Driven by the delivery of new product, the Miami multifamily market is experiencing a period of increased transaction activity. Always in high demand, but generally a thinly traded market, Miami has seen a significantly higher volume of market-rate multifamily sales in the last two years.
While Miami-Dade County has maintained strong fundamentals overall, its sales volume has historically trailed nearby markets in Broward and Palm Beach counties. In 2014 and 2015, Miami saw an average total sales volume of $150 million, compared to $935 million in Broward County and $675 million in Palm Beach County. Although Miami-Dade County is home to half of South Florida’s population, it has historically accounted for just 20 percent of South Florida’s multifamily sales volume.
Zachary Sackley, Cushman & Wakefield
Part of the reason is that Miami is in high demand because institutional, foreign and private investors are enamored with Miami-Dade County and want these multifamily assets in their portfolio. Likewise, each of these groups tend to hold Miami-Dade properties for extended periods of time. Further, in the early 2000s, the condo conversion trend eliminated much of Miami’s Class A rental inventory, increasing the scarcity of this type of multifamily product.
In 2017, however, Miami saw over $820 million in multifamily sales. Further, the total transaction volume of Miami-Dade for 2016 and 2017 rose to nearly 30 percent of South Florida’s transactions. Remarkably, in this short two-year period, Miami exceeded the sales volume of its previous five years combined (2011-2015).
The conditions that helped allow this to emerge are multifaceted as well. In 2012, new multifamily development began to help backfill the depleted inventory from the conversion phase. In addition, outstanding growth metrics continue to propel Miami to the top of investors’ wish lists.
While some submarkets are still working through lease-ups, we expect they will be easily absorbed as the market continues to see steady job and population growth. According to Cushman & Wakefield research, over the next five years, Miami-Dade County alone is projected to receive nearly 200,000 new residents, bringing the total population to just under 3 million by 2022. Moreover, Miami has some of the strongest rent growth and occupancy rates in the entire South Florida region, with a vacancy rate that is forecast to remain below 5 percent over the next five years.
Going forward, we expect Miami to remain in exceedingly high demand from all pillars of capital, including institutional, private and foreign investors. We also expect the Miami-Dade multifamily market to revert to historical norms, where groups buying in the market hold onto assets for longer periods of time, thereby restoring the market to its restrained sales activity. While demand will remain high from all types of investment groups, opportunities to buy will become more and more limited over the next few years.
Land markets for low-density product are increasingly rare, which will continue to limit the production of this type of inventory. Moreover, recent Miami sales activity has shown a high number of 1031 transactions, which tend to be held for longer periods.
Investors with a strong interest in Miami should be mindful that the current opportunities to purchase are not expected to last. The recent transaction volume the market has enjoyed has been a luxury that we expect will tighten as the active capital groups hold and enjoy the superior returns that Miami has historically provided.
— By Zachary Sackley, Executive Managing Director of Cushman & Wakefield. This article was originally published in the May 2018 issue of Southeast Real Estate Business.