It goes without saying that COVID-related lockdowns and panic caused a significant slowdown in South Florida’s service economy. Tourism, conventions, and general business travel are vital to the region’s financial stability, given the money they bring in every year.
An October study by Florida International University suggests that the hotel and restaurant industries in South Florida combined to take a $3.36 billion economic hit because of COVID-19. Few industries can sustain those losses for long, but there’s hope on the horizon. Passenger traffic at Miami International Airport has rebounded to 80% of its pre-COVID peak, and hotels across South Florida recently averaged roughly 80% occupancy.
Here’s a look at the numbers and what we can expect from South Florida’s hotel industry:
Overall occupancy is up in South Florida, with rates hovering around 70-80% in various areas. This isn’t too far off what the figures were from the same time of year before COVID.
Most of these gains have come from leisure travel, which represents about $500 billion of the $800 billion spent on travel statewide every year. But while commercial flights to South Florida have increased recently, “the same can’t be said for business travel” overall. The result is a disproportionate impact on different property classes and locations; beachfront resorts are faring better than downtown business hotels.
The hope is that as more of the population receives vaccinations, larger-scale conventions and routine business trips will reappear in South Florida and once again fill hotel rooms.
It’s also worth mentioning that there haven’t been significant decreases in the nightly rates hotels are charging, as there’s enough demand to keep them near traditional levels.
One trend as hotels begin filling up again is that tourists looked for places on or near the beach, particularly last winter. For example, Miami alone reported 80-90% occupancy in beachfront hotels on weekends between November and January, which was far higher than the city’s overall occupancy rate of 54%.
“The hotels and resorts that have water view are in great shape, but when I think about those that are west of Miami Beach, west of Biscayne Bay and the Intercoastal, they are still under challenge because those hotels rely on the business travelers,” Scott Berman, principal and industry leader of the Hospitality & Leisure Group PwC told CBS Miami.
These numbers suggest that pent-up demand for leisure is exploding as lockdowns end and vaccines become available. The much slower return of business travel may be due to continued health and liability fears about the virus or durable changes in how companies operate after the pandemic. Remote work and virtual meetings have become the norm, and businesses may realize how much money they save on digital interactions vs. in-person events—especially those that involve costly travel.
Despite the arrows pointing in the right direction, it’s important to remember that we aren’t out of the woods yet, and some factors could stall South Florida’s hotel recovery.
First, there’s always the risk of vaccine-resistant COVID variants emerging in force and rolling back gains against the virus. While this is a worst-case scenario that doesn’t seem likely, the economic effects in South Florida would be devastating for hotels.
There’s also the chance that we won’t get enough vaccine participation to reach herd immunity. As long as the virus is still circulating at high levels, a significant number of people may consider travel risky. Even if this situation no longer leads to additional lockdowns or social distancing measures, a percentage of the population restricting travel could impact the overall numbers.
Finally, even as travel resumes, there is the problem of not enough workers to keep up with hotel demand. By September 2020, over 76,000 hotel workers had lost their jobs statewide. And now that properties all over Miami-Dade and Palm Beach County are looking for employees, they are experiencing a labor shortage. Many business owners and managers in the hospitality industry nationwide claim enhanced employment benefits that include federal aid have made finding workers harder.
There could be public policy help coming soon, though, as Florida’s new unemployment requirements go into effect on May 29. Anyone receiving unemployment benefits must prove they’re searching for a job. The result could be more workers returning to the hotel industry.
The exact nature of South Florida’s hotel recovery is uncertain, with many analysts taking a wait-and-see approach that puts “after Spring Break” or “the end of summer” as crucial benchmarks. And business travel remains a fundamental hole in pre-pandemic occupancy levels and profits. Nevertheless, things are looking up for South Florida’s hotels. Stay tuned.
Morris Southeast Group keeps an eye on economic and commercial real estate trends to better serve our clients and partners. Give us a call at 954.474.1776 to discuss our investing, leasing, or property management services. You can also speak with Ken Morris directly at 954.240.4400 or email@example.com.
