South Beach has been one of the hottest rental markets in South Florida over the last two decades, but the barrier island neighborhood’s ability to attract a continuous flow of tenants willing to pay a premium is waning.
The latest statistics from the Southeast Florida MLXchange suggest renters are finally getting fed up with the idea of paying top dollar to live in one of the numerous historic Art Deco apartment buildings in South Beach. The buildings have unique facades but lack the modern comforts of central air conditioning, a washer and dryer, parking and hurricane-resistant windows.
This is as notable as any prolonged rental market slowdown. It has the potential to impact residential prices in Miami Beach at a time when developers are proposing at least 20 new condo towers at record presale prices, according to CraneSpotters.com.
Ever since landlords aggressively raised rents after the South Florida condo market bottomed in 2009, tenants have increasingly looked at alternative locations ranging from Sunny Isles Beach to Greater Downtown Miami.
As a result, South Beach now has more than 100 days of residential inventory available for rent compared to less than 70 days of inventory in the much larger Greater Downtown market and about 190 days in the Sunny Isles market.
South Beach’s growing rental inventory levels come at a time when leasing activity has slowed by four percent in the first 11 months of 2013 compared to the same period in 2012, according to the Southeast Florida MLXchange.
By comparison, leasing activity in both Greater Downtown and Sunny Isles is up nine percent in the first 11 months of 2013.
More alarming is the fact that leasing velocity in South Beach has increased by less than six percent since 2009 while growing by 40 percent in Greater Downtown and 11 percent in Sunny Isles during the same period.
Even with the slowdown in leasing activity in South Beach, the market’s median monthly rental rate has grown by 26 percent to about $2.36 per square foot since 2009.
Unfortunately for capitalization-rate-focused investors in South Beach, the median rental rate in Greater Downtown has grown at a greater pace, increasing by 30 percent to $2.20 per square foot since 2009. The median monthly rental rate in Sunny Isles has increased by 22 percent to $1.61 per square foot since 2009, according to the data.
The question going forward is whether South Beach has enough cache to maintain its dominant position in the increasingly competitive South Florida rental market for another decade.
Peter Zalewski is real estate columnist for The Real Deal who founded Condo Vultures LLC, a consultancy and publishing company, as well as Condo Vultures Realty LLC and CVR Realty brokerages and the Condo Ratings Agency, an analytics firm. The Condo Ratings Agency operates CraneSpotters.com, a preconstruction condo projects website, in conjunction with the Miami Association of Realtors.