Greater Downtown Miami Mid-Year Report Market Study Update Prepared for the Miami Downtown Development Authority (DDA) by Integra Realty Resources (IRR) August 2017 Greater Downtown Miami Mid-Year Report Market Study Update Prepared for the Miami Downtown Development Authority (DDA) by Integra Realty Resources (IRR) August 2017 For more information, please contact IRR-Miami/Palm Beach The Douglas Centre 2600 Douglas Road, Suite 801 Coral Gables, FL 33134 305-670-0001 [email protected] Contents 2 Introduction 4 Greater Downtown Miami Market Submarket Map 5 What’s Changed Since Year-End 2016? 9 Submarket Analysis 11 Unit Sizes and Pricing Trends 13 Resale Condominium Pricing 16 Rental Market Statistics 19 Conventional Rental Market Supply 21 Condo Development Process Appendix Introduction Integra Realty Resources – Miami/Palm Beach (IRR-Miami) is pleased to present the following Mid-Year Residential Real Estate Market Study within the Miami Downtown Development Authority’s (Miami DDA) market area, defined as the Greater Downtown Miami market. This report updates IRR-Miami’s findings on the local residential real estate market through July 2017. Key findings from this mid-year study are as follows: • Three new condominium projects have delivered (Brickell Heights East and West and Millicento Biscayne Beach) comprising 1,089 units in total. • Downtown reached its midpoint in Q2 2017, with 5,180 new condo units delivered since 2012 and 5,078 units under construction. We project the Flatiron (549 units), Gran Paraiso (317), and possibly One River Point (418) to deliver in 2019. • Project surveys indicate existing under construction supply in all submarkets is 70% pre-sold on average. • Average condominium resale pricing has declined -5.4% year to date, hovering slightly over $400 PSF. • IRR’s review of trailing 4-year resales volume indicates that the downtown resale condo market began accelerating in Q1-2017, with May 2017 recording the highest number of closed and pending sales volume on record in the past 4 years. • Conventional apartment rents have remained steady with 1% - 4% rent growth year-over year since last summer. Only Studio rents declined -1.6% since last year. • As a new addition to this report, IRR has surveyed new Class A projects delivered in the prior 18 months including Monarc at Met3 and SoMa Brickell. Class A rents are 25% - 35% higher than IRR’s historical conventional rent surveys downtown, demonstrating the premium for newer well-located Class A apartments. 2 | Integra Realty Resources Introduction There are no markets that operate in a vacuum dislodged from larger economic trends. The Miami residential market is growing, both in terms of new condominium product and multi-family rental product. This growth and delivery of new product is bringing more product to market at higher quality and price points. The resale inventory listed for sale has been growing also, placing downward pressure on prices. The new conventional rental inventory is delivering and stabilizing quickly with brisk absorption at rents 25% – 35% higher than competitive older apartment product, demonstrating the continued demand for downtown as a lifestyle. However, these new conventional apartments are also competing for renters, many of whom occupied some of the aforementioned condominium buildings as renters. This is placing downward pressure on condominium units rents, which in turn has condominium owner-investors deciding it’s time to sell. These market dynamics play out on a macro-economic stage currently characterized by mixed consumer confidence, variable but slightly improving global economic conditions, and an uncertain US economic outlook despite the otherwise vibrant local market conditions in South Florida. As of mid-year 2017 in downtown Miami, it wasn’t the best of times, it wasn’t the worst of times. Respectfully, Integra Realty Resources (IRR) – Miami/Palm Beach Anthony M. Graziano, MAI, CRE, FRICS Senior Managing Director Dan Bowen Market Research Analyst 3 | Integra Realty Resources Greater Downtown Miami Market Submarket Map The map opposite illustrates the boundaries of the Miami DDA, as well as each submarket within the Miami DDA market. 4 | Integra Realty Resources What’s Changed Since Year-End 2016? he new development market downtown continues to project strength in the wake of fewer Treported buyers. With 18% less inventory under construction resulting from recent deliveries, each new project close-out is a success to be celebrated in favor of less competition among the remaining projects. Cancellation of projects, or re-positioning continues with Auberge (298 units) now on indefinite hold, and Chelsea (222 units) reportedly considering repositioning as retail use. Wynwood 26 (15 units) has announced conversion from rental to condo, while 2000 Biscayne (393 units) announced conversion from condo to rental. Brickell House In June 2017, Forbes reported improvements in the Brazilian economy, and a weaker US Dollar, are bringing Brazilians back to