Posted on December 21, 2021 · Posted in Industrial / Flex, Investments, Land, Multi-Family, Office, Retail

The past two years have been hectic, to say the least, with the coronavirus pandemic upending lives and markets around the globe.

Among the regions that fared better than others is South Florida, which emerged relatively unscathed.

Regional commercial real estate experts are now looking ahead to 2022, and they spoke with Bisnow regarding what’s on tap for the new year.

Hot Neighborhoods

Nitin Motwani, Managing Partner of Miami Worldcenter Associates

“Everyone knows that tech and finance firms are gravitating to Downtown Miami, and taking up hundreds of thousands of square feet of office space in the process. That trend also extended to national retail and hospitality brands entering the South Florida market for the first time. This year the trend was fueled by low taxes, a business-friendly climate, year-round warm weather, and an alluring lifestyle. Going into 2022, Downtown Miami’s meteoric rise in popularity over the last year is going to attract even more brands drawn by the diversity and growth the region is experiencing, and Miami Worldcenter sits at the confluence of all the excitement.”

Moishe Mana, CEO, Mana Common

“The Flagler District is going through a renaissance, rising as an international hub for innovation and an axis point between the Americas. We’re going to see the need for built-to-suit, high-tech office spaces in downtown Miami being met with the completion of the Nikola Tesla Innovation Hub. The Flagler District is the only neighborhood fit to embrace the emerging technologies that are here to stay in an integrated and central ecosystem. At the same time, Wynwood is cementing itself as Miami’s true arts and entertainment district. Next year, the master plan we crafted with Sidewalk Labs will come to life and we’re reopening the improved Mana Wynwood, among other revitalization plans. After years of fighting endless attempts to tone the area down into a residential district, it’s time to stop passing the baton and designate Wynwood as the premier district for nightlife, arts and culture.”

Jenni Morejon, President and CEO of Fort Lauderdale Downtown Development Authority

“The rapid growth of the Downtown Fort Lauderdale population, 41% over the past decade, has started to build a critical mass in the urban core. This has captured the attention of national investors and restaurateurs looking to place bold, one-of-a-kind residential and office concepts in DowntownFTL. All this growth has brought to the forefront the need to reimagine existing public spaces for future generations. At the DDA we are excited to move forward in reimagining Huizenga Park to better connect with the needs of Fort Lauderdale residents, workers and visitors.”

Jaime Sturgis, CEO, Native Realty

“Fort Lauderdale’s Flagler Village will continue to ascend, with significant investment in multifamily development sites. We are closing the sale of one site in December, with two more scheduled to close in January and March. There will also continue to be strong demand for bar and restaurant space in the neighborhood — everyone wants first-generation restaurant space, but it is extremely hard to find. Dry retail is doing very well too …. Sistrunk Boulevard and the broader Progresso Village neighborhood are the next hot Fort Lauderdale areas to watch, with Fuse Group planning a large phased development and other real estate players looking to invest and develop there. It’s the logical extension of Flagler Village, with its own distinct character and rich history.”

Jenny May, Senior Vice President and Managing Broker, Melnick Real Estate Advisors

“In 2022, I will continue to look for more land for development in various parts of Florida that are prime for either multifamily or single-family homes built to rent. With inflation, the rising cost of buying a home and the possible rise in interest rates, many consumers will be forced to seek rentals that work for their families … Most are left seeking lower rents in the suburbs or in other cities throughout Florida. Many developers are now looking at areas like Jacksonville/St. Augustine, Pensacola, Naples/Fort Myers and surrounding areas around Tampa, Apoka and the Villages.”

Office

Ericka Witkowski, Founder and Principal, Witko Group

“Currently, there are over 1.9M SF of office tenants in the market for space in Miami. I don’t think people realize how huge this is for Miami. It is the most active we have seen the market in years, even pre-Covid. There are a good number of new-to-market tenants who are in the 50-100K SF range, which was typically a unicorn tenant in Miami… Wynwood offers some of Miami’s newest office product, walkability, and is still a 15%+ discount from Class-A Brickell office product. Miami Beach now has five Class-A office projects in the pipeline for development in Miami Beach … Owners in more suburban submarkets would benefit from renovating their office spaces and creating spec suites that are move-in ready for tenants as the pattern of decision-makers prioritizing being closer to home rather than in a major central business district will only continue. As supply in these markets decreases, prices for renovated Class A- / B+ office buildings in South Miami will easily exceed 10% and be in the $50 to $55 PSF range.”

