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> Daily Business Review, January 27, 2003
When
office developer Opus South decided to enter the South Florida
housing market, it was a sign of the times. Nearly every
segment of the real estate market is ailing — except
for residential.
Opus was clear about its intentions.
Its prposed condo in Boca Raton is part of the developer’s
overall plan for weathering the downturn in commercial real
estate.
But just how long housing will prop
up the real estate market is unclear. And nobody is quite
sure how war in Iraq might delay any potential recovery
in the commercial real estate sector.
While the residential segment continues
as the real estate hotspot, there are already indications
the market is beginning to cool. A home-buying craze has
been largely driven by low interest rates, which economists
predict will begin to rise in the summer, a shift that is
sure to impact the housing market.
Combined single-family home and condominium
sales in the tricounty market jumped dramatically from 2000
to 2001, with sales of existing units largely fueling that,
according to statistics provided by Integra Realty Resources
AREEA/South Florida in Miami.
But the estimated year-end total for
2002 indicates the beginning of a slowdown.
In 2000, 161,017 homes and condos
sold at an overall average price of $165,168. A year later,
sales jumped 11.5 percent to 170,917, and prices averaged
$196,256 — a 28.5 percent rise.
In 2002, sales rose less dramatically
— an estimated 181,362 homes and condos were sold,
a 6.1 percent increase. And the average sales price declined
slightly to $196,230, according to year-end estimates compiled
by Integra Realty Services/AREEA in Miami.
“We don’t expect the increase
in prices to continue the way it has,” said Dawn Soper,
Integra’s market research director. “We are
in a seller’s market right now but, by the end of
this year, we will start to see a better balance between
sellers and buyers.”
Developers have decided on a cautious
approach. While deals are still driven by low interest rates
and hungry institutional investors, purchases are being
increasingly pursued with an eye toward development when
the economy turns around.
For example, Industrial Developments
International of Atlanta is expected to close soon on the
last significant chunk of commercial land available in Miramar.
Though it plans a 1 million-square-foot office-warehouse
project on the site at some point in the future, IDI is
nowhere near ready to begin construction. The purchase is
a land-banking move — intended to position the giant
industrial developer to take advantage of future growth
in Southwest Broward.
Similarly, brothers Geoffrey and Ira
Paskow recently paid a premium for a sprawling apartment
complex in Plantation with no immediate plans for redevelopment.
The Paskows plan to eventually convert the Polo Glen apartment
complex they paid $37.1 million for into condos, but that
could be five years away.
Pressure on rental rates and increases
in costs such as insurance are causing some skepticism about
the future of the multifamily housing market. And perennial
talk about a condo glut continues. What’s new, though,
is that most analysts agree the extreme high-end of the
market is where trouble is brewing.
Commercial real estate continues to
limp along, and the uncertainty of war in Iraq is not helping
the situation. In the office market, vacancies are up and
available sublease space is mushrooming. The industrial
market is similarly tepid.
Jay Caplin, senior director at Cushman
& Wakefield in Miami, predicts 2003 will be much like
last year — best characterized by a “wait-and-see”
attitude. Companies aren’t expanding and, as long
as the economy remains weak and the uncertainty of war against
Iraq lingers, no change of course is expected.
Ken Morris, president of Morris Southeast
Group/Corfac International in Plantation, sees similarities
to the pre-Gulf War marketplace in 1991 — with a notable
exception.
Twelve years ago, there was an overabundance
of commercial space but far more demand, he said.
But in 2002, and so far this year,
“you’ve seen a stalling out of demand for space,”
Morris said.
At the end of 2002, according to statistics
by Cushman & Wakefield in Miami, at 18 percent, Miami-Dade
has the highest office vacancy rate. Broward improved from
last year’s 18.7 percent to a current 16.8 percent
vacancy rate. Palm Beach’s office market grew softer,
with vacancies increasing from almost 16 percent in 2001
to 17 percent last year.
Industrial space, meanwhile, was most
plentiful in Miami-Dade, which had a 9.4 percent vacancy
rate. In Broward, 8.6 percent of industrial space was vacant,
while Palm Beach had 6.3 percent vacant.
“How do you create demand if
it isn’t there?” Morris asked. With company
layoffs numbering in the thousands of workers, “more
often than not, brokers like me are becoming disposition
experts, handling subleases or early lease terminations.”
Stiles Corp. president Doug Eagon
is definitely an optimist. He predicts improvement in the
latter part of 2003.
“Each day of quiet activity
is just one more move closer to pent-up demand being released,”
he said. “I see there being a variation of 1995, when
there wasn’t a lot of activity and then the economy
broke open again. I don’t see it being as dramatic,
but I think you will see toward the latter part of the year
some definite improvement.”
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