8 real estate trends shaping South Florida in 2022 

Two years of the COVID-19 pandemic appear to have made a lasting impact on real estate markets across the country. In South Florida, we continue to see accelerating in-migration of people and companies – trends that are impacting every industry.

Investors and developers looking to capitalize on the South Florida market continue to 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, supply chain issues and sustained demand keep contributing to a steady rise in prices.

Meanwhile, the National Association of Realtors “expects the demand for commercial real estate to strengthen in 2022.”

In Florida, eight trends are having the strongest impact on the local real estate market, impacting investors, developers, businesses and property owners.

1. Despite rising interest rates, U.S. housing prices continue to rise

Experts expect home prices will continue to rise this year, but predictions for how much range widely. At the beginning of the year, Fannie Mae said U.S. home prices will climb 11.2% throughout this year, followed by a more modest increase in 2023. The National Association of Realtors’ late 2021 survey of more than 20 top economic and housing experts predicted housing prices are expected to climb 5.7% through the end of 2022. In March, Bank of America predicted a 10% price rise during 2022.

The Federal Open Market Committee increased the federal funds rate by 0.25% in March, and is expected to raise it to between 2.1% and 3.6% by the end of the year through a series of rate hikes. Mortgage interest rates have already headed above 5%, compared to around 3% during 2021.

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 started 2022 as the most popular migration destination of all major U.S. metros – after holding that title for the entire second half of 2021 as well.

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. High demand and squeezed supply across the South Florida home market

The influx of new buyers and investors has accelerated demand for residential real estate. The median sales price for a single-family home across the tri-county area was $515,00 in January 2022, up 18.4% from January 2021, according to Florida Realtors. The median price for a condo rose by 23.4%, to $290,000.

Single-family home prices combined with very limited inventory are holding back sales, which declined by 2.6% year over year in the first quarter of 2022 –  despite in-migration that continued to accelerate. Supply is not keeping up with demand. In December 2021, there were as few as half the number of active listings for single-family homes as there were at the end of 2020.

Things were little different in the condo market, where sales volume fell by 4.4% from the first quarter of 2021 to the same period in 2022.

A growing share of successful buyers pay cash: approximately 40% of homes sold in Miami-Dade in January were cash deals, and 41% of overall sales in Broward County did not involve mortgages.

4. Rapidly rising residential rents

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). During 2021, rents in the region rose faster than anywhere else in the nation.

As of March 1, 2022, average rent for a one-bedroom apartment in Miami was more than $2,400 a month– a 52% increase from 2021. Overall in Miami-Dade, Broward and Palm Beach counties, rents increased around 36% during 2021. Analysts expect rent increases to continue, although at a slower pace than in 2021.

Investors are showing strong interest in South Florida’s multifamily market. Sales hit a record $11.4 billion during 2021, and per-apartment prices also set records. Nearly 18,000 additional apartments are expected to be completed this year, but the multifamily investment market will likely remain very strong.

5. More balance between suburban and urban demand for real estate

Buyers’ priorities have changed during the pandemic, and they now want large kitchens to cook more meals at home, spacious rooms and dedicated office space, and proximity to open outdoor spaces. For those who expect to work from home on a long-term basis, long commutes have become less of a concern.

The result: more interest in suburban living, particularly among people moving to South Florida from out of town.

However, the desire for urban living remains strong. As more people have resumed working in the office and cities have reopened retail, entertainment and restaurants, demand in urban areas is rising again.

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 previously considered less desirable.

6. The office market’s surprising recovery

South Florida’s office market has recovered more quickly than expected. An influx of tech and finance companies to South Florida brought more tenants to the market, and most companies aren’t reducing their office space, despite the rise of remote working.

Surveys suggest companies are considering office space reductions of just 1% to 2%, on average. Reasons include a preference for hybrid work arrangements over fully remote work, employees’ discomfort with dense spaces and the need for having inviting, open-feeling office spaces to attract talent in a tight market.

In the first quarter of 2022, Miami-Dade’s overall office vacancy rate was 16.5%, down from 16.9% at the end of 2021; overall asking rent hit a record of $46.92 per square foot, with buildings in some submarkets asking for $100 per square foot or more.

The Miami-Dade office market saw first quarter net absorption of 451,818 square feet, on top of 643,000 square feet of net absorption during 2021. That’s a far different story than the national office market, with its negative absorption during 2021 and early 2022.

7. 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.

Demand is expected to remain very strong. Across South Florida, industrial vacancy rates are expected to stay below 2.5%, while rents are predicted to grow between 6% and 10%.

Investor interest in warehouses also remains high. For example, CenterPoint Properties has said it plans to invest between $150 million and $200 million in industrial land and buildings in the region during 2022.

8. 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 first quarter of 2022 than they were pre-pandemic, during the first quarter of 2019. Miami-Dade’s vacancy rate was 3.7% during the first quarter of 2022, compared to 4.4% in 2019; Palm Beach county’s retail vacancy rate was 4.3%, compared to 5.9% in 2019. Broward county’s retail vacancy rate was 4.7% in the first quarter of 2022, higher than its early 2019 rate of 4.1%, but lower than it had been in the two years since.

Consumers are buying, which drove retail sales growth of more than 20% during 2021, with further growth expected this year. It’s worth noting that 2021 retail sales were more than 22% higher than 2019’s pre-pandemic sales (2020 saw very modest retail sales growth).

Nationally, more retailers are outsourcing their real estate departments as a way to access additional expertise and remain flexible as the retail market experiences rapid changes.  

Emerging trends

In addition to those major trends, several emerging trends may influence the South Florida real estate market during 2022.

U.S. sanctions on Russians in the wake of Russia’s invasion of Ukraine may affect South Florida’s real estate market. In Sunny Isles Beach and other cities, Russian buyers and investors have typically been a significant demographic. Sanctions will make it more difficult for interested investors to travel from Russia to look at properties and to transfer money for purchases. In some cases, Russian property owners could see their bank accounts or real estate assets frozen or taken over by the U.S. government.

Closer to home, the state of Florida received $676 million in funds to help homeowners affected by COVID-19, as part of the American Rescue Plan Act of 2021. The Florida Department of Economic Opportunity will oversee distribution of this mortgage aid. We may also see cities providing rental assistance.

Nationwide, residential foreclosures have been rising steadily since mid-2021, when foreclosure moratoriums expired. Experts predict a gradual increase in foreclosures. That could lead to an increase in inventory and maybe even a run of short sales.

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