Welcome to Miami
A hot hospitality market leads to the city's commercial real estate activity.
Miami's sun-drenched beaches
draw millions of people each year, yet the city continues to add
cultural and recreational attractions to lure both tourists and new
residents. Numerous new or planned destinations line the causeway
between downtown and South Beach, including Parrot Jungle Island, which
opened last June and is expected to net more than 1 million tourists by
year-end, and a park that eventually will contain Miami's art and
Increased Tourism Helps Hospitality
Miami's hotel industry is benefiting from the city's focus on
developing tourist destinations. "After a couple years of negative
revenue per available room growth, year-end 2003 RevPAR was up 8
percent, and 2004 is expected to be up an additional 10 percent," says
Mark A. Lunt, Ernst & Young's Florida and Caribbean hospitality
practice leader. First-quarter 2004 indicators point to continued
recovery: Compared to one year previous, average daily rates and
occupancy increased 7 percent and 5.5 percent respectively, according
to Smith Travel Research. "The market finally has caught up with its
peak in 2000," Lunt says.
considerable new construction, "Miami's hospitality market is
responding positively to changes in new supply," he says. The addition
of several high-profile luxury properties is helping the city compete
for tourists and business travelers. For example, last October Four
Seasons Hotels and Resorts built its first Miami property, which
features 14,210 square feet of meeting space, a 5,830-square-foot
conference room, three pools, and spa and fitness facilities.
also are capitalizing on investor interest in condominium-hotel units,
and several new projects soon will hit the crowded market. In Miami
Beach, Turnberry Associates and Fontainebleau Hilton's $230 million
Fontainebleau II will be completed later this year; the development
features 462 residences ranging from $400,000 to more than $1.3
million. In December, Sunny Isles Beach will receive two new
condominium-hotels: Rosewood Hotels & Resort's Acqualina and the
210-unit La Méridien Beach Resort and Spa. South Beach Resort
Development currently is constructing the $67 million Regent South
Beach, scheduled for completion next year; the project's 80 units range
from $400,000 to $800,000.
Condominium Conversion Boom
Condominium interest isn't limited to Miami's hospitality market.
Finding rental units in the city is becoming increasingly difficult, as
investors continue to purchase available apartment buildings and
redevelop them into condominiums, despite record-high prices and
record-low capitalization rates. "Nearly half of all assets marketed
for sale in Miami are sold to condominium converters," says Douglas E.
Driver, CCIM, of Madison-LaPaul. Last year such investors bought more
than $500 million of multifamily assets priced above $10 million, and
total purchases this year should be even higher: In the first quarter
alone condominium converters acquired more than $231 million of assets,
economic factors contribute to this phenomenon. Due to steady job and
population growth, South Florida has not experienced the concessionary
environment plaguing many U.S. multifamily markets. In addition, Miami
lacks available land for new development, and apartment demand is
expected to exceed supply over the next few years, Driver says.
South Florida multifamily properties priced above $10 million, the
average price per unit increased to $106,500 in first-quarter 2004 from
$80,033 one year previous; however, this statistic is skewed by several
record-high sales to condominium converters, Driver says. For example,
the 246-unit Bridgeside Place Apartments on Fort Lauderdale Beach
represented the highest first-quarter per-unit price: $236,179.
New Projects Transform Downtown
To capitalize on the condominium craze, several developers are
constructing or planning projects to help revitalize Miami's central
Development Group currently is building Metropolitan Miami, a $600
million mixed-use project on a six-acre Biscayne Boulevard parcel of
former parking lots. When complete in 2007, the development will
feature three multifamily properties, an office high-rise, and a retail
and entertainment complex in a pedestrian-friendly setting. The
project's $200 million first phase includes a 1,500-space parking
garage, a 40-story tower comprising 447 luxury condominiums 50
percent of which were presold as of January as well as retail and
restaurant space, and the neighborhood's centerpiece, Met Square, which
will offer 120,000 sf of restaurants, shops, entertainment venues, and
a 12-screen theater. In May, Whole Foods signed a lease for a 45,000-sf
store in the development, its first in Miami.
