Where is the commercial real estate market heading?

September 10, 2012

Commercial Real Estate Market Multi-Housing

Where is the commercial real estate market heading? This is a question that we have been asked recently by some of our followers. The commercial real estate market is showing signs of positive growth. The demand for warehouses and industrial properties has grown because of an increase in imports and exports. Currently one of the hottest sectors of Real Estate in South Florida is the Multi-Housing (Apartment buildings) market. This market is currently driven by increasing rents, higher occupancies and a strong demand from investors.

Miami-Dade average rents are above the record high rents that were recorded in 2006-2007.  Rents are anticipated to increase 3% to 8% over the next two years.  In spite of these rent increases, occupancies remain at historical highs with Miami-Dade at 96%.  Occupancies are as well expected to continue increasing over the next few years.

Fueled by low interest rates, strong occupancy rates, expected rent growth, a lack of new supply and a decline on home ownership – Cap rates, particularly for newer properties, are near record lows.

Though home prices in South Florida are stabilizing and a reduction in foreclosures has been posted, demand remains strong for multi-housing.  A 1% drop in home ownership in Miami-Dade translates to about 8,000 new renter households.  Moreover, young adults are not acquiring homes due to tighter lending standards and limited employment.

Brickel Avenue Multi-Housing Properties

Multi-housing properties continue to be the preferred asset class for commercial real estate investors in South Florida.  Higher rents and occupancies, cheap debt, abundant investors, limited for sale product and historically low cap rates are continuing to drive pricing.

There are still concerns with job growth as well as limited funds in the market for commercial properties due to the over regulation of banks. The overall outlook for the commercial real estate market looks promising even though we might encounter a few bumps in the road getting there.

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