7 real estate trends set to shape South Florida in 2023
This blog post was originally published on December 22, 2022. It was updated on February 8, 2023.
Nearly three years of the COVID-19 pandemic have had a lasting impact on real estate markets across the country. In South Florida, we continue to see accelerating in-migration of people and companies – but there are other signs that the market is slowing down.
In the first half of 2022, investors and developers looking to capitalize on the South Florida market benefitted from the “perfect storm” that kept driving up housing prices: more high-end buyers, increased demand for luxury homes and accelerated pace of migration into the state. Meanwhile, shrinking inventory, scarcity of land, rising construction costs, supply chain issues and sustained demand contributed to a steady rise in prices.
However, the housing market started to slow down in the second half of the year, and it looks like that trend will continue. Realtor.com says “the 2023 housing market could become a ‘nobody’s-market,’ not friendly to buyers nor to sellers.”
In Florida, seven trends are having the strongest impact on the local real estate market, impacting investors, developers, property owners and businesses across industries.
1. As mortgage rates increase, there are signs that the housing market is slowing down
According to the Realtor.com forecast released in early December, South Florida housing prices are expected to rise 3.4% in 2023. However, the volume of sales is predicted to drop 2%. This prediction is in line with nationwide indicators showing that while prices may increase in the coming year, the number of sales may still decline.
As of mid-December, the interest rate for a 30-year fixed loan was 6.6% and 6% for a 15-year fixed loan, both seeing increases from the previous weeks. This is about double the rates seen in January of 2022, when the interest rate for a 30-year fixed loan was 3.22% and 2.43% for a 15-year fixed loan.
It is expected for mortgage rates to average 7.4% in 2023, which is even higher than their peak of around 7.08% in the fall of 2022.
It is likely that prospective buyers will see more homes on the market in the new year, but with rising prices and interest rates, purchasing a home will become less attractive and less affordable for many buyers.
Rapidly rising interest rates are likely to put pressure on real estate pricing across all sectors and impact development plans and underwriting.
2. Accelerated interstate migration
More Americans than ever are looking to relocate to a new metro area, and Miami ended 2022 as one the most popular migration destinations of all major U.S. metros – continuing to rank high from the past year and a half.
New Yorkers make up the largest share of people moving to Miami, with people from California, New Jersey, New England and other high-tax areas also looking to move here. Year-round warm weather, potential tax savings and relative affordability of homes and condos contributed to many decisions 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.
This increased demand from out-of-town buyers, who often have more money to spend on homes than local buyers, has contributed to an increase in South Florida home prices.
3. Less demand and increased supply across the South Florida home market
The median sales price for a single-family home across the tri-county area was $568,000 in September 2022, up 17.1% from September 2021, according to Miami Realtors. However, the single-family home sales in the region had a decrease of 26.5% compared to September 2021. This trend can also be seen in the condo market with sales dropping 26% and median sales price up 19.7%.
Realtor.com forecasted existing home for-sale inventory to increase 22.8% in 2023, more than five times of their 4% increase prediction for 2022. Additionally, they predict a 5.4% increase in existing home median price, which is about half of the 10.2% increase they predicted for 2022. They expect existing home sales to decline by 14.1%, slightly more than the 13.8% decrease they predicted for 2022.
4. Rapidly rising residential rents
As the cost of homeownership increases, renters will be faced with similar roadblocks. Rent is predicted to go up 6.3% year over year nationally, which could in turn make it more difficult for would-be buyers to set aside savings for a down payment on a home.
Due to more than a decade of high housing prices relative to income, more than two-thirds of South Florida residents rent their homes (by comparison, nationally, two-thirds of people own their homes). In 2022 Miami-Dade County ranked number 1 on RentCafe’s Top 20 Most Competitive Rental Markets list, with an average of 32 renters competing for any given apartment.
As of November 2022, the average rent in Miami was more than $2,900 a month– an increase of 18.22% from previous rent increases. Overall, in Miami-Dade, Broward and Palm Beach counties, rents are 18.81% higher than last year – the highest year-over-year rent increase across the nation.
Investors are showing strong interest in South Florida’s multifamily market, according to a report from Cushman & Wakefield; however, due to higher interest rates impacting the profitability of these deals, the sales volume has slowed. The high cost of land coupled with high interest rates and construction costs has also slowed the development of new multifamily rental and condo projects.
5. The office market has recovered…for now
South Florida’s office market has recovered more quickly than expected. An influx of tech and finance companies over the past couple of years has brought more tenants to the market.
In the third quarter of 2022, Miami-Dade’s overall office vacancy rate was 10.3%, significantly down from 16.9% at the end of 2021; overall asking rent hit a record of $49.90 per square foot, with buildings in some submarkets asking for $100 per square foot or more.
Miami-Dade’s office market saw third-quarter net absorption of 535,100 square feet, showing a year-over-year decrease; however it is expected to rise in the upcoming months.
While Miami-Dade’s vacancy rate remains low, other large metros are going through difficult times. Downtown Manhattan in New York was facing a vacancy rate of 22.8% and downtown Chicago had an all-time high rate of 21.4% at the end of 2022.
While the forecast for the office market remains positive, many companies are considering reducing office space as recession fears loom. With the pandemic showing companies that employees can work from anywhere, hybrid and remote working have become the norm for many office workers.
From a financial perspective, companies that have seen success with hybrid and remote work arrangements will continue to look for a balance between office downsizing, which may yield long-term savings, and terminating leases early, which can potentially come with costly penalties.
6. Industrial vacancy will remain below 2.5%
South Florida’s industrial market was tight even before the pandemic accelerated the move to e-commerce and brought an influx of companies and residents into the region. During 2021, Miami-Dade saw 7.8 million square feet of absorption – setting a record for industrial absorption. In Q3 of 2022, there was an increase of 417,000 square feet of absorption, and that number is expected to continue growing.
Demand is expected to remain very strong. At the end of the third quarter, the vacancy rate was 2.3%, an 80 basis point decrease year-over-year. As vacancy rates continue to decrease, rent prices grew 7.2% year-over-year according to Collier’s Q3 Industrial Report.
7. Retail rebounds
A combination of resident in-migration and a resurgent tourism sector has retailers eager to pay for brick-and-mortar stores in South Florida. Vacancy rates in Miami-Dade and Palm Beach counties were lower in the third quarter of 2022 than they were pre-pandemic, during the first quarter of 2019. Miami-Dade’s vacancy rate was 3.5% during the third quarter of 2022, compared to 4.4% in 2019; Palm Beach’s retail vacancy rate was 3.6% in the third quarter, compared to 5.9% in 2019. Broward’s retail vacancy rate was 4.3% in the third quarter, slightly higher than its early 2019 rate of 4.1%, but lower than it had been in the two years since.
In this changing market, staying ahead of the trends is key for investors and developers looking to capitalize on the dynamic activity taking place in South Florida’s real estate market. Contact Kaufman Rossin to learn how your business can benefit from these and other real estate trends in 2023 and beyond.