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Miami Beach rental market losing out to Greater Downtown Miami

Monday, March 30, 2015

Miami Beach rental market losing out to Greater Downtown Miami

BY PETER ZALEWSKI

SPECIAL TO THE MIAMI HERALD


Miami Beach — an international destination that features famed nightlife, restaurants and sand — is rapidly losing its appeal with renters, who increasingly look to Greater Downtown Miami as the new hot spot to lease in South Florida.

Renters leased nearly 150 fewer condos and apartments monthly in Miami Beach in 2014 even though the median rental rate in the barrier island city was nearly seven percent cheaper than the price on the other side of Biscayne Bay in Greater Downtown Miami, according to statistics from the Southeast Florida MLXchange.

Some industry watchers, including this one, have long anticipated that the thousands of new high-rise condo and rental units with state-of-the-art amenities that were developed — and ultimately sold to out-of-town owners — in Greater Downtown Miami during the last boom-bust cycle would ultimately win out in a competition for tenants against Miami Beach’s rental properties that are typically historically significant but lack the necessary features required by today’s tenants.

The divergence of the two rental markets — which are separated by a four-mile ride across the MacArthur Causeway — has been occurring for the last five years before becoming more pronounced in 2014.

A review of the 2014 statistics shows that tenants leased nearly 500 condos and apartment units monthly in Greater Downtown Miami at a median price of $2.32 per square foot.

This means a 1,000-square-foot unit in Greater Downtown Miami rented for more than $2,300 a month last year.

By comparison, tenants leased less than 350 units monthly in Miami Beach at a median rental price of $2.17 per square foot in 2014, according to the data.

Based on the Miami Beach rental rate, a 1,000-square-foot unit was leased for less than $2,200 monthly last year.

The 15-cent price difference on a per-square-foot basis monthly ranks as one of the biggest spreads between Greater Downtown Miami and Miami Beach in recent memory.

Back in 2012, Greater Downtown Miami was about two cents more expensive than Miami Beach on a median monthly basis. In 2013, the median rental rate in Greater Downtown Miami was 11 cents higher on a per-square-foot basis compared to the barrier island city.

Simple economics suggests that a rising median rental rate in Greater Downtown Miami should ultimately force some cost-conscious renters to forgo the increasingly popular mainland for the relatively cheaper market of Miami Beach, but that is far from guaranteed for a number of reasons.

For one, many of the more affordably priced rental units in Miami Beach are in serious need of modernization and assigned parking.

For the Miami Beach rentals that do provide relatively modern places with parking, the units tend to be located outside of the highly popular South Beach neighborhood.

Even with obvious drawbacks for tenants, landlords in Miami Beach still appear to be refusing to acknowledge the rental market shift to Greater Downtown Miami that is underway.

For example, the median asking rental price monthly for a condo or apartment in Miami Beach is about $3.23 per square foot compared to $2.62 per square foot in Greater Downtown Miami as of March 11, according to the data.

A closer examination of the statistics shows that landlords in Miami Beach are asking for rents on a median basis that are nearly 50 percent higher than what units leased for in 2014.

It is possible that the current rental asking price is somewhat inflated due to this still being the winter tourism season.

Nearly 1,150 units wereavailable for lease in Miami Beach as of March 12, according to the data.

In Greater Downtown Miami, landlords are seeking rents that are about 13 percent more than the median transaction price for 2014.

Fewer than 1,000 units are currently available for rent in Greater Downtown Miami.

Before assuming that a price adjustment could rectify the Miami Beach rental market, it is important to consider that more than an estimated 7,700 new rental units have either already been developed or announced for Greater Downtown Miami since this current South Florida real estate cycle began in 2011.

The new Greater Downtown Miami rental units are slated to be built in addition to some 23,300 new condo units that are currently in some stage of development for the mainland, according to a February study released by the Miami Downtown Development Authority public taxing agency.

The Miami DDA study determined that foreign investors represent about 85 percent of the “current buyer pool” in Greater Downtown Miami, so it is reasonable to think that many of the new condo units being developed will probably be made available for rent.

By comparison, developers have announced 35 new — and highly priced — condo buildings with fewer than 1,550 units for Miami Beach during this cycle, according to the preconstruction condo projects website CraneSpotters.com.

(For disclosure, my firm operates the website.)

It is unclear how many rental units — estimated to be about 1,000 — are being developed in Miami Beach during this cycle as no recent study has been released publicly.

What is clear is that developers in Miami Beach often times prefer to build luxury condos and hotels rather than more modestly priced apartments on the barrier island given the high land prices.

In fact, condominiums are so popular in Miami Beach that many developers tend to convert existing rental apartments that have recently been modernized into condominiums.

The unanswered question going forward is whether Miami Beach will be able to once again be a top destination for tenants given the impact of what an estimated 30,000 new Greater Downtown Miami apartment and condo units are expected to have on the local rental market.

Peter Zalewski is a principal with the Miami real estate consultancy Condo Vultures. Zalewski, a licensed Florida real estate professional since 1995 and founder of CVR Realty and Condo Vultures Realty LLC, advises developers, lenders and institutional investors. Zalewski also runs the preconstruction condo project website CraneSpotters.com in conjunction with the Miami Association Of Realtors.

MIAMI BEACH VS. GREATER DOWNTOWN MIAMI

Here is a comparison of the rental market, reflecting apartment and condo leasing activity as of March 12:

Rental status

Greater Downtown Miami

Miami Beach

Rental units

2014 average monthly lease pace

Median price per square foot/monthly

Rental units

2014 average monthly lease pace

Median price per square foot/monthly

Properties available for lease on March 12

975

492

$2.62

1,145

344

$3.23

Months of supply available based on 2014 leasing pace

2.0

3.3

Annual leases completed

Units

Change

Median price PSF/monthly

Change

Units

Change

Median price PSF/monthly

Change

2014

5,898

2%

$2.32

7%

4,130

4%

$2.17

5%

2013

5,767

13%

$2.17

9%

3,983

4%

$2.06

5%

2012

5,088

11%

$1.99

7%

3,837

20%

$1.97

10%

2011

4,585

33%

$1.86

8%

3,194

38%

$1.79

8%

2010

3,447

$1.73

2,318

$1.65


Read more here: http://www.miamiherald.com/news/business/biz-monday/article14077298.html#storylink=cpy

 

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