Commercial real estate investment in South Florida has soared since last year.
But don’t get excited yet. Most property types are feeling the weight of elevated inflation and interest rates.
“When you have those two things going on, the institutional markets are like, ‘We don’t have certainty. Pencils down,’” said Avison Young’s Michael Fay.
Deal volume in the tri-county region reached $9.3 billion in the first half of the year, a 19 percent increase over the same period last year, an uptick largely driven by industrial sales, according to an Avison Young report. The only other asset class that posted an increase in sales is multifamily, while retail, offices and developable land deals declined.
The data shows that South Florida has turned a corner from its prosperous years during the early years of the pandemic and continues to feel the squeeze from macroeconomic headwinds. With the annual inflation rate at 3.5 percent, the Iran War and ensuing oil price increases now the norm, hopes for cuts to the benchmark rate have grown dimmer, while the potential for an increase grows ever more real. Property insurance, which skyrocketed in recent years, has alleviated some but it’s still elevated.
“People are still trying to figure out what Fed Chairman Kevin Warsh’s plan is. Are we going to have an interest rate increase in September?” Fay said.
This uncertainty has kept many investors on the sidelines. Properties that do change hands generally fall into two categories: sellers forced to sell to avoid refinancing debt at higher interest rates, or owners choosing to divest now rather than wait for further market decline.
In the meantime, the bid-ask gap for well-leased properties is wide, prompting many more landlords to hold on to their assets.
The sting on the market has led to an evolving buyer profile.
While institutional investors were active in South Florida during the pandemic-era boom, they’ve retrenched and represented just 19 percent of buyers. That’s given an opening to private investors, which accounted for over half of buyers, according to Avison’s data. Publicly traded investors, including real estate investment trusts, were 7.3 percent of buyers, and international investors accounted for 13 percent.
Here’s more on how each asset class did so far this year:
Industrial
It’s the only one that’s maintained its reputation as a darling asset class.
A total of 193 deals closed for a combined $3.3 billion — the highest volume across property types — marking a 130.5 percent jump from last year.
Beyond the growth of e-commerce that necessitated more last-mile distribution centers, the region benefits from its “Gateway to Latin America” location that makes it a major crossroads for goods moving in and out of the U.S.
Further fueling sales: The One Big Beautiful Bill Act, which implemented accelerated depreciation that allows owner-users to write off equipment and other building components from their tax bill much quicker than before.
South Florida has experienced hefty industrial development in recent years, with the regional inventory spanning 498.2 million square feet, according to Avison’s report.
Investment sales had the lowest cap rates across South Florida asset classes, from 4.12 percent to 4.64 percent, the report shows. Deals that traded ranged from $230 per square foot to $340 per square foot.
One of the largest known trades was Prologis’ record-breaking $352.2 million purchase of the seven-warehouse Davie Business Center in June.
Also, Kurv Industrial, previously called Bridge Industrial, paid $219.7 million for a five-warehouse portfolio in Pompano Beach in April.
Multifamily
It scored the second highest dollar volume for i-sales at $2.5 billion, a 19.4 percent increase from the first half of last year. Just over 100 sales closed in the first six months.
This makes multifamily the only other asset class aside from industrial to score an increase from last year.
But much of that may be due to deals put under contract late last year and closing this year, Fay said, adding that the market’s pain hasn’t dissipated.
Multifamily has experienced one of the biggest turnarounds since the Covid boom. During the early months, out-of-staters moved to the region, creating unprecedented demand, record rent growth and an investment sales boom.
Leasing slowed in recent years, amid higher interest and cap rates. Developers who jumped on the boom times of 2021 and ’22 completed a hefty number of units saturating the region at a time when the influx of newcomers had cooled.
The oversupply took hold over the past three years, with leasing only overtaking new supply this year, according to CoStar Group data. Still, a pipeline of 28,000 units under construction threatens to tip this balance again sometime late next year, when many of the units underway now are expected to be completed.
For properties that traded this year, the price per apartment ranged from $190,000 to $287,000, Avison’s report shows. Cap rates for closed deals were from 5.27 percent to 6.32 percent.
The biggest known multifamily sale this year didn’t come from an institutional player but from a seemingly unlikely investor: a church. Property Reserve, the investment arm of the Church of Jesus Christ of Latter-day Saints, paid $240 million for the 456-unit Uptown Boca Villas apartment complex in March.
