CCIM Outlook 2017 – Storm Clouds

The Miami-Dade/Monroe District of the Florida Chapter of CCIM presented their fine Outlook Conference at the Coral Gables Country Club last week (January 18).  An outstanding array of speakers provided a useful current overview of the real estate economy and the current state and prospects of the Office, Industrial, Retail and Multifamily markets.  Here is a brief bullet point style summary from my notes.  The complete pdf records of the powerpoint files used by the speakers are available at miamidadeccim.com/ .

Economy Overview – George Ratiu NAR Economist

  • Global economies in slowdown
  • We are back to “normal”
  • U.S. population up 8.8% in last decade
  • Consumers getting squeezed – especially younger people
  • Since 1960 – wages down 2.2%
  • Consumer Credit Growing (good in the short term, not so much in the long term)
  • Labor force participation declines
  • Consumer confidence – “tentative”
  • Business inventories lose momentum
  • Corporate balance sheets reflect cautious outlook
  • Inflation expected to be creeping up with interest rate hikes
  • Large caps slide, small caps heat up
  • Yield seekers move to secondary market – 6.7% to 7% caps
  • Capital markets flush with liquidity
  • Lending conditions tighter for small cap commercial real estate

Retail – Beth Azor – Azor Advisory Services

  • Occupancy up
  • Rents up
  • Cap rates down
  • Exception – South Beach rents falling from =/-$300/SF to =/-$150-$200/SF; Brickell Rents down
  • 7.9MM SF proposed plus Macy’s and Sears closures – Sole (NMB) on hold
  • Major sale – Palms at Town and Country – $285MM for 664k SF = $429/SF
  • What’s hot? – Pop up stores and Food Halls
  • Not so hot? – Men’s ready to wear, sporting goods, office supplies
  • Millenials spend 80% of food dollars eating out
  • Experience retail
  • Who bought the most shopping centers in Florida? Publix – 71 centers (22 in 2016, 23 in 2015, 26 in 2014)
  • Storm clouds!

Industrial – Jose and Sebastian Juncadella – Fairchild Partners

Demand Drivers

  • Population – TriCounty area is the 8th most populous in the US
  • Visitor growth – 15.5 MM in 2015
  • Florida has 6 of the 20 fastest growing areas in the US
  • 65% of the population growth is from other countries (last 5 yrs)
  • Visitor growth – 15.5MM in 2015 (8MM domestic; 7.5MM intl.)
  • 136.1M jobs created in leisure and hospitality in 2015
  • Record hotel occupancy
  • Port of Miami – $28 billion economicO impact; 207k jobs
  • Miami Intl. Airport – $33.7 billion; 282k jobs

Market Statistics

  • 218.8MM SF inventory; 3.7% vacancy
  • 2.8 MM SF demand based on population growth
  • 2.1 MM SF of deliveries expected
  • New Class A product features wider columns, increased truck courts, taller heights

No Storm Clouds here!

Office – Donna Abood – Avison Young

  • 2600 buildings housing 65.6 MM SF with 8.9% direct vacancy and 9.1% vacancy overall
  • Class A asking rates at $41.26/SF; Class B $27.99
  • New space should meet design preferences of millenial workers
  • Continued improvement expected in 2017

Multifamily – Arnaud Karsenti – 13th Floor Investments

  • Trump effect – Tax reform, loosening of regulation, infrastructure spending
  • Interest rate increases will push more households into rental housing
  • Demographics are favorable to support job and wage growth and hence, rent growth
  • Florida ranks second nationally for net in migration – 1000 new residents per day
  • Inferred demand is 56.3K units per year
  • Miami-Dade exhibits lower home ownership rate than the state – 50.6% vs. 63.9%
  • New construction will outstrip demand for the next few years but a massive oversupply does not exist
  • South Florida fundamentals remain strong
  • Rent growth projected to be greater than 3% from 2018 to 2020
  • SoFl multifamily cap rates in a range from 4.9% to 5.5%
  • Conclude – Partly cloudy, but clearing

Capital Markets – Manny DeZarraga – HFF

  • Economy heading into 2017 generally looks good
  • Cost inflation limiting new supply
  • Occupancies increasing – near peaks
  • Institutional investors allocating more dollars to commercial real estate – 2.1% in 1980 vs. 8.9% in 2016
  • DOW up 25% in January 2017 over 2016
  • Oil prices down from 2014
  • Investors continue flight to quality
  • Office sector investors looking to suburbs
  • Multifamily could see some cannibalization in urban areas
  • Ample liquidity on both mortgage and equity sides
  • Some investors pulled properties from market anticipating improving tax treatment
  • Trump buoys dollar
  • Interest rates up
  • LIBOR moving up, but still “super cheap”
  • Transaction volumes lower but single trades up
  • Foreign investment down
  • $8.324 billion dollars in sales in Miami in 2016
  • Bigger deals to foreign investors
  • Conclude – Mostly sunny

Local Economy – Tom Hudson – WLRN

  • SoFL population exceeds 6MM
  • Unemployment down to =\-5% from a peak of =\-12% in 2010
  • Avg. weekly wages increasing
  • Private sector jobs up 20%
  • Housing costs disproportionately high
  • GDP growth of major South American trading partners declining, but expected to begin to improve
  • Outlook – partly cloudy

Great job to all who put the program together!

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We’ve Moved!

After 30 years in downtown Miami, we have relocated the Miami office to home office facilities in Pinecrest.

We’re at:

Blazejack & Company
5890 SW 100th Terrace
Pinecrest, FL 33156

new-office

This was not an easy decision.  We have always felt that our downtown location contributed to our ability to monitor the pulse of the market but the nature of how work gets done in the financial services sector has changed, undercutting that locational advantage.

Cost and speed are the preeminent considerations in the real estate service sector today.  Whereas normal assignment delivery timeframes once centered on 30 days, now three weeks is often too long.  In a rising market, this might be expected.  But as the market approaches inflexion, sacrificing experience for a few hundred or even a few thousand dollars in fee savings becomes fraught with increasing risk.  Just one mistake and all those fee dollars saved on dozens of deals, are flushed away.  So let me suggest that as this market continues to slow, take a little more time and be a little more thorough with real estate due diligence.

Coupled with this increased competitive environment, the declining efficiency of automobile transportation in Miami has been doubly frustrating.  Since I lost a sister to “an accident” and because I subsequently worked as a bike/ped advocate in her memory, I am not as keen on taking shortcuts with day – talking on the phone and/or texting while operating a vehicle.  That means my commute time in the car is truly dead time.  Using transit and going on foot is great, but sweaty most of the year in South Florida.

And our new technology doesn’t really require us to be physically proximate in order to collaborate closely.  We can be at home, in the co-working space of our choice, or in the local coffee shop.

We will save time commuting.  Time I hope we will spend on the street thinking about how our client’s properties are situated, physically, legally and economically.

We look forward to providing you with the best real estate consulting we’ve ever done and you have ever received.

Thanks!  Happy New Year!

Tom Blazejack