Florida’s population is expanding rapidly, and the underlying reasons make a lot of sense.
Sure, the state will always draw people because of its warm weather, the abundance of activities, and altogether attractive lifestyle. But Florida’s low tax rates, favorable business regulatory environment, and healthy economy also drive its current boom.
In fact, Florida is the largest recipient of out-of-state movers in the country. This trend should continue, especially if specific provisions from the Tax Cuts and Jobs Act remain in effect.
Here’s a look at how Florida’s population is growing and what this will mean for the state moving forward.
The Tax Cuts and Jobs Act brought many changes to the U.S. tax code, including a $10,000 cap on state and local tax deductions that makes living in a low-tax state like Florida even more attractive. So, while Florida was always a draw because of its lack of state income tax, this benefit has gained appeal for those living in high-tax states.
How many people could end up moving to Florida?
From 2015 to 2020, Florida had between 307,814 and 387,479 net arrivals yearly. The number of new residents has grown significantly, even during the pandemic-ravaged 2020. In contrast, California had a net loss in population “the first time in more than a century,” a statistical event that followed “a decades-long pattern of slow growth.”
Estimates suggest that Florida could see a net of more than 300,000 new residents arriving every year until 2024, when the number could drop to about 297,000. Still, it’s expected that these new inhabitants will remain over the 200,000 mark every year until 2030.
Overall, this could lead to nearly five million new Florida residents arriving from other states between 2015 and 2030.
Although Florida’s tax rates are far lower than in many states, the influx of residents, particularly the wealthy, is helping increase tax revenue and driving new business activity. In 2016, Florida was the single largest beneficiary from relocations out of all 50 states—and it really wasn’t even close.
That year saw Florida draw a net influx of nearly $18 billion in gross income, while the 19 other states with a positive net inflow of gross income combined for just over $19 billion. By comparison, migration cost New York nearly $9 billion in adjusted gross income, while Connecticut, New Jersey, Illinois, and Pennsylvania all saw significant losses, as well.
It’s also worth noting that in 2016 alone, 63,772 people moved from New York to Florida, primarily because of the tax savings.
Of course, one concern with a growing population is whether there are enough jobs to keep everyone employed. A failure to provide employment puts additional strain on the state’s resources, but that doesn’t seem to be a problem in Florida—yet.
Before the COVID-related shutdowns across the country, Florida had one of the nation’s lowest unemployment rates at 3.3%. The jobs were spread through multiple sectors and cities, too, a sign of a healthy economy. In addition, Florida added jobs every month between 2011 and 2019 except for September 2017, when Hurricane Irma caused a state-wide economic shutdown.
Post-COVID, the numbers aren’t quite as strong, but Florida still sees its employment numbers rebounding fast compared to other parts of the country. While the unemployment rate jumped to 7.7% in 2020, it’s back down to just 4.7% as of March 2021, compared to the national unemployment rate of 6%. And starting in late May 2021, those receiving unemployment benefits have to prove they’re searching for work, which should cause unemployment to drop even further.
Another factor that could cause an uptick in Florida’s economy is the growing number of financial institutions and tech companies moving their headquarters to the state, particularly South Florida. Companies like Blackstone, Goldman Sachs, Deutsche Bank, and Microsoft have offices in Florida, bringing high-paying jobs and attracting talent.
Florida’s population boom could mean many different things for commercial real estate investors.
As more businesses establish themselves throughout the state to keep up with demand, there should be plenty of investment opportunities in the buildings these companies require.
At the same time, it’s crucial to weigh the risks because we don’t know how employment will shake out in a post-COVID world, especially since many businesses in the state’s huge service economy can’t find workers right now. In addition, Florida was graded as a “C” for its infrastructure by the American Society of Civil Engineers (ASCE) in 2017. This assessment beats the national “D+” average, but rapid population growth will stress this infrastructure—and roads, bridges, public transit, water supplies, and other elements play a role in successful CRE.
