong, and industrial is showing real strength. Office, not as much. Those were takeaways from Bisnow's third annual South Florida State of the Market last week. (Some people also took away extra bagels.)
Investors from all over the world still sustain the residential market, and that influx helps retail keep humming as well. (If you're buying a home, you need stuff to put in it.) Industrial isn't benefiting from major infrastructure improvements as much as predicted--not yet, anyway--and office isn't all it could be, since that sector still depends on job growth in professional services. Over 300 real estate pros came to the Loews Miami Beach to hear two panels moderated by Rise Realty partner Keith Darby, a South Florida tenant rep specialist, and CBRE managing director Ken Krasnow, whose regional offices have done about 750 leases and $1.5B in investment sales in the past year.
Gables Residential EVP of operations Cris Sullivan says that the residential market, though clearly robust, might see some slowdown in rental growth next year. Also, developers of new product are facing higher construction costs and other factors that might slow the pipeline down somewhat. Even so, 2014 ought to be a good year for residential. She adds that the shadow market isn't a new--or particularly important--factor in South Florida's residential market. People from other places have long been buying here and renting the properties for most of the year.
Fifteen Group principal Mark Sanders says that the urge to get residential product out of the ground has been good for his company, which has evolved from multifamily investment mostly to land deals. He tells of buying two sites in Edgewater, on the Bay, that 18 months ago he thought Fifteen might sell to condo developers in three years. Condo developers bought them a lot faster than that. (Patience is a virtue, but who's got time for that?) Developers are now tweaking their product, hoping to sell condos at $600 to $800/SF, he says.
Grandbridge Real Estate Capital SVP Philip Carroll says the interest-rate volatility of the last three months hasn't stymied the availablity of capital for new development or acquisition in South Florida. And while such capital might be a little more expensive than it used to be, it's still historically cheap, and players in the market still believe than now is a good time to lock in current rates. Insurance companies are very active in the market, and there's been a resurgence of lending from regional and community banks.
Prologis VP Peter Crovo, who oversees about 11M SF of industrial assets in the region, points out that the redevelopment of the port--while a good thing--hasn't yet been as impactful on the local industrial market as the airport has always been. MIA is a major air cargo hub, especially for trade with Latin American: 80% of all perishables to and from Latin America come through the airport. (We won't bore you with the math; let's just say that's a lot of papayas.) On the whole, though, the industrial market is doing well. Even older properties are leasing, he says, noting that Prologis has some 20-year-old product--lower clear height, smaller truck courts--that are performing nicely.
The impact of the widening of the Panama Canal on South Florida's industrial market remains to be seen, says Flagler VP Chris Sutton. No one says they're expanding operations because of the canal, and he doesn't predict tremendous expansion for that reason. Still, a lot of the market is quite vibrant, such as Airport West and Medley, with tenants on the prowl for facilities that 30-foot clear ceiling heights and deeper truck ports. He reports 96% occupancy in Flagler's portfolio and a 6% increase in rents year-over-year over last 12 months.
Adler Kawa Real Estate Advisors prez Matthew Adler says that his company--a private equity firm investing in office and industrial in Southeastern markets and Texas--has been able to take advantage of the wide spread between cap rates and interest rates to generate healthy cash-on-cash returns. As for the local market, "we're going to see more office development here in the Miami market--we're already seeing it--because capital wants to be here," he says. Demand isn't quite in the driver's seat when it comes to office development. (But is it a backseat driver?)
Stiles prez Doug Eagon says that companies want to be in South Florida urban centers, to go along with the newer high-density residential properties coming on line there. Tenants, especially IT and healthcare, are also still trading up. That's driving office vacancies down in some places, especially for Class-A space, though conditions vary widely by submarket (he says Stiles' 800 Brickell has seen rents improve and concessions drop). Still, there needs to be better professional services job growth before the South Florida office market will truly be robust, Doug adds.