For the first time in three years, most members of the real estate community are feeling good about their prospects. The aftermath of Sept. 11 terror attacks and the concurrent economic downturn hurt the office and industrial leasing sectors and damaged the hotel market. Only the residential and retail sectors surged forward.
Despite the slowdown, there were numerous commercial real estate sales for record prices in recent years. But those transactions were driven by investors seeking refuge from a tanking stock market rather than by faith in the real estate market itself.
Now, brokers and developers are voicing confidence that their corporate clients are ready to grow their businesses. The boom times of the late ’90’s aren’t coming back, but the bust years of this decade seem behind them.
That optimism will be tested this year. In a county-by-county real estate forecast, the Daily Business Review real estate writers look at commercial and residential sectors to see which offer the greatest potential.
Retail drives the market
By the spring of 2005, a 210,000-square-foot super-sized Wal-mart will stand at the Mall at 163rd Street in northern Miami-Dade County, the lynchpin of a revitalization plan for the moribund shopping center.
Wal-Mart’s September purchase is most notable because the 21.5-acre site will be home to a superstore, including a full-service grocery, a first in Miami-Dade for the nation’s largest retailer.
Wal-Mart’s aggressive expansion into Miami-Dade, along with a handful of other big box retailers, will drive the demand for land and spur the retail market, experts say.
Like office and residential, retail is merely responding to shift in population from the suburbs to the urban cores, real estate experts say. Factor in the presidential election, which typically spurs the economy, and it becomes easy to understand why the real estate industry is bullish about the next year.
“As with every incumbent president, [Bush] is going to overtly or covertly take all steps necessary to make sure the economy maintains a healthy position or improves until the election,” said Jeremy Larkin, president of commercial brokerage NAI Miami. “It all comes down to ringing registers. People are more confident and the economy is righting itself, which is going to be great for the retail market.”
In a December report, retail brokerage Terranova characterized conditions in the retail market as slightly improved. The Miami-Dade retail market experienced an incremental drop in vacancies and a small increase in rental rates in 2003.
The county recorded a 6.93 percent retail vacancy rate in 2003, below the 2000 rate of 7.65 percent, according to Terranova’s survey of 204 centers with more than 50,000 square feet of space. The North Miami/Beaches submarket had a vacancy rate of 3.85 percent, the lowest in the county.
Overall net rental rates throughout the county were also higher last year than in 2000, according to Terranova.
South Miami set the bar with an average rental rate of $27.51 per square foot. The Homestead/Naranja submarket, an emerging player in the residential sector, was lowest at $12.53 per square foot.
There’s plenty of room for growth – the county’s ratio of retail square feet to population is 12 to 1 compared with the national ratio of 19 to 1.
Shopping centers are expected to continue to see a lot of activity, experts say, from fast-service restaurants, like Quiznos, which is on an aggressive expansion plan throughout the county. Mills Corp. is now a player in Miami-Dade with its $70 million purchase last month of Westland Mall.
Mortgage rate impact
Expect to see more office condo warehouses as developers look to build products that will allow interested parties to take advantage of low mortgage rates, which make purchasing more affordable.
This trend is most evident in the residential market, where record low interest rates have spurred construction of single-family homes and condos.
Condos are being gobbled up as fast as developers can build them and single-family homes and empty lots on Miami Beach are selling for record breaking prices, said Miami Beach-based Kevin Tomlinson, a broker for Esslinger Wooten Maxwell.
Statistics, however, can be deceiving. In 2003, Miami-Dade recorded 4,970 single-family starts, a 3.9 percent decrease from last year, according to the Boca Raton office of real estate research firm Metrostudy.
The same scarcity is driving up prices; the recent sale of a Gables Estates home for $20.6 million set the county record for the most paid for a home. Another signal of a wholesale change in how people view the market – the term “affordable housing” is now being applied to condos priced at $150,000.
Experts say housing starts will remain brisk in 2004, but construction is not expected to match or surpass the record set in 2003.
In Miami-Dade, developers of single-family homes have been left with little land. They are looking south to Homestead, which still has vacant land. New-home construction during the next six years will top 11,000 in Homestead, according to the city officials, doubling the number of homes in the city.
Low mortgage rates and the movement by first-time homeowners and empty-nesters eastward will also continue to drive the construction of new condo projects, experts say.
Responding to the demand for condos to serve the influx of urban professionals from the suburbs and the continued interest from Latin America, Colonial Development Group will begin construction of a $160 million, 52-story condo tower in the Brickell area. The project’s 433 units will range in price from $159,900 for a studio to more than $750,000 for a penthouse. The target group will vary, but focus primarily on Latin American buyers, historically a loyal buyer of new condos.
Latin American demand is sure to intensify if the secretariat of the planned Free Trade Area of the Americas sets up headquarters here, said Jerrold Krystoff, a principal in Colonial Development Group.
“Miami’s position as gateway to Latin America is getting stronger and stronger,” Krystoff said. “If the FTAA [secretariat] locating here comes to fruition, that will be a mini-boom targeting Latin America.”