More Leasing Foreign Investment Flood Brighten Miamidade Picture
By Yudislaidy Fernandez
With leasing activity rising, the influx of foreign investment and the port dredging planned, Miami-Dade’s commercial real estate picture is much brighter today.
A panel of commercial realty professionals agreed that, with the economy starting to improve, there are more opportunities in a market poised for recovery.
The Commercial Real Estate Outlook, held at The Biltmore Hotel last week, was organized by the Coral Gables Chamber of Commerce. Michael Lewis, editor and publisher of Miami Today, moderated the panel.
The local economy is starting to improve but slower than in prior cycles, said economist Dr. Antonio Villamil, dean of St. Thomas University’s Business School, who kicked off the discussion.
Since last year the market has improved, he said, with payroll jobs increasing.
In Florida, "Miami-Dade County is leading most of the counties in all fundamentals of economic activity," Dr. Villamil noted. "Payroll employment in the county has been increasing in the last six months at an annual rate of 4%."
But Dr. Villamil warned that inflation is crawling in.
"There is a huge increase in liquidity now sitting in the banks, $2.3 trillion sitting in the banks, ready to be lent out," he said. "Once they begin lending out, we will see a pick up in inflation."
Panelist James Dockerty, executive vice president of Sabadell United Bank, said "we are at the beginning of the up cycle."
He noted indicators that show Miami-Dade is headed in the right direction, such as the increasing number of apartments getting rented; the projection that by 2015, when the Panama Canal expansion project is completed, passenger traffic and trade at the Port of Miami is expected to double; and how the Adrienne Arsht Center for the Performing Arts, once viewed as a white elephant, today is the fifth largest performing arts venue in the US.
The recent news that condo developer Jorge Perez is coming back with a 49-unit oceanfront project in the City of Hollywood is "a good indicator that the market can handle it," said Panelist Peter Zalewski, principal of Bal Harbour-based realty consultancy Condo Vultures.
The industrial segment of Miami-Dade’s commercial market is performing better than expected, with an overall vacancy rate of 8%, said Panelist Audley Bosch, director of industrial brokerage services at Cushman & Wakefield.
He listed industrial submarkets, such as Medley and Doral, with warehouses that have large truck loading areas and high ceilings as well as in close proximity to Miami International Airport, as boasting high occupancies and seeing substantial leasing activity.
But other areas like Hialeah, abundant with second-generation space, continue to experience higher vacancies, as the outdated industrial space struggles to compete with newer properties.
A once-abandoned industrial area that has successfully transformed into a dining and entertainment hub is Midtown, an example for other inactive areas like Hialeah to follow.
Mr. Bosch described how Miami’s Midtown is now alive with new restaurants, art galleries and nightclubs. Older warehouse buildings in this area are getting facelifts and being converted into new uses.
Foreign buyers hungry
The influx of international investors coming from Latin America, Europe and Asia to invest in South Florida’s real estate is impacting office and commercial values, noted Panelist W. Allen Morris, chairman and chief executive officer of The Allen Morris Co.
For example, Coral Gables’ overall office vacancy has dropped to 15%, he said, while other areas in Miami-Dade are facing vacancies as high as 25%.
"We continue to see more positive absorption," he said.
Overall, the Gables office market is divided into two class A categories, he said. One is regular office space and the other is new space originally developed as condo-office, which he referred to as hybrids.
"A portion of that vacancy is in those buildings, which some tenants will not consider," he said.
If the hybrid buildings are taken out of the equation, he said, the overall class A office vacancy in the Gables would be 13% instead of 21%.
To move ahead, landlords must concentrate on uncovering the opportunities, Mr. Morris said.
He shared a anecdote from the 1980s, when he lost tenants that occupied an entire building. He then began negotiations with a prospective government tenant that initially was to lease 20% of the building, then the interest grew to 60% and, eventually, the tenant ended up buying the 130,000-square-foot building.
Today, Mr. Morris faces a similar story with failed Bank of Miami, a former tenant taken over by the Federal Deposit Insurance Corp.
This time, "the opportunity is expanding tenants that we could otherwise not accommodate, keep them and expand them in the building," he said. "Disruptions and changes in the market create great opportunities."
Referring to Miami as the Hong Kong of the Western Hemisphere, Mr. Morris sees Miami-Dade well-positioned, as it houses the second largest international banking community in the country and its population is largely bilingual and even trilingual.
As internationals buy residences and investment properties in South Florida, they begin to realize the opportunities to do business here.
"They see this as a logical place for them to do business for safety and prosperity reasons," Mr. Morris said. "Who wouldn’t want to be here?"
Miami-Dade doesn’t just have the nicest beaches and cleanest water, but as a top tourist destination, when visitors come here, Mr. Dockerty added, they discover the office buildings and warehouses and begin to open offices and retail here.
"The interesting thing about our marketplace is that some people don’t see the opportunities right before our faces," he said, "and people come from Latin America and Europe and see it as an amazing place."
Mr. Bosch agreed that the international investment is spreading. He specifically sees a flight to quality from Venezuelan investors.
For example, some of these investors are buying commercial buildings, he said, taking some of the space and subleasing the remaining square footage in case, in the future, they have to move here permanently because of the political turmoil at home.
With the Panama Canal expansion and the Port of Miami to get $75 million to dredge the port to the 50-foot depth needed to handle massive cargo ships, Mr. Bosch said, warehouse and industrial business is going to grow.
"We are still the gateway," he said, "and trade is here to stay."
In the condo market, the main international groups scooping up units throughout South Florida are led by Venezuelans and Canadians, Mr. Zalewski said, as well as Brazilians and Mexicans.
A look ahead
With several promising projects preparing to break ground, Mr. Dockerty noted, there’s a lot to look forward to.
Such as Berkowitz Development Group’s Gables Station, a 355,000-square-foot vertical retail center; Mr. Morris’s Ponce de Leon Towers, a 210,000-square-foot office building; and Swire Group’s planned Brickell CitiCentre, a four-block project slated to transform Brickell, with retail, residential, hotel and offices.
This year, Mr. Morris foresees office vacancies dropping and commercial property values along with rental rates beginning to increase.
He expects the office market to transition to a landlord market next year, as interest in Miami-Dade’s real estate market continues to grow.
For example, Mr. Morris said, he is negotiating the sale of a development site in the Brickell area that his company owns. The initial offer for the site was $6 million, then it went up to $8 million, followed by $10 million and then $13 million and, finally, the buyer agreed the property was worth $15 million.
"If that ain’t a recovery," he said, "I don’t know what is."
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