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There has been much talk about Miami’s sizzling real estate market over recent months, even more so than normal. Ever since the summer, when rates rose for the first time and many predicted that Miami would soon be faced with an affordability crisis, tongues have been wagging about how long the epic post-COVID market would last in Miami.
It turns out that a rate hike wasn’t the only dilemma that awaited the Magic City. Crypto was increasing in volatility, leaving ‘Crypto Bros’ in their Downtown Miami and Brickell high rises questioning their investments and (*gasp*) having to live on a budget. Just as FTX went from hero to zero overnight, people really started to worry about the stability of the real estate market in Miami. Was our growth sustainable? What gives?
The short answer is yes. The market has changed and yes, the growth is sustainable. Here’s why.
The influx of domestic buyers we have experienced over the last few years has locked down much of the available inventory despite the fact that new buildings are going up all around. This trend is expected to continue for the rental market as well over the next few years.
Domestic buyers tend to purchase condos more for personal use than rental investments, so that has removed a healthy chunk of units that would otherwise be available for renters. It is also a very common strategy for new residents to lease for a year or so in order to determine whether or not they love the Miami lifestyle before committing to a larger transaction. This also allows new residents to get to know the area and buildings to better figure out where their home is.
The result of this dynamic is that inventory remains low, both in the sales and the rental markets.
While the rise in rates can be overcome with creative deal structuring, the fact of the matter is that the increase in cost of money borrowed will knock some buyers out of the running. Not all sellers are able or willing to buy down the rate for a potential buyer, even if it means a sale with a higher sticker price. Unfortunately not all sellers understand how to use this strategy in order to widen the buyer pool, and not all real estate agents think to suggest it.
When this happens en masse, many buyers turn into tenants. This is particularly true for those who are relocating to Miami due to job changes or other relocation due to necessity rather than the fact that the new residents simply want to live in Miami.
Historically, Miami has been a hotbed of investment from foreign nationals from around the world. Convenient direct flights between Miami and 181 destinations in 63 countries is a big contributing factor in Miami’s attractiveness to expats, as is the vibrant lifestyle, agreeable weather conditions and mixed cultural representation throughout the area. Everyone loves Miami.
While some expats do immigrate to Miami and make it a home, many also invest heavily in rental units. This allows buyers to have a tangible investment that can hold their funds safe from the threat of socialist regimes, dictatorships, meddling cartels and other financial threats in their home countries. Over the previous two years, this segment of buyers has quieted down, likely due to COVID travel restrictions but are beginning to become more active in recent months.
For those foreign nationals who do plan to reside full time in the 305, many settle down in the same fashion as domestic buyers. They rent for a year or so to start, only narrowing the market down to a new permanent home once they have identified an area, neighborhood or building that suits their lifestyle.
The foreign nationals who protect their nest eggs via rental investments, they are typically unconcerned by rising interest rates. Some of these buyers prefer to keep their properties unleveraged, and some simply are not familiar with the prospect of investment property mortgages. These cash buyers have a tendency to take deals from buyers looking for a primary residence using a mortgage, as the purchase transaction is so much easier without the involvement of mortgage lenders. This winds up creating more tenants as well as more inventory, so is a wash as long as things stay balanced.
We have seen a recent uptick in buyers from Colombia, Venezuela, Mexico, Argentina and especially Brazil. After their recent election, we expect to see further investment from Brazilians as the left-leaning Luiz Inácio Lula da Silva taking the win. Historically, whenever a liberal candidate wins a major Latin American election, we see a marked uptick in currency leaving that country, usually winding up in Miami or New York. With Florida’s superior tax climate, Miami is the better choice for investment.
It wasn’t so long ago that one of Miami’s biggest problem was the wage gap and availability of professional jobs that would allow residents to be able to afford the swaths of open luxury rental units that existed throughout the city. People who were actually working in Miami were not able to afford the lifestyle, leaving the living to wealthy out-of-towners and the workers to commuting.
Brickell has long been the international banking capital of the United States and Wall Street of the South, with over 50 banks represented in the 1-mile radius, but Starwood Capital’s move of its headquarters to the Magic City just before COVID was a turning point for professional-level employers setting up shop locally. Their leap of faith to the sunny side of the street solidified them as a trendsetting company, with many others following suit through the COVID years and all the way to today.
At present, we have Starwood Capital, PriceWaterhouse, Ken Griffin’s Citadel, Blockchain.com, Ichan Enterprises, Windstar Cruises, as well as other major finance, tech, hospitality and investment companies plus their subsidiaries all taking out substantial office leases and bringing in executives, sales staff, and other high-paying professional jobs to the Miami area. In addition to the initial leases of these employees and the purchases that they will make, they also create the need for additional corporate housing for short to mid term contract workers and consultants, and of course, office space.
With the addition of these companies and professional positions, the Miami real estate atmosphere is more balanced, helping to create our own little micro-economy that is pretty self reliant.
While we tend to concentrate on areas that are agglomerated (self-sufficient live/work/play neighborhoods), Miami is home to a host of different communities and price points. Looking into the macro-statistics of Miami-Dade County rentals, we can find that the median rental rate for one-bedroom units is $2,373. Two-bedrooms go for the median rate of $2,962/months and three-bedrooms are listing for around $3,700/months according to an update of the data report from the Miami Association of Realtors.
Looking back on November, there were nearly 40,000 active rental listings in Miami with the median prices being $2,100 for a one-bedroom, $2,600 for a two-bedroom and $3,200 for three-bedroom yearly rentals. This does show a bit of negotiation room in the deal-making process, but with a very low 3%-6% vacancy rate, the market is very healthy.
We anticipate that the Miami rental market will remain hot through this market shift.
If you are interested in speaking more specifically about a neighborhood, project or listing, please contact Michael Light, Broker and Executive Director of Luxury Sales at Douglas Elliman. You may reach Michael directly at (786) 566-1700 or via email at firstname.lastname@example.org.
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