The Miami Downtown Development Authority has released it’s “Annual Residential Market Study Update” report. The 44-page report is prepared by Integra Realty Resources, “the largest independent commercial real estate market research, valuation, and consulting firm in North America.”
Some of the key conclusions from the report
- The pre-sale absorption of units has slowed as South American and European investors have less buying power than in earlier stages of this cycle due to increases in the U.S. Dollar vs. South American and European (Euro) currencies.
- Condo projects located in secondary locations have not realized as strong of interest from investors and while local buyers have shown more interest, the requirement of 50% deposits is a big barrier to the domestic buyer.
- A large number of existing renters are reporting continued rental increase requests from individual condo owner landlords and are considering alternative rental markets due to pricing.
- Land pricing continues to increase with a number of transactions taking place along Biscayne Boulevard in Edgewater and within the Wynwood submarket.
- The Chinese currency is the only participating external economy that has achieved an increase in buying power as a result of an increase in the Yuan vs. the U.S. Dollar.
- There have been early market indications that the Chinese are set to become a much larger player in the South Florida real estate market as several business groups and public organizations have made efforts to increase their exposure to Chinese buyers.
- Construction costs continue to rise at unsustainable levels as the demand for tradesmen and skilled workers in South Florida far outpaces the supply. The continued rise in construction costs is the biggest factor in determining whether currently selling and proposed projects will move forward within the next 6-12 months.
In my opinion, this is the most telling observation in the report:
In our prior annual report, we framed the question: “When will there not be enough buyers for the number of units available on the market, which might lead to a downturn in pricing?” The answer is that we are beginning to see the tempering of annual price appreciation in the resale condo market and we are also beginning to see signs of a slower absorption of presale units.
We will most likely see the first “shelved” condo project of this cycle within the next six months. This is actually a sign of a healthy market as the market is determining the success of each project in the pre-sale phase rather than having a highly leveraged product completed and delivered to market substantially unsold. Significant levels of unsold inventory delivered to market typically force distressed pricing. Shelving the development plans before construction commences is not failure, it is prudent.