Franklin Street’s Hernando Perez On Miami's Hot Multifamily Market
"Keep in mind, everyone needs a roof over their head and multifamily properties are among the most stable investments."
By David Wilkening|September 04, 2018 at 08:38 AM
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GlobeSt.com caught up with Hernando Perez, director of Multifamily Investment Sales at Franklin Street to discuss trends in Miami’s occupancy rates, what is driving them and why Little Havana is an incredible market.
How are the occupancy rates trending in Miami?
South Florida continues to have strong demand for rental communities. Occupancy rates are trending up, even though we’ve had a tremendous amount of Class A apartments being delivered in Miami-Dade County, with just over 2,300 units so far this year, but occupancy rates have not been significantly impacted. This ongoing demand fueled a rate increase to 95.2% in Q2 2018. Occupancy rates rose 20 basis points year-over-year, after increasing 1.6% since mid-2016. However, apartment demand is still exceeding deliveries.
What is the driving force behind the occupancy numbers?
Multifamily demand is being pushed by the population influx in Broward, Palm Beach and Miami-Dade Counties. The tri-county area is expected to see close to a 2% population increase this year. This wave of new residents was accompanied by rising single-family home prices, which helped drive the demand for multifamily properties. Florida’s economy is also booming with solid job growth and rising wages. In 2018, the state topped the $1-trillion milestone for the first time, making Florida the 18th largest economy in the world. The Miami-Fort Lauderdale area also ranked No. 1 in the U.S. for new business startup activity, according to the Kauffman Foundation.
What impact will rising interest rates have on the multifamily investment market?
The multifamily sector has been soaring in large part because of our strong economy and the lowest unemployment rates in decades. Florida’s jobless rate also dropped to a near 18-year low of 3.8% in May. However, the recent stock market volatility could mean that the Federal Reserve will keep increasing interest rates steadily. As rates continue to rise, property owners start to fear the erosion of equity and property values. Because of this, we should see more owners looking to capitalize on the strong multifamily market. Keep in mind, everyone needs a roof over their head and multifamily properties are among the most stable investments. Therefore, it is the preferred asset class among investors. So, owners will try to capitalize on the increased investor demand and low available inventory by selling now to capture top-of-the-market prices and cash out their profits. Meanwhile, buyers are looking to take advantage of the still historically-low interest rate environment and lock in long-term debt before interest rates rise further.
What top trends or submarkets should investors be watching right now?
Little Havana is an incredible multifamily market in the shadows of Brickell City Center just south of downtown Miami. We have seen enormous investor interest in the land currently occupied by older existing buildings. Hialeah, El Portal and the MiMo District are neighborhoods where apartment rents are extremely stable, and vacancies are almost nonexistent. Allapattah and Little Haiti are two other hot spots. The Homestead area south of Miami has also become a popular market for investors who are priced out of the high-end areas and are looking for a lower price-per-door.
What’s your outlook on the apartment market? Will it continue along same way for the next few years?
Our near-term outlook remains extremely positive. Miami-Dade County is a gateway market and shares unique synergies with Latin America and many other international countries. The political and social unrest in Latin America has brought an influx of foreign capital to Miami from countries such as Nicaragua, Mexico, Brazil, Argentina and others. South Florida’s apartment market also benefits from the thousands of people who are migrating here as they seek a more stable economy, the benefits of living in a tax-free state and great all year around weather. Miami’s lack of affordable single-family homes, coupled with rising mortgage interest rates, means that many of these newcomers are turning to apartments as an alternative housing option. The apartment market will experience a healthy expansion, but we won’t have the same year-over-year, double-digit sales growth that we saw from 2011 to 2017. Pricing and occupancy rates should stabilize as well. Cap rates are still compressed and will remain so if demand stays strong.
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