Strong in-migration and rebounding Latin American economies are bolstering the South Florida economy even while the national economy slows. The Miami area has historically been a focal point of business between the United States and Latin American countries, and numerous multi-national corporations with operations throughout Central and South America are headquartered in South Florida. As several Latin American economies bounce back, South Florida's financial and trade sectors continue to benefit. This market does not have a concentration of high-tech firms and therefore has not been adversely affected by the tech sector shakeout that has impacted many other markets. Job and population growth are expected to remain strong over the short term, thanks largely to improving regional foreign markets. As a result, the South Florida real estate landscape remains healthy.

Multifamily

The apartment market continues to be a seller's market even as many other markets are moving in the opposite direction. Construction completions will decline this year, although they could rebound slightly by early 2002. Downtown Fort Lauderdale has the most units planned for construction, as developers focus on urban projects that create a work, live and play environment. There are nine projects in the planning stages that will result in more than 2,700 units coming onto the market if all are developed. A majority of these projects are high-rise developments due to limited development sites and increasing construction costs. Such projects include the Las Olas Grand Apartment Tower, 212 units, and the 998-unit River House Apartments.

Rents will continue to move upward during the second half of 2001. As the market gains favor with investors, it is becoming increasingly difficult to locate quality projects to purchase. Many Class A and higher-end Class B properties have turned over in the last 12 to 24 months, and even prime renovation opportunities are difficult to find. The apartment market will remain strong as more out-of-town buyers discover the strength of this investment market.

Office

As high-tech and telecommunications companies flock to the area to take advantage of South Florida's enhanced Internet connectivity and proximity to Latin America, developers have concentrated on large-scale telco-hotel projects. Examples include Argent Ventures' 1.1 million-square-foot Omni Technology Center and Terramark's 700,000-square-foot Technology Center of the Americas.

However, recent doldrums in the telecom and Internet industries have forced companies to trim payrolls and delay expansion plans. As a result, lenders are utilizing more stringent underwriting procedures for office properties. Strong pre-leasing requirements and lower loan-to-value ratios will deter a surplus of speculative space, which has been abundant in the past. Although South Florida is not expected to feel the dot-com fall as drastically as some other high-tech cities, an increase in sublease space along with new space coming on line in the market has caused South Florida vacancy rates to increase. As such, rent increases are expected to moderate this year as new construction and sublease space will compete for tenants.

Retail

The South Florida retail market should weather the national economic slowdown in 2001, though complete immunity is not likely as several national tenants close stores locally, sending ripples through the economy. Still, most retail investments will continue to make sense in 2001 as job growth spurs demand. Given their relative stability, grocery-anchored shopping centers will persist as investors' preferred retail investment. However, small retail strip centers will also draw investor attention, especially those that are well located in and connected to their respective communities.

More stringent due diligence will be mandatory of buyers when purchasing large power and regional centers given the uncertainty of several national tenants. Much more of a threat to retail developers than the slowing national economy is the land crunch in the South Florida area. Developers are having more difficulty finding large tracts of land that can feasibly be developed into housing subdivisions.

Following the laws of supply and demand, the amount of new retail construction is a by-product of demand by new housing developments. The shortage of land, particularly in Miami-Dade County, is expected to help keep this retail demand and supply in relative equilibrium and should spur redevelopment of some of the older infill properties.

Miami and the Fort Lauderdale area are experiencing a trend toward urbanization. Previously underdeveloped urban areas like the downtown Kendall and Brickell areas are seeing a surge of development. Such projects include the renovation of the Dadeland mall in Kendall and a new 165,000-square-foot lifestyle center in Brickell called Mary Brickell Village. While other areas of the state are focusing almost entirely on grocery-anchored centers, South Florida is still constructing super-regional and open-air retail centers. Projects include Taubman's 1.3 million-square-foot Mall at Wellington Green in Palm Beach, the 400,000-square-foot Abacoa Town Center in Jupiter (Palm Beach), Turnberry Associates' 220,000-square-foot Mediterranean-style center in Aventura called Aventura Crossings and a 500,000-square-foot mixed-use development called Legacy Place located in Palm Beach Gardens.

The slowing national economy is expected to have some rippling effects in the local economy, which may result in slightly slower job creation. However, most retail businesses should experience increasing revenues during 2001, spurred by slower, but still impressive job and population growth. Real estate investment will continue to make sense in 2001 as long as buyers understand the market and their investments.

David H. Luther is an investment sales associate for Marcus & Millichap in Fort Lauderdale, Florida.


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