2014 Outlook, Trends for Commercial Real Estate in South Florida

More than 500 real estate developers, owners, investors, and other industry professionals attended the recent Marcus & Millichap CRE Forum. They shared insights, trends and outlooks for South Florida’s increasingly competitive commercial real estate market.

Foreign dollars keep flowing in

Not surprisingly, Miami continues to be a hot spot for international investors. Great weather, favorable tax structures, diversity and openness to newcomers make this an attractive city for commercial real estate buyers. Investors from Latin America, Asia, Brazil, Russia and Germany have been pouring money into the market, and this trend shows few signs of slowing down this year.

The influx of foreign capital, as well as urbanization by young professionals, has created a comeback for the condo market. But it’s different this time around.

The main differences in this cycle are:

• Diversified international investment from many regions, not just Latin America
• Buyers using more cash and lower leverage to purchase
• Urbanization of the region is driving demand
• And on the developer side the capital stack continues to shift:
  • Lower loan-to-value ratios and, in some cases, lenders have been completely sidelined
  • Financing via equity and deposits is considerably more prevalent
  • Equity is more patient and resilient to downturns in the market

Retail, retail, retail

It’s all about retail, said panelists during the “The Miami Story: Outlook for Commercial Real Estate 2014” session. Matthew Whitman Lazenby, president and CEO of Whitman Family Development, was one of those panelists. He said his company, which specializes in retail development, management and leasing, is coming off a great year and looking forward to another successful year.

The session titled “The Next (RE)volution: Miami Retail Comes of Age” looked more closely at the retail segment, which is undergoing a paradigm shift.

International buzz about the opportunity for retail development in Miami has led to higher demand for space; that coupled with increased urban density means land prices are going up. As a result, commercial real estate developers have realized they must start using land more efficiently. And larger retailers are starting to downsize their footprints because online shopping has shifted a significant part of their sales from brick-and-mortar locations to digital storefronts.

The traditional model of a large anchor tenant and a sprawling parking lot is being replaced by mixed-use plans with multi-family housing on upper levels, retail on the ground floor and built-in parking.

South Florida also benefits from relatively good employment numbers and a steady stream of tourism, which keeps the local retail segment healthy.

Nitin Motwani, a principal at Miami Worldcenter Associates who was a panelist in the outlook session, is very optimistic about South Florida’s commercial real estate market. Retail demand is strong, the high speed rail is helping, and hotels want to be here, he says.

There are still some questions to be answered, such as what’s the real value of these new mixed use assets and who will buy them (REITs bought the old model). However, the overall sentiment at the CRE Forum about the local commercial real estate market was mostly positive with real estate industry professionals looking forward to the opportunities and challenges 2014 will bring.