Report: Downtown Miami Seeing Healthy Correction

MIAMI—Cranes still pepper the Downtown Miami skyline as new condo projects rise from the dirt. But a new report reveals supply is catching up with demand.

Indeed, the Miami Downtown Development Authority's (DDA) just-released First Quarter Greater Downtown Miami Market Residential Real Estate Market Study conducted by Integra Realty Resources (IRR) shows the condo market is reaching a point of equilibrium. You might call it a healthy correction as construction, labor and land costs rise even as currency shifts impact investor appetites. 

“Latin American buyers were a boon for Downtown Miami after the recovery and through the first round of new condo deliveries, but the area is starting to see significant traction with Asian buyers,” says City of Miami District 2 Commissioner and Miami DDA Chairman Marc Sarnoff. “Downtown Miami's condo market is not dependent on Latin American buyers alone. Chinese investors and local buyers are eyeing the market. No longer is Miami just the Gateway to Latin America—we are the gateway to the world.”

As Sarnoff noted, foreign investment fueled most of Downtown Miami's condo comeback. With cautious capital markets, developers depended heavily on foreign buyers with large sums of cash ready to invest in pre-sale units. This financing model saw buyers finance 50% or more of the unit costs.

With European and Latin American currencies weakening, though, many foreign investors are taking a deep breath. That's slowing pre-sales. The good news is, as Sarnoff noted, China's currency is still gaining against the US dollar and study authors expect Chinese investors to pick up some of the slack in Downtown Miami's condo market.

At the same time, a stronger US dollar is causing domestic buyers to take another look at Downtown Miami. The report reveals buyers from cities like New York, Boston, New Jersey, Washington, D.C. and Chicago make up about 15% of the current buyer pool. West Coast buyers from Las Vegas and California are also entering the local market as Baby Boomers search for second or retirement homes in more affordable cities.

“For buyers around the world—and around the United States—the Downtown Miami address has a growing cache,” says Alyce Robertson, executive director of the Miami DDA. “Rents are on the rise, nearing other chic South Florida neighborhoods, which is a testament to the growing desire for a more urban lifestyle.”

How will the market react? Developers are likely to spend more resources targeting domestic buyers. The report suggests projects with strong sponsorship and those with waterfront views are best positioned for success. The slowest pre-sale absorption is among secondary locations in projects at lower price points.

“All indications point to stabilization of an active real estate market,” says Anthony M. Graziano, principal of IRR. “With 6,000 units under construction and pre-sold over the past three years, we are reaching equilibrium. Fewer buyers, rising construction costs and swelling land prices will see fewer developers come to market. Still, Downtown Miami is seeing strong momentum with rental and sales prices increasing and growing interest from Asian and domestic buyers seeking the lifestyle and affordability Miami offers relative to other major markets.”