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When office developer Opus South decided to enter the South Florida housing market...
January 27,2003
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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