Miami residential and office markets muddled

Recent data reveals mixed results and uncertain outlooks for Miami’s residential and office markets.
 
According to a pair of new reports, low-priced residential condominiums are selling, but more expensive units are a year away from any pickup in activity. Office space vacancy rates are rising, though, and landlords are stepping up incentives to retain tenants.
 
The multiple listing service data released at the end of last month show that less expensive condos in Brickell, downtown proper and the arts district are moving fast, but the supply of units over $500,000 remain stagnant. 
 
On the office front, vacancy rates in Miami-Dade County rose in the second quarter, according to the latest report from Studley. New office space is coming online downtown and sublease footage is increasing. Many landlords are responding to flat demand and the prospect of new product in Miami by enhancing flexibility on rental rates and concessions, including free rent.
 
The glimpse of good news, said Tom Capocefalo, a managing director in Studley’s Miami office, is some tenants are renewing leases, or moving to smaller, more efficient offices in higher quality buildings.
 
High-end condo sales stuck
 
Condos in Brickell, downtown and the arts district are selling — if they are priced under $250,000. Throughout the city of Miami and Miami Beach, the supply of condos, as measured by months of inventory on the market, in the $250,000-and-under range is half of the $500,000 and up supply, according to the MLS stats.
     
“I think the lower price range is at the bottom,” said Lucas Lechuga, a realtor with Miami Condo Investments who is also a downtown real estate blogger. “The upper price range is at least a year away from bottom.”
 
Lechuga said the lower priced bracket has to stabilize and prices need to rise to get more expensive units moving. That would help close the gap between moderate and higher priced units.
 
Right now, a unit in the up-and-coming arts district or Brickell can be bought for less than $200 a square foot. These units are nearly comparable in quality to the new, more upscale towers in Brickell, many of which list for more than $450 a square foot. In many cases, it doesn’t make sense for buyers to spend double to get only a slight upgrade in quality.
 
Another outcome is that developers and owners of more expensive units will continue to cut prices, but that would mean, at best, modest reductions in the high-end inventory.
 
Prices at the 1,700-plus-unit Icon Brickell recently were cut from about $550 a square foot to $450 a square foot. Lechuga estimates prices need to come down to $300 a square foot before units start moving quickly.
 
“Even with a big reduction, if they sell three units a day, it is going to still take a year and a half to close out the inventory there,” Lechuga said.
 
Still, figures show an improvement in the number of closed sales in the previous six months – in both the lower and upper end.
     
Overall, there were 3,551 closed condo sales in the six months leading up to January 2009, compared to the 5,007 closed condo sales within the past six months. That’s an increase of 41 percent.
 
The number of closed condo sales in Miami improved about 39 percent, while closed condo sales in Miami Beach increased about 20 percent. 
 
Office availability increases
     
Miami-Dade’s availability rates for class A office space spiked, according to the Studley second quarter office report.
 
Rates stabilized in neighboring Broward and Palm Beach counties.
 
Tenants such as law firms and financial institutions in downtown Miami have downsized and sublet space at their current locations or moved to smaller, more efficient offices, often at higher quality buildings.
 
“Those tenants in the marketplace are looking to save money and downsize,” Capocefalo said. “There are a few large tenants negotiating to move or renew leases over the next few months. Then we will see what happens in the new buildings in the downtown core.”
 
Capocefalo is talking about 1.7 million square-feet of office space coming online in three soon-to-completed projects: Met One downtown, 600 Brickell Avenue and 1450 Brickell.
 
Met One is the only project to announce tenants. Capocefalo said the best case, but least likely, scenario is if a handful of large companies from outside Miami move to the new buildings, otherwise the new leases will put more pressure on existing office space.
 
“If a firm from Houston opens a new office in Miami, that would be the best case scenario,” Capocefalo said. “I doubt that would happen right now.”
 
In the meantime, further rent reductions and other concessions are expected.