6 Real Estate Trends Shaping South Florida in 2021

The real estate market in South Florida is blazing hot right now and several emerging trends are reshaping the landscape, presenting both opportunities and risks.

The coronavirus pandemic impacted real estate markets across the country, accelerating interstate migration, shifting commuting habits and desirable residential areas, and changing needs for commercial and recreational spaces. If demand continues at the current pace, 2021 may be an exceptional year for many in the real estate industry.

A January 2021 survey report by the National Association of Realtors Research Group showed there is “stronger investor interest for land, multifamily, and industrial properties than for hotels, retail, and office properties.” The national report also indicated that the land market expects the highest growth rate year-over-year (5%), and within this market “the strongest expected increases in sales are residential, industrial, and ranch lands.”

In Florida, six emerging and accelerated trends are having the strongest impact on the local real estate market (in no particular order):

1. More people are moving to the suburbs than to urban areas

Buyers’ priorities have changed, they now want large kitchens to cook more meals at home, spacious rooms and dedicated office space, and proximity to open outdoor spaces. The shift to remote work has made buyers reconsider what are must-haves. With long commutes no longer a major concern for many working professionals, the search for larger spaces and private amenities often means a move out of tight downtown condos and into spacious suburban homes.

Scarcity of land continues to be a major factor affecting South Florida real estate. Our geographic boundaries to the East and West create a challenging landscape for developers to meet increasing demand. To accommodate larger developments and meet the changing needs of buyers and investors, we can expect to see more land being developed outside of the urban core, primarily in North Palm Beach or South Dade, as well as neighborhoods that were previously considered less desirable.

2. The pandemic accelerated interstate migration

The COVID-19 pandemic accelerated the previously-seasonal migration of Northeasterners, Midwesterners and Californians to the Florida coasts, with many individuals now seeking permanent residency in the sunshine state. Year-round warm weather, potential tax savings and relative affordability of larger spaces contributed to many Northeasterners’ decision to relocate to South Florida.

Buyers from New York, New Jersey, Massachusetts and other northern states are especially attracted to larger homes or high-end condominiums offering a plethora of amenities. Their wish-list often includes dedicated office space, a spacious gourmet kitchen, home gym and/or a private pool. We continue to see developers revising their projects to take these factors into consideration in their design.

3. Sustained high demand across the South Florida real estate market

The influx of new potential buyers and investors may further fuel development this year to meet the increasing demand for South Florida real estate. Experts predict that market demand will be strong, as more millennials and even some Gen Z homebuyers purchase their first homes.

Florida Realtors reported that single-family home sales in the tri-county area increased 10.8% in January 2021, compared to the same month last year. Condo sales were up 24.6%, while median sales prices rose 15.1%.

The sales volume had a significant impact on the monthly supply of inventory available. The months’ supply of inventory for single-family homes decreased to 2.8 months in February 2021 – a balanced housing market should have 6.5 months of inventory supply, according to experts and historical statewide benchmarks.

The luxury real estate market is holding strong, as well. Real estate firm Douglas Elliman reported that in Miami-Dade County over 180 contracts were signed for condos over $1 million in January 2021, more than triple the number signed in January 2020. In Palm Beach, the number of single-family-home sales in the fourth quarter of 2020 increased by 329% compared to the same period the previous year.

4. Office and retail vacancies pose new challenges and potential opportunities

Compared to other real estate assets, commercial properties in the office, retail and hospitality markets expect the slowest rate of recovery after the coronavirus pandemic. The fourth quarter market report by the National Association of Realtors (NAR) showed that property value for office buildings had a 4% decline, and retail space showed a 6% decline.

As more companies adopted remote work policies, many business owners realized they can sustain operations with significantly lower overhead costs and less office space. Office vacancy rates across the U.S. increased from 12% to 15.5% between the second and fourth quarter of 2020, according to the NAR. Miami-Dade had an 11.3% vacancy rate in the fourth quarter of 2020, Broward saw the highest vacancy rate in the South Florida region at 12.1%.

A report by The Conference Board points to “the accelerated shift to remote work as one of the main legacies of the COVID-19 pandemic.” It adds that over 40% of employees will continue to work remotely post-pandemic and that “organizations are three times more willing to hire remote workers now than pre-pandemic. “

While retail vacancy rates are slightly lower than office vacancies (hovering around 10%, nationally), developers and investors in this portion of the market are taking creative approaches to repurposing vacant properties, such as converting them to mixed-use buildings (adding office or residential space), distribution or fulfillment centers, or even centers for worship.

The COVID-19 pandemic has undoubtedly changed market demand at a faster-than-average pace, so developers are adapting their projects quickly to succeed in this challenging environment.

5. U.S. housing prices will rise 8% in 2021

If you think rising prices will deter some buyers, think again. Recent reports show that buyers may be willing to stretch their budgets to find larger homes in better neighborhoods.

The average rate for a 15-year fixed-rate mortgage dropped to 2.31% in November 2020, the lowest it has been recorded in 30 years. While it currently sits at 2.56% (April 2021), median housing prices in South Florida have increased year-over-year for over 10 years.

The NAR predicts that U.S. housing prices will rise 8% this year and 5.5% in 2022.

Investors and developers looking to capitalize on the South Florida market could be reassured by the combined “perfect storm” that keeps driving up housing prices: more high-end buyers, increased demand for luxury homes, and accelerated pace of migration into the state. Shrinking inventory, scarcity of land, rising construction costs, and sustained demand keep contributing to the steady rise in prices.

6. SPACs hunting for real estate deals

Special purpose acquisition companies (SPACs) provide a fast-track to take companies public. Once launched, they can raise capital as an investment vehicle, and use those funds to acquire other businesses. These could include businesses that own real estate assets, which is enticing investors to seek out deals in the lucrative South Florida market.

Some industry experts believe certain property types with strong ties to emerging technologies, like data centers, science labs and fulfillment centers may be more attractive real estate assets for SPACs because of their strong appreciation potential.

SPACs are not new, but they have gained significant traction in the last year. Real estate investors and developers should keep their eyes on this re-emerging trend and how it will affect real estate deals in the near future.

The South Florida real estate market will keep making headlines in 2021 with more deals and larger deal-volumes. In this fast-paced market, staying ahead of emerging trends is key for investors and developers looking to capitalize on the exciting activity taking place here.

Contact us to learn how your business can benefit from these and other real estate trends this year and beyond.