Downtown Miami’s once
overheated condo market will continue cooling off this year, according to a new
report from the Downtown Development Authority.
The Annual Residential
Market Study Update, prepared by Integra Realty Resources, found that sales activity last year dipped substantially when
compared to the growth seen in 2014. Combine that with a glut of condos in the
pipeline — 28,893 units in total, up 5,619 units from the last year — and
downtown Miami’s condo market is bound to lose the pace it gained over the past
two years.
Part of that slowdown
is already evident in the reservations section of the condo pipeline. Units
taking contracts or reservations fell by 42 percent at the beginning of 2016.
Most of that dip is thanks to pre-construction reservations, which fell to only
207 units from the 1,598 seen last year.
Another byproduct of
slower sales: developers whose projects were less than 80 percent sold lowered
prices for units by 5 percent to 15 percent. Even South Florida’s most prolific
condo builder, the Related Group, has lowered deposits on several of its downtown projects.
The reason downtown
Miami is losing its steam is because foreign investment, a major driver for the
market, has fallen off due to worsening global economies.
“At the early stages
of this cycle, South American capital was extremely strong versus the dollar
and represented significant purchasing power for South American buyers using
foreign currency to purchase pre-sale units that were being sold in U.S.
dollars,” the report said.
However, the U.S.
dollar has made substantial gains against foreign currencies over the past
year, diminishing the value of purchasing U.S. real estate to key buyer pools like South Americans.
The Brazilian real,
for example, lost roughly 41 percent of its purchasing power in U.S. dollars
last year compared to 2014. Today, a Brazilian real is worth 25 U.S. cents.
Those figures were mirrored in other countries like Colombia, Argentina and
Russia.
That affected
pre-construction sales in particular, according to the report, as new projects
saw activity fall as much as 50 percent.
An interesting note
from the report is that units currently under construction are cheaper on
average than those still in pre-construction. It costs $615 per square foot on
average to buy a unit under construction, compared to $706 per foot at a
project that hasn’t broken ground yet.
While sales activity
has suffered, rental rates have continued growing. All of Greater Downtown
Miami’s submarkets — Brickell, the Central Business District, Edgewater
and the Arts & Entertainment District — are commanding rents in excess
of $3,000 a month. Edgewater in particular has seen a 9 percent appreciation in
rents year-over-year, with asking prices now averaging $3,450 a month.
But the report said
new rental deliveries will likely halt that appreciation. A total of 880 rental
units were delivered last year, and 4,145 are under construction in the
downtown area with another 8,620 units proposed.
Those new units,
combined with condos being used as rentals, will likely keep rents in the
downtown area from ballooning.
“The over-arching
theme at the conclusion of 2015 was that presale activity, traffic, and
contract sales were not nearly as strong as the close of 2014,” the report
said. “As forecast during our periodic market updates, this forced some
projects back to the drawing boards or off-line temporarily, and the overall
result by year-end 2015 was that the total number of projects taking
reservations and in contracts shrunk by 42% year over year.”
Original Content The
Real Deal
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