Overall, Florida’s significant population growth is good news for the economy and CRE. As with all trends, we’ll be keeping an eye on it and the implications.
For more information or help with CRE investing, property management, or leasing, give Morris Southeast Group a call at 954.474.1776. You can also call 954.240.4400 or email firstname.lastname@example.org to speak with Ken Morris directly.
In the 1990s, Miami attempted to establish itself as a tech hub. At that time, the city was home to some of South America’s top online players, including the financial web portal Patagon.com, which eventually sold a 75% stake to global financial firm Santander.
But when the dot-com bubble burst in the early 2000s, the area could not hold onto much of its tech industry presence. Numerous tech companies went out of business, and nothing replaced them.
Things are far different today. Miami is now considered “the second most entrepreneurial city in the country” and features a startup density of 247.6 per 100,000 people. And the broader South Florida area hosts some significant tech companies.
Miami is also experiencing an influx of financial firms. Blackstone Group, Goldman Sachs, and Starwood Capital Group, among others, have relocated some of their operations to the downtown area. Given these factors, it makes sense that the tech industry will return to South Florida. The region is now in the same tier as other hubs like Boulder, CO and Austin, TX, in terms of attracting firms and talent.
Here’s a look at what’s happening in the tech scene and what this expansion could mean for South Florida.
The great thing about the area’s ascension in the tech industry is that there’s a nice mix of startups and established firms setting up shop.
For example, the online pet store Chewy Inc. was a startup based in Broward County. This retailer was acquired by PetSmart in 2017 for $3.35 billion and had over $7 billion in sales in 2020, making it a true success story of South Florida’s tech scene.
Another startup with success in the area is REEF Technology Inc., an organization with offices on Brickell Key that turns underused spaces in urban centers into hubs for goods and services. The firm received over $700 million from investors in 2020 and looks primed to experience further growth.
Of course, it isn’t just startups that are transforming the tech industry, as plenty of globally established firms are also setting up in the area.
For example, Microsoft already has a Latin American sales group in Fort Lauderdale, and reports suggest the company is currently searching for more space in Miami’s Brickell neighborhood. In addition, Live Nation leased a 52,000-square-foot office in Wynwood, and Spotify has 20,000 square feet of space in the same neighborhood.
Another bullish sign for the area’s tech industry is that two of the world’s largest tech investment companies, SoftBank and Founders Fund, occupy space in Miami and appear ready to invest heavily in tech. SoftBank already has about 14,000 square feet in the city and could be searching for as much as 100,000 square feet as it expands in South Florida. The firm has also committed $100 million to fund the region’s startups.
As Miami further expands its tech presence, we could also see the city reach new heights as a global financial giant. After all, few locations in the country can compete with the mix of weather, activities, lifestyle, low taxes, and a business-friendly regulatory environment. The result would be an influx of high-paying jobs in Miami and growth for the rest of South Florida, as well.
As office space in downtown Miami rebounds and begins leasing or selling for a premium, cities and suburbs outside of the downtown core could also become more attractive to startups. Since employees work remotely at higher levels than ever before, there isn’t much reason for smaller firms to lease in a central area.
Much like Silicon Valley became an industry hub just outside of San Francisco, communities all over South Florida will benefit from this momentum.
From a commercial real estate standpoint, more tech and financial firms looking for space in Miami and the surrounding communities directly affects the demand for office space in downtown areas. An influx of startups could also mean more demand for smaller offices in outlying areas.
And the indirect growth in jobs—and the need for consumer goods and services—will impact the rest of the economy and demand for other types of CRE. As a CRE investor, it’s essential to keep an eye on these trends—especially if you own or are evaluating property classes that may benefit.
Nevertheless, our CRE advice remains consistent: trends can be valuable, but due diligence is king. Each potential investment must be judged on its fundamentals, including solid financial, contractual, and geographic analyses.
