A look at Miami’s hot multi-family investment market

Rents grew very, very fast in Miami in 2021. Investors in Miami think apartment rents will continue to rise, increasing the value of Miami apartments, but not as quickly as last year.

During the years of the pandemic and the recovery of the coronavirus, millions of apartment renters have moved to the cities of the Sun Belt, where apartment rents are even cheaper than Gateway cities such as Boston and New York City, even after a year of huge rent increases. After the pandemic ends, some of these workers may return to those Gateway cities.

However, Miami’s economy is likely to continue to grow even as the US economy in general struggles to fight inflation and other Sun Belt cities may have a hard time filling new apartments.

“The combination of low taxes, good weather and a business-friendly environment has driven both entrepreneurs and major players to Miami,” says Omar Thowfeek, chief executive of Hines, which recently acquired Gables Station, a 14-story facility in mixed use Tower Miami, the Coral Gables neighborhood. “The luxury apartment market has maintained its strength thanks to the relatively limited availability of land and high house prices.”

The Miami apartment market is unlikely to be seriously oversized, according to investors, even as the US economy evolves.

“I think we’re going back to the fundamental underwriting where people look at barriers to entry. People are evaluating the replacement costs, ”says Mitch Sinberg, senior chief executive of Berkadia Florida.

More apartment deals than ever in Miami

Investors are well on their way to spending more money in 2022 than they have in years to buy apartments in the Miami / South Florida metropolitan area.

Investors spent $ 5.5 billion to buy apartments in the first half of 2022, according to

MSCI Real Assets (the data company formerly known as Real Capital Analytics). That’s a 63% increase from $ 3.4 billion in the first half of 2021. And 2021 was already a huge year for apartment investment in the Miami / South Florida metropolitan area, according to MSCI. Investors have spent $ 14.9 billion, more than double the total of any other year, from the recovery from the global financial crisis to the coronavirus pandemic.

The increase in investment was even sharper if you only count the apartment acquisitions within Miami Dade County proper, where investors spent $ 2.5 billion in the first half of 2022, more than double. (138%) of what investors spent the year before, according to MSCI.

These investors continue to pay higher prices and accept lower capitalization rates for doing these deals in Miami. According to MSCI, coverage rates fell to 4.6% in the second quarter, down from the four-quarter average of 4.8% a year earlier.

Of course, investors are spending more to buy apartments in the US, but the rate of increase is faster in Miami. Investors spent $ 154.6 billion to purchase apartments in the United States in the first half of 2022, according to MSCI. That’s a 53 percent increase from the previous year, which is still relatively slow growth compared to Miami-Dade.

Rental growth of 22.9% is starting to moderate

Rents are also still growing very, very fast in Miami, but not as fast as a few months ago.

“As new apartments go online, rental growth will be moderate,” says Hines’ Thowfeek. “But the continued immigration of people, restrictions on new construction and higher mortgage rates will have strong favorable winds on the apartment sector.”

According to RealPage, the same actual store asking for rents for new leases was 22.4% higher in the second quarter of 2022 than a year earlier in the Miami-Miami Beach-Kendall, Florida market.

Miami is one of the top five cities where rents grew fastest during the year ended in the second quarter, according to RealPage.

But it can’t last forever. “The double-digit rental growth the area has seen is unsustainable,” says Hines’ Thowfeek. By context, annual rental growth in Miami has averaged 5% over the past five years.

Miami’s rental growth is already slowing and was lower in the second quarter than the annual rental growth of 22.9% in the first quarter of 2022.

Part of this strong rental growth is caused by the shortage of apartments in Miami, relative to demand. The percentage of apartments occupied in the second quarter of 2022 in Miami-Miami Beach-Kendall, Florida jumped to 97.7%, up 1.5 points from the previous year, according to RealPage. However, that high occupancy rate is still slightly down from its 98.5% peak at the end of 2021. Over the next year, the occupancy rate in Miami-Miami Beach-Kendall is expected to stabilize at around 98%, according to RealPage.

Rents typically rise in apartment markets where occupancy rates rise above 95 percent, but not by double-digit percentage rates.

Rich newcomers bid for Miami rentals

During the coronavirus pandemic, offices in the United States closed to slow the spread of the virus. Millions of people have had to work from home, and many have taken the opportunity to relocate their homes from expensive gateway cities to cheaper cities and countries, including Miami.

“Miami stands out as a winner of work from anywhere or net migration since early 2020,” says Carl Whitaker, director of research and analytics for RealPage.

The average renter signing a new lease in Miami reported making about $ 120,000 annually in the second quarter of 2022, according to RealPage’s professionally managed apartment sample. An increase of about 52% from $ 79,000 in the first quarter of 2020, just before the pandemic.

“This includes a sizeable number of renters who have kept their salaries in New York or Boston and are applying it to South Florida’s (relatively) affordable multi-family real estate,” says Whitaker. Even with recent rental increases, Miami rents are still around $ 830 cheaper than the average Gateway subway.

Experts predict that the demand for apartments will remain strong, although not as strong as it has been recently. Not all of these wealthy renters are likely to stay in Miami. From April to June 2022, 429 more people moved out of Miami than moved into the area. It’s not a flood of people leaving the city, but it’s a big change from the pandemic.

If the US economy were to slide into recession this year, it would also impact the demand for apartments and the ability of property managers to ask for higher rents.

Over the course of the next year, which ends in Q2 2023, developers are expected to open 8,921 new apartments in Miami, an increase from the average of about 6,100 annually over the past five years, according to RealPage. Competition from these new apartments should also reduce property managers’ ability to raise rents, but not by that much

“Everything is tied to a limited supply,” says Sinberg of Berkadia. “We are under-supplied and have been for a long time.”

Here it is difficult to find land to build a new apartment. “We are bound by the Atlantic on one side and the Everglades on the other and we are a fully constructed market,” says Sinberg.

Furthermore, it is increasingly difficult to obtain approval for the construction of new apartments, especially in more desirable submarkets such as Coral Gable. “While opening a new business in Miami isn’t difficult, getting a building off the ground can be difficult in some areas,” says Hines’ Thowfeek.

Investors also continue to believe that Miami is poised to continue growing, even as the US economy changes and changes again.

“The combination of low taxes, good weather and a business-friendly environment has driven both entrepreneurs and major players to the city,” says Thowfeek. “Miami has really exploded in the last decade.” He cites major companies relocating or establishing major outposts in Miami such as Citadel, Icahn, Starwood, Blackstone, and Goldman Sachs. “The city has truly embraced technology and venture capital, which has found solid roots in its entrepreneurial culture.”

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