A slowdown in presales of new construction condos marks an adjustment period for the Miami market, according to ISG’s New Construction 2015 Q2 Update, echoing previous reports this quarter.
Out of the 16,889 new construction condos available for sale, 4,477, or 26.5 percent, remain unsold, according to the report, which focuses on Greater Downtown Miami, the Biscayne Corridor, Key Biscayne, Coconut Grove, the Beaches, Aventura and North Miami Beach.
The 50-percent deposit structure, ISG principal Craig Studnicky told The Real Deal, “has cut inventory by probably 60 percent compared to what was built during the last cycle.”
That, coupled with the strength of the U.S. dollar, weakening of foreign currencies and increased construction costs, has caused the slowdown in the condo market, ISG Principal Philip Spiegelman told TRD.
In Brickell, out of 5,506 new construction units on the market, 4,506, or 81 percent, are presold, according to the report. Along the Biscayne Corridor, 3,581 units are presold out of 5,279, leaving 1,698 unsold.
The slowdown in sales “doesn’t by any means signify the market is dead,” Studnicky said. “Developers are not going to drop prices. They’re holding.”
Developers such as Property Markets Group and Related Group have postponed announcing new projects, both in Greater Downtown Miami until late next year, Studnicky said. (ISG works with both developers.) PMG paid $80 million for the site at 300 Biscayne Boulevard in November.
“We believe the U.S. dollar will weaken and once that happens — let’s say we’re in a low tide — by next year we’ll be in high tide,” Studnicky told TRD.
In both its first quarter and second quarter reports, Miami’s Downtown Development Authority said that the presale absorption of units in downtown Miami condominium market has slowed as foreign investors retreat to the sidelines amid currency devaluations against the U.S. dollar. Rental rates and condo prices are leveling out.
The first quarter report, released in March, noted that 22,200 units are in the pipeline — the equivalent of an 11-year supply under the estimated 2,000 new condo units the Miami market can absorb annually, as reported by TRD columnist Peter Zalewski.
Almost half of those 22,200 units in Greater Downtown Miami are currently under construction or in the preconstruction planning and permitting phase, according to that report. Some will not enter planning stages.
“There are only a handful of qualified, talented and experienced developers to complete projects from start to finish,” Spiegelman said.
Studnicky agreed. “There’s an ocean of difference,” he said, “between proposed projects and active ones.”