MIAMI, FL - Downtown Miami’s residential real estate market remains near the midpoint of the current development cycle, with prices for existing condos rising and rental rates reaching record-setting highs. Average pricing for existing condo units has grown by 6.74 percent over the past six months, with the average unit costing $459 per square foot, according to the latest Miami Downtown Development Authority (DDA) Residential Market Update, which includes data collected between April and August 2015. The report, conducted by Integra Realty Resources (IRR), found rental rates for independently-owned condos are up between 4 percent and 10 percent, while rates for managed apartment units are up by as much as 17.1 percent.
Price appreciation is being fueled by rising demand for urban living and relatively stable supply, with only 1,878 new condo units delivering to the market so far this cycle. By comparison, the peak of the last development cycle saw nearly 15,000 new units deliver between 2007 and 2008, according to Integra Realty Resources research. Of the 1,878 condos that have delivered so far this cycle, 1,617 units (86 percent) have closed to pre-contracted purchasers, with an additional 150 units (8 percent) expected to close within the next 60 days. These closings reflect the strong presale commitments referenced in prior research.
The Miami DDA market report offers a glimpse into mid-2016, when more than 3,000 new apartments and condos are on pace to deliver, representing the largest increase in supply in nearly a decade. Although these deliveries are expected to impact market dynamics in the form of stabilized pricing, sale prices and rents should continue to rise over the next six months.
“Downtown Miami’s residential market has hit its stride when it comes to pricing for condos and rental units, thanks to steady demand and a trickling supply of new units,” says Anthony M. Graziano, Principal of Integra Realty Resources. “The delivery of more than 3,000 units in early 2016 will be this cycle’s first barometer of how international demand is holding up and the market’s ability to maintain strong pricing.”
Despite concerns that weakened foreign currencies over the past year might lead developers to back-off the cash-heavy deposit model that has become standard in the current cycle, the vast majority of buyers remain willing to purchase units with significant equity positions prior to closing.
More than 27,000 condominium units have been proposed this development cycle, with 6,716 units now under construction. Projects with strong sponsorship, premium locations and/or water views demonstrate the best market acceptance at current pricing levels.
“Given the measured pace with which new units are delivering and the cash-heavy deposit structure that’s become the new normal in Miami’s condo market, it’s clear that the development community has learned from its past mistakes,” explains Alicia Cervera Lamadrid, managing partner at Cervera Real Estate and a Miami DDA board member. “No two development waves are exactly alike, but this cycle is already proving to be far healthier than the last.”
Most of the projects that have broken ground in 2015 are conventional rental towers, with approximately 4,900 total apartments expected to deliver over the next 24 months.
Alyce Robertson, Executive Director of the Miami DDA, believes growing demand for rental living in downtown Miami is a reflection of the neighborhood’s mounting appeal among young professionals. “The center of gravity in Miami has shifted and downtown is now viewed as the heart of the city’s entertainment, lifestyle and cultural landscape. This appeal has been a magnet for young professionals and millennials, which have fueled the growth of our residential population and business base,” says Robertson.