Retail
A total of 101 sales closed for a combined $1.5 billion, marking a 19.5 percent drop in the deal volume from the first six months of last year.
Properties listed for sale trade easily, but not many are coming to market, Fay said. Landlords with well-leased shopping and dining buildings are wary of selling now amid higher interest rates unless they have to deal with debt woes, either already present or impending.
Plus, strictly retail assets don’t abound the way multifamily or office properties do, as retail is usually included in mixed-use developments.
So far this year, retail scored the top price per square foot –– ranging from $340 to $670 a foot –– out of all property types in South Florida, according to Avison’s report. Cap rates for sold properties ranged from 5.88 percent to 6.77 percent.
Top deal drivers this year were London-based Reuben Brothers and Crown Onyx’s $200 million purchase in March of the Esplanade in Palm Beach. The complex is on Worth Avenue, one of the premier luxury shopping stretches nationwide known for its high-end brand boutiques.
In the Miami Design District, another hub for luxury stores, Jeff Sutton’s Wharton Properties, Pebb Capital and Lane Capital Partners bought the Design 41 building, which includes offices, for $72.5 million in January.
Offices
Just over 90 deals traded for a total of $1.3 billion, 11.5 percent down from last year. Cap rates were higher, ranging from 7.12 percent to 8.39 percent, Avison’s report shows.
It marks a major turnaround for offices, until recently South Florida’s darling property type that prospered due to the influx of out-of-state companies that expanded or moved their headquarters here from late 2020 through 2022.
As long as buildings, especially in prime areas such as Miami’s Brickell, remain well-leased, landlords aren’t willing to part with them at the prices buyers facing expensive financing are willing to offer, Fay said.
“The price gap is just too high,” he said.
This year, office boosters again turned giddy over more out-of-state company leasing, though many of the newcomers aren’t taking large blocks of space but are homing in on the boutique buildings pitching their designs and amenities such as One Kane underway in Bay Harbor Islands and the recently finished The Fifth Miami Beach in the South of Fifth neighborhood.
The top deals this year came from serial office investors who have been on a yearslong shopping spree and are long on Miami. Billionaire hedge funder Ken Griffin, who is developing a bayfront headquarters for his Citadel and Citadel Securities in Brickell, bought the 545Wyn building in Wynwood for more than $180 million in January. Goldman Properties, based in Wynwood, partnered on the purchase.
Also, Moishe Mana, known for amassing a sizable portfolio in each Wynwood and downtown Miami, paid $110 million for the One Downtown tower in March.
Beyond these outlier deals, Fay noted the decline in the per-square-foot price for most office deals is notable. Avison pegged it at $250 to $480 a foot, meaning some deals traded at a per-square-foot price similar to industrial deals (those ranged from $230 to $340 a foot).
“We were talking with a client yesterday, and they have assets around the state and said, ‘We are selling offices from $100 to 150 per square foot, and flex industrial at $200 per square foot,’” he said. “It’s really unusual.”
Development sites
Across 41 deals, sales of buildable land hit $789 million, marking a 23.1 percent decrease in the dollar volume from last year, or the biggest decline in volume across property types.
The biggest development site deal this year was Tokyo-based Kasumigaseki Capital’s $88.8 million purchase of a 1.4-acre lot within the Miami Worldcenter mixed-use complex at the intersection of downtown Miami and Park West. The deal marked the 15-year-old publicly traded firm’s first known venture in the Western Hemisphere.
Another one of South Florida’s big land deals this year was a purchase in a bankruptcy proceeding, a sign of the times when higher interest rates, insurance and construction costs have torpedoed some developers’ project plans.
Miami-based Concord Wilshire paid $60 million for a 43-acre Royal Palm Beach tract that land assembler-turned-developer Brian Tuttle planned for a mixed-use project before he filed for bankruptcy on the property amid a foreclosure judgment.
The decrease in development site sales in South Florida comes as plenty of land once slated for construction is for sale. Over the past year, developers have been trying to offload their properties –– many of them previously slated for multifamily construction –– amid stubbornly high construction costs and other headwinds, foiling their planned apartment projects.
“A lot of people were misjudging the market for those sites. They thought there might be more of a demand,” Fay said.
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