Downtown Miami Condo Prices Soar 75%

MIAMI—Would you believe Downtown Miami condo prices are nearing pre-recession levels? It's true, according to a new study from the Miami Downtown Development Authority (DDA).

Prices for resale condo units in Downtown Miami from the last boom have increased 75% over the past two years, rising from an average of $230 per square foot to $400 per square foot. The DDA credits most of appreciation to value recovery stemming from market stabilization and the launch of new projects since 2011.

“Downtown Miami has long been viewed as a business hub, but we are  quickly gaining a reputation for our lifestyle offerings, everything from the Adrienne Arsht Center for the Performing Arts and Pérez Art Museum Miami, to a growing number of high-end hotels and restaurants and the addition of luxury retail,” says Alyce Robertson, executive director of the Miami DDA. “Overseas buyers eyeing U.S. real estate are finding that downtown Miami has all the amenities of a major cosmopolitan city, along with competitive pricing and easy access to Latin America and Europe.”

All told, there were 8,700 condo units for sale or under development through June 2014. Most of this inventory is expected to deliver through 2017, which would indicate the market is in the early stages of mid-cycle development. Second quarter 2014 pre-construction pricing ranges from $550 to $675 per square foot for current unsold inventory.

“Strong buyer demand, appreciating prices, and growing appeal among renters continue to fuel the downtown Miami condo market,” says Anthony M. Graziano, senior managing director for Integra Realty Resources in Miami, whose firm conducted the study. “While we expect price increases to slow with time, downtown is well positioned to absorb the new condo inventory currently under development should present-day buyer trends hold.”

Not surprisingly, Downtown Miami's growing residential appeal is also driving rental demand. Each month over the past three years, the areas has seen 400 and 450 leases inked. Average monthly rents have risen from $2,198 per unit in 2011 to $2,429 through the second quarter of 2014. More than 4,600 new multifamily rental units are either under construction or planned. Most of the new inventory is expected in the Brickell submarket.

While submarkets throughout Miami's urban core are witnessing new development, the City's Edgewater neighborhood—just north of the CBD along the Biscayne Boulevard corridor—is the area's fastest growing market. More than 1,900 new units are currently in development. That's a 67% increase in the submarket's inventory.

New projects in Brickell, where more than 4,800 units are under construction, account for nearly 25% growth by comparison with the submarket's existing condo inventory. The largest newcomer is Brickell City Centre, which will include 780 condo units set amidst 5.4 million square feet of mixed-use development.

Miami World Center, another master-planned project, will deliver a combined 2,000 units alongside retail, hotel, and commercial uses in the CBD. Nearby, All Aboard Florida's new Grand Central Miami station will serve as a high-speed rail hub connecting South and Central Florida.

The rise of new developments has put a premium on developable properties, sending land prices to never-before-seen levels over the past three years, according to the study. Multiple land transactions valued in excess of $100 million have been completed or are under contract in Brickell, the CBD and Midtown, creating a sizable barrier to entry for residential developers.

The study predicts that the introduction of the so-called “South American Financing Model,” whereby developers collect deposits valued at 50% or more of the purchase price—along with funding sources giving preference to experienced, well-capitalized developers—should help maintain a healthy market environment. Says Graziano, “Elevated land costs, higher construction costs, increased market transparency, and the rise of a new, cash-heavy financing structure all stand as obstacles to the degree of oversupply that downtown Miami experienced during the last cycle.”

Meanwhile, international buyers continue to dominate the Downtown Miami buyer base as city emerges as a global destination for business and finance, leisure travel, arts, and culture. According to the study, foreign buyers account for about 90% of all sales, making Miami one of the few real estate markets in the world that enjoy the envious position of being an “export economy.” That means buyers import capital for the purpose of owning real estate. Says Graziano, “The breakdown of foreign buyers includes 65% from South America and between 20% and 25% from Europe, Canada, Asia, and from other Latin American locations. The residual is a 10% domestic buyer pool.”