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Contraction in the real estate offer of new units in Miami predicts a positive future
A recent study conducted by the firm Integra Realty Resources – Miami | Palm Beach (IRR-Miami), confirmed the forecasts on the real estate market in South Florida. The number of units under construction was reduced by 43%, between the second and fourth quarter of 2018, with a total of 1,649 units delivered. Of these units, 1,020 belong to the new Edgewater area, while the remaining 513 are part of the Canvas project in the Arts and Entertainment District.
The study of the residential real estate market of the so-called Greater Downtown Miami updated to January 2019, throws a series of interesting data that explain the current behavior of developers, investors and occupants of new units and offers a future perspective of the market in the next years.
According to the study and taking into account the normal deadlines for the execution of new buildings in major projects, which is usually 30 months, the current real estate growth levels would be around an inventory growth of between 3% and 4% for each submarket on average for the next 3 – 4 years.
The historical demand has been around 2,000 units per year, but the market indicators show a significant variation from the first quarter of 2017, which predicted a pause in new construction in the short term.
As of 2019, this inflection point in new constructions with a significant accumulation of demand can be observed more clearly. Could this mean then that this phenomenon “will lead to the next wave of construction”? Why the caution of the real estate market?
There are many reasons why this would not happen, as the report highlights. The market is planned with great caution and developers are currently just finishing the construction of projects already started.
Among the elements that are influencing this behavior of the real estate market are, in the first place, the current concern for the political and economic situation of the United States and the world.
In addition, the change in the purchase patterns of luxury condominiums and the level of resale inventory existing in the market, which continue to attract the local brokerage as well as the regional community in speculative and investment activities.
Another factor that is affecting the development of new units, is the current economic dynamics of the country and its impact on the value of the US dollar. When the dollar strengthens in respect to other currencies, the purchasing power of potential foreign buyers, which constitute a very important part of the Miami market, notably decreases. Also construction prices have increased exponentially in recent years.
The prospect of strengthening other currencies against the dollar for now are unlikely, at least for the remainder of 2019. Global factors such as the current trade war between the United States and China, Brexit, US foreign policy and the weakening of the economy of the euro area, among others, do not contribute to optimism either.
Another determining factor on current market trends, according to the report, is the maturation that the market in Downtown Miami is reaching, which now has a much wider range of prices per final unit.
The historical mean of absorption of new condominiums has been concentrated in projects whose prices are generally similar. Since 2015, for the first time, the average price of resale condominiums has progressively increased in Greater Downtown Miami. Although they still remain below USD 457 per Square Feet, their watermark from 2015.
How many new units are there available?
Currently there are only 2,200 units under construction, of which more than 75% are pre-sold before construction, estimates are that there are only about 550 new units actually available for the current construction cycle.
On the other hand, the growth of the condo rental rate in the Downtown Miami area has obtained an appreciation of 4.0% similar to the levels of the 2016 era, according to the study.
This caused most of the previous declines of the year to revert. “Many of the same positive factors that bring tenants to the city center to conventional rental properties are also driving demand in the condo rental sector.” points the report.
Among the conventional rental projects, there are currently 5,118 units under construction distributed among 10 buildings. It is expected that approximately 1,056 of these works under construction will be delivered in 2019 and the remaining 4,062, between 2020 and 2022.
Another interesting fact revealed in the study, is that the occupation of Units of Class A properties, is significantly higher in comparison with the most recent deliveries of condominiums.
Conclusions
The developers of condominiums in South Florida and the market in general are acting with great caution when it comes to new projects. However, those that are in full execution, are very ambitious high-end projects, directed to a more select target that sees the value of the long term investment of the Great Downtown Miami, such as Aston Martin Residences, One Thousand Museum and Una Brickell…
The rental market (condominium and conventional), has far exceeded the expectations of many with occupations stabilized in high-end products for Class A and A in the range of 92% to 96%. Both condominiums and conventional rents are maintained at a stable level. However, the conventional rental construction project has even more momentum with a few more years to deliver.
The population growth experienced in the city center along with the growing demand for an urban lifestyle, are reaffirming “a perspective for stability and long-term growth in the center market.”
For these reasons, a higher demand and lower supply is expected, producing an increase in prices for the coming years, so there are several reasons to buy a condo in South Florida this year, either as an investment or as a private residence. Since 2018, the real estate market has been experiencing a change of direction with respect to the behavior that historically had maintained.
The attractiveness of Miami to live, vacation, work or just go shopping, is recognized worldwide, with new records of tourists and an increasingly greater positioning of the city as an ideal place to live and invest … contact us for more information.
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