Miami to buy. These early reports of stabilization in Brazil unfortunately do not extend to many other key feeder markets in South America, and American foreign policy on visas and immigration may be counter-productive to a full resurgence anytime soon. Increases in European, Eastern European and Canadian buyers are reflective of strengthening economics in those large markets. Apartment developers remain active in planning new projects, and early reports of new potential land deals signal continued appetite for downtown multi-family development. Apartment rental absorption, rent levels, and demand all coupled with ample equity for apartment deals will continue to drive the multi-family pipeline. The challenges will be feasibility and financing terms, which have constrained all but the most well-capitalized multi-family developers in the past year. The overall Miami economy remains relatively strong. Continued multi-family demand will correlate to job growth and regional economic expansion, fundamentals that have been in question in the broader US economy. Despite persistent expectations of a broader recession, the US and Miami have weathered the storm. The real estate landscape continues to adjust to this potential uncertainty, but is proceeding based on the current economic framework of continued expansion, albeit more cautiously. 5 | Integra Realty Resources What’s Changed Since Year-End 2016? Figure 1a Greater Downtown Miami Current Growth – Contracts and Reservations Submarket Building Avg. SF Units Status Brickell One River Point 1,284 418 Contracts CBD Aston Martin Residences 2,000 390 Contracts Edgewater Elysee 3,383 100 Contracts Edgewater Gran Paraiso 1,549 317 Contracts Edgewater Bentley Edgewater Condo-Hotel 905 207 Reservations Edgewater Missoni Baia 2,950 146 Reservations Edgewater Naranza 935 137 Reservations Wynwood Wyn26 1,204 15 Reservations # in Contracts 1,225 # in Reservations 505 Total/Average 1,682 1,730 Figure 1b Greater Downtown Miami Current Growth – Under Construction and Q2 Completions Submarket Building Avg. SF Units Status Brickell Brickell Heights - East 1,078 358 Complete Brickell Brickell Heights - West (BH02) 983 332 Complete Edgewater Biscayne Beach 1,305 399 Complete A&E 1000 Museum 5,389 83 Under Construction A&E Canvas 892 513 Under Construction Brickell 1010 Brickell 1,283 387 Under Construction Brickell Brickell Ten 1,050 155 Under Construction Brickell Echo Brickell 1,510 180 Under Construction Brickell Flatiron 1,334 549 Under Construction Brickell SLS Lux 1,250 450 Under Construction CBD Paramount Miami 1,793 512 Under Construction Edgewater 26 Edgewater 645 86 Under Construction Edgewater Aria on the Bay 1,317 647 Under Construction Edgewater One Paraiso 1,682 272 Under Construction Edgewater Paraiso Bay Tower I 1,360 360 Under Construction Edgewater Paraiso Bayviews 1,044 388 Under Construction Edgewater Spark 1,378 56 Under Construction Edgewater The Edgewater 778 30 Under Construction Midtown Hyde Midtown 944 410 Under Construction # Completed Since Prior Report 1,089 # Under Construction 5,078 Total/Average 1,302 6,167 6 | Integra Realty Resources What’s Changed Since Year-End 2016? he market reached the development cycle mid-point with about 50% of the total projects since T2012 now completed, and slightly less than 50% of units remaining under construction. The contract/reservation pipeline remains relatively unchanged, notably with the Aston Martin project converting reservations to contracts. Figure 2 Current Greater Downtown Miami Condo Pipeline – Q2 2017 Submarket Complete Since 2012 Under Construction Contracts Reservations Proposed Totals A & E 0 596 0 0 1,834 2,430 Brickell 3,767 1,721 418 0 5,287 11,193 CBD 352 512 390 0 5,198 6,452 Edgewater 1,050 1,839 417 490 1,389 5,185 Midtown 0 410 0 0 195 605 Wynwood 11 0 0 15 478 504 Total (2017 Midyear) 5,180 5,078 1,225 505 14,381 26,369 Total (2017 Annual) 4,091 6,254 803 1,215 13,980 26,343 Total (2016 Q2) 2,790 7,499 879 673 15,606 27,447 Total (2015) 1,889 7,308 1,874 207 17,615 28,893 Total (2014) 1,044 6,019 2,070 1,598 12,543 23,274 These condominium project deliveries also coincided with 969 units of Class A apartment deliveries, bringing the total number of multi-family units under construction below 3,600 units. The key takeaway is that the under construction pipeline is getting thinner in both the for-sale new condominium projects and the future rental pipeline, which could provide stability into 2018 provided no material adverse changes in the broader economy. 7 | Integra Realty Resources What’s Changed Since Year-End 2016? Figure 3 Greater Downtown Miami Condo Market Size – Q2 2017 Submarket Current Market Current % Potential Long % Growth Size [1] Growth Growth Term Growth Longterm A & E 4,052 596 15% 1,834 45% Brickell 23,610 2,139 9% 5,287 22% CBD 6,640 902 14% 5,198 78% Edgewater 5,102 2,746 54% 1,389 27% Midtown 978 410 42% 195 20% Wynwood 111 15 14% 478 431% Total (2017) 40,493 6,808 17% 14,381 36% [1] Includes all 2014-2017 deliveries.