Properties and America's Capital Partners' proposed $181 million
Columbus Center at the 1.3-acre Columbus Bazaar site would add more
than 660,000 sf of office, 29,500 sf of retail, and possibly
condominiums to the downtown market. Also included in the tower's plans
is a stop for Metromover, the city's free people-mover system.
new projects will remedy Miami's lack of major downtown shopping venues
and restaurants. After several years of planning, construction of the
Brickell submarket's first retail center, Mary Brickell Village, began
last December. Scheduled to open in early 2005, the 200,000-sf
lifestyle center features a variety of retailers including a Publix
supermarket, Bally's Total Fitness, and P.F. Chang's China Bistro. Last
May Developers Diversified Realty broke ground on the 600,000-sf Shops
at Midtown Miami, located on four blocks just north of the CBD and
adjacent to the Design District and Wynwood Art District.
development space accounts for the city's dearth of large retail
centers and its low retail vacancy rates. Year-end 2003's 4.8 percent
vacancy rate is expected to remain flat this year, according to Marcus
Tenants Flock to New Office Space
The first-quarter addition of 500,000 sf of new office space outpaced
net absorption, leading to a 14 percent vacancy rate, says Rolando A.
Alvarez, CCIM, CPM, of Coldwell Banker Commercial NRT. Yet leasing
remains active, as landlords offer incentives such as high tenant
improvement allowances to attract tenants and keep lease rates stable.
Second-quarter's $29.01-per-square-foot class A lease rates were 0.2
percent higher than one year previous, and, while class B rates fell
2.3 percent to $20.03 psf, class C rates increased to $19.12 psf,
according to CB Richard Ellis.
than 1.5 million sf of leasing activity occurred in the first half of
2004 led by class A properties in the suburban submarkets which
made up 71.6 percent of all transactions, according to CB Richard
Ellis. Many large tenants also are relocating within the CBD to new
properties, such as Espirito Santo Plaza, which as of May was more than
80 percent preleased to companies including Espirito Santo Bank,
Wachovia Bank, and BCI. Major first-quarter transactions include law
firm Tew Cardenas' 38,420-sf lease and Pricewaterhouse- Coopers'
28,763-sf lease at the Offices at Four Seasons Hotel and Tower on
Brickell Avenue, according to Cushman & Wakefield.
new product in the CBD substantially preleased and fewer sublets
available, most of the submarkets within the Miami area will continue
to see a reduction in vacancy," Alvarez says.
Industrial Sales Increase
After several years of little investment activity, Miami's industrial
market, particularly the Airport West submarket, is seeing substantial
sales volume, says Scott Sime, CB Richard Ellis' managing director of
industrial services. Approximately 10 percent of Airport West's 60
million sf traded hands in fourth-quarter 2003 and first-quarter 2004,
which represents huge institutional investor confidence in South
Florida's industrial sector, he says.
example, PS Business Parks purchased the 3.4 million-sf Miami
International Commerce Center from Heitman Capital Management for $5
million more than the asking price; the sale generated more than 20
offers from a "who's who of industrial investors," Sime says. Other
major sales include Keystone Property Trust's acquisition of the 1.7
million-sf International Corporate Park from the Easton Group for
$114.4 million and Principal Financial Group's $45 million purchase of
709,000 sf at Dolphin Commerce Center.
heightened sales activity is occurring despite a flat leasing market.
For instance, MICC was only 82 percent occupied when it traded, Sime
says. First-quarter lease rates increased only 10 cents to $5.78 psf
from year-end 2003, according to CB Richard Ellis. Due to the area's
physical limitations the Atlantic Ocean to the east and Everglades to
the west the amount of developable industrial land is almost
depleted. Approximately 605,000 sf of space was completed in the first
quarter, 68 percent of which is occupied. The slow construction pace is
helping the market absorb excess space; nearly 150,000 sf was absorbed
in the first quarter, compared to first-quarter 2003's negative
700,000-sf absorption, according to CB Richard Ellis. By year-end,
lease rates and activity should experience modest growth, Sime says.