Morris Southeast Group works with CRE investors as they look for value and expand their investment portfolios. Give us a call at 954.474.1776 to discuss the current commercial real estate climate in South Florida. Ken Morris is also available directly at 954.240.4400 or email@example.com.
Restrictions during the COVID-19 pandemic, especially bans on indoor dining, severely impacted the U.S. restaurant industry. Even areas with loose or no restrictions, like Florida, are experiencing slowdowns because of consumer hesitancy.
The result is hundreds of thousands of restaurants throughout the country permanently closing their doors. In addition, many eateries that have managed to stay in business are struggling through significant financial issues. While these closures signal trouble for the industry overall, there could be opportunities for savvy investors to capitalize on the widespread return of in-person dining.
Here’s a look at what’s happening in the restaurant industry and what we might expect to happen in the coming months.
On the surface, the numbers associated with the restaurant industry might be described as “cataclysmic.”
By early December, over 110,000 of the 778,807 restaurants in the United States had permanently shut down because of pandemic-related financial losses. That number has undoubtedly grown this year, too, with some estimates suggesting that nearly half of the country’s restaurants might never recover. In addition, the industry’s sales decreased by $240 billion from the expected levels of $899 billion in 2020.
Typically, any industry with over 14% of businesses failing in less than a year and a sales decrease of $240 billion would be a no-go for investors. However, COVID-19 has created an atypical scenario.
Of course, we all know that people all over the country didn’t just suddenly decide to stop eating at restaurants. COVID restrictions and virus-related consumer cautiousness are driving the slowdown in the industry.
However, there is light at the end of the tunnel thanks to national vaccination efforts. Nationwide, over 40% of the population had at least one vaccine dose by the end of April 2021, with about 30% of people already receiving two doses.
Florida’s numbers are very similar to the national ones, with over 40% receiving at least one dose and 28% getting two doses already. COVID numbers are dropping with the increase in vaccine doses, too. Despite lifting its restrictions, Florida is seeing a steady decrease in positive tests as we move deeper into the spring.
As more people get vaccinated, the populace will likely revert to normal as quickly as possible, with dining out at restaurants rapidly returning toward pre-pandemic levels.
Assuming we see vaccination rates continue to increase and the virus retreat to endemic levels, the restaurant industry should see a significant boom. But will that boom hit pre-pandemic levels? And if it does, will there be enough supply to keep up with demand?
The country has lost at least 14% of its restaurants. One might argue that there were too many dining options to begin with, but entrepreneurs could see line-ups outside of popular eateries, and new investors may look to get involved in the industry. Complicating a renewed surge in demand is an inability for many restaurant owners to find employees as government unemployment benefits continue.
Nevertheless, a restaurant rebound will increase demand for restaurant space, and there are plenty of CRE investment opportunities due to restaurant closures and empty properties. These buildings already have kitchens and are set up to accommodate indoor dining, of course.
But CRE investors and possible restaurateurs must continue to weigh specific risks in the face of continued uncertainty:
In the end, the wise path on restaurants mirrors the smart play on any CRE investment: pay attention to trends but conduct thorough due diligence on every deal.
For those thinking of purchasing a property, evaluate the area, its foot traffic, a property’s proximity to other in-person retail and service businesses, and more. And current landlords should closely assess a potential tenant’s business case, including the length of the lease terms, the lessee’s track record in the industry, and other factors.
If a deal makes sense, it’s likely to make sense regardless of broader trends.
Of course, COVID-19 will remain a big part of our lives for the near future, and there’s a lot of work to be done before things become “normal.” It’s essential to keep an eye on the economic recovery in South Florida and throughout the country to ensure you’re making wise investments.
Morris Southeast Group works with commercial real estate investors and can assist as you look for value in the South Florida market. Whether it’s empty restaurant space or other commercial property types, we’ll provide advice and local market knowledge as you look to expand or manage a portfolio.
Give us a call at 954.474.1776 to learn more. You can also reach Ken Morris directly by calling 954.240.4400 or via email at firstname.lastname@example.org.