While many cities grapple with a declining population, softening rents and a struggling office market, Miami is riding a wave of population growth and apartment demand. This stems from the usual factors — sun, lifestyle and low taxes — as well as something unprecedented: an influx of large office users.
New-to-market office tenants are transforming Miami’s economy and helping offset the challenges of inflation and rising interest rates. Miami multifamily fundamentals remain strong, with plenty of liquidity in the market. Our economy is more diversified than ever, and this has made it one of the most desirable markets in the country.
Supply and demand
People and businesses fleeing states with higher taxes and longer pandemic restrictions helped fuel Miami’s population surge between 2020 and 2022 and led to record-breaking rent growth during that period. Miami has become a magnet for large financial and tech firms, with well-heeled companies like Starwood Property Trust, Citadel Securities, BlockChain and Blackstone Group taking new office space. All told, a record 57 companies relocated or expanded to Miami-Dade County last year.
Between May 2022 and May 2023, Miami added over 83,000 jobs, more than a 4 percent increase. Miami’s unemployment rate as of May 2023 was 2.4 percent, one of the lowest in the country. The county’s population grew by approximately 0.75 percent.
Rent growth has come down from its peak of last year, but still rose 11.09 percent between second-quarter 2022 and second-quarter 2023 ($2,524).
Our hot single-family housing market has also kept many would-be homebuyers in the renter pool. The median home price in Miami-Fort Lauderdale as of June 2023 was $605,000 — down from last year, but almost 40 percent above June 2019. In a city where the median income is just $61,000, homeownership remains out of reach for many.
A robust pipeline of new apartment supply could offer some relief: builders are scheduled to complete 22,541 market-rate units in South Florida by the end of 2023. In Miami-Dade County, there are more than 17,500 units currently under construction.
However, pent-up demand will likely keep vacancy under 4 percent. RentCafe recently reported that Miami ranked the most competitive rental market in the United States with an occupancy rate north of 97 percent and an average of 24 prospective renters competing for each apartment. Asking rents are projected to climb a total of 2.7 percent in 2023, 4 percent in 2023 and 3.9 percent in 2025, according to Moody’s Analytics.
The Downtown Miami/South Beach/Brickell submarket has emerged as a development hotspot. There are also several new residential projects in submarkets that had long been overlooked, including the enclaves of Hialeah and Allapattah. Projects like MG Developer’s Metro Parc, a 600-unit high-rise in Hialeah, and Neology’s The Julia, 323 units in Allapattah, are helping revitalize those neighborhoods with great public transit options but limited or obsolete housing stock.
Capital markets, deal flow
After a remarkable two years of record-breaking multifamily sales activity, South Florida saw transactions drop off steeply in third-quarter 2022. The first half of 2022 saw 172 multifamily assets change hands in sales totaling approximately $5.1 billion, according to Berkadia. By contrast, the first half of 2023 saw 72 multifamily trades totaling about $1.7 billion — a 66 percent decline.
Capital markets volatility, rather than liquidity, is the chief obstacle. There is no shortage of debt or equity for multifamily deals backed by strong sponsorship. Freddie Mac, Fannie Mae, life companies, CMBS, debt funds and local and regional banks are all still actively lending. Among the largest deals of the past year were KKR’s $305 million loan for Harbor Group International’s $440 million purchase of the 816-unit ParkLine Apartments and lender MF1’s $165 million refinance of The Dorsey, a 306-unit property in Wynwood owned by Related Group, LNDMRK and Tricera Capital.
That said, rates are significantly higher than they have been since the COVID-19 pandemic, and this is impacting investors’ ability to pay the prices sought by sellers. The bid-ask spread has made many assets unsellable.
Deal flow will likely remain depressed for the remainder of this year on account of this volatility, but we are seeing a lot of positive signs of the market thawing. A couple of events could trigger sales as we enter 2024.
Miami’s allure as a multifamily hotspot shows no signs of waning. Corporate relocations, a red-hot housing market and strong multifamily fundamentals continue to drive deals backed by strong sponsorship. The industry is eagerly anticipating a market “reset” once the Federal Reserve halts rate increases. For now, investors and lenders are cautiously underwriting to today’s numbers rather than tomorrow’s.
— By Mitch Sinberg, Senior Managing Director, Berkadia. This article was originally published in the August 2023 issue of Southeast Real Estate Business.