Ben Mandell, Co-Founder and Managing Principal, Tricera Capital

“[Leaders of large companies] are realizing they can go from having 3M SF of office space at Manhattan rents, keep 2M SF in the Big Apple and now take 1M SF in West Palm Beach instead — reducing their overhead by at least 15% … Even a large hedge fund like Schonfeld Strategic Advisors [which is opening its first Miami office at the mixed-use Dorsey being developed by Related Group, Tricera and LNDMRK Development in Wynwood] is choosing to have roughly 50K SF in Manhattan, +/- 20K SF in London and now about 20K SF in Miami, and plan to continue to expand into other major international cities with smaller format offices, that will now act as spokes to the headquarters ‘hub’ in Manhattan.”

Tony Arellano, Co-Founder and Managing Partner, DWNTWN Realty Advisors

“The most compelling opportunities are investing where there’s a constraint. When it comes to office product, the sentiment was that Miami had enough to cover the market. So no one was really building it. Now, there’s a meaningful deficiency for office space in walkable urban neighborhoods. The demand for cool and creative office space far exceeds supply in neighborhoods like Coconut Grove and Wynwood. Those two neighborhoods, along with the Design District, are also capturing prime retail tenants that are leaving traditional malls. We will see that trend continue, as Coconut Grove, the Design District and Wynwood are the best walkable neighborhoods bar none.”

Brian Gale, Vice Chairman at Cushman & Wakefield

“The new-to-market leasing activity we’re seeing for Miami’s Class-A market represents how a growing number of companies around the world are looking to establish or expand their footprint in South Florida, as 830 Brickell is the newest trophy building getting a plethora of attention. The tenants considering 830 Brickell reflect the industries that dominate the Brickell Financial District, as well as those which are emblematic of the ‘New Miami.’ These include technology companies, financial service providers and banks, hedge funds, law firms and private equity firms out of cities like New York, Chicago and San Francisco.”

Philippe Houdard, CEO and Co-Founder, Pipeline Workspaces

“Currently, many of our spaces, from Miami to Fort Lauderdale to Orlando, are reaching levels of occupancy around 95% — the highest we’ve seen since the onset of the pandemic. Seeing the trends, we are optimistic about the outlook for 2022. All indicators point to Florida continuing to benefit from the wealth and business migration, along with overall population growth. Since we see businesses even more focused on flexible terms today than pre-pandemic times, we are confident that demand for shared workspaces like Pipeline will remain strong.”

Tere Blanca, Founder, Chairman and CEO of Blanca Commercial Real Estate

“The flight to quality … will continue. [New and under-construction projects are already leasing up, including] The Plaza North Tower Coral Gables (40% leased), The Plaza South Tower (39% pre-leased), One Cocowalk (98% leased), The Main Las Olas (80% leased), 830 Brickell (40% pre-leased) and 360 Rosemary (100% leased). Across the board, these properties have achieved 10% TO 45% premium over the weighted average rent for comparable buildings in their respective submarkets. By year-end in 2022, 1.9M SF of new office builds will be delivering in Miami over 30% pre-leased… South Florida’s population has grown by an estimated 2% (127,000) residents over the past 12 months. The South Florida Metropolitan Statistical Area population growth is projected to outpace more than twice the 2.5% national average over the next five years.”

Industrial

Matt Rotolante, President, Lee & Associates South Florida

“Industrial real estate is on fire in South Florida and starting to trickle north into St. Lucie County, which has many new developments in the pipeline. Remaining land in Miami-Dade and Broward counties is scarce and has become prohibitively expensive. Miami is seeing its first vertical warehouse project, which was a concept discussed for many years and now finally being put into practice. We expect more vertical warehouse developments to be introduced in the year ahead.”

Edward W. Easton, Chairman, The Easton Group

“We remain very bullish on the industrial market over the next 12 months. There is a shortage of land for new development and the cost of construction will continue an upward trend. The cost to build new is approximately $250 a foot, which means you would need to get $12.50 per foot net rent for the project to make sense. The lease rates are not that high right now, but I think they are trending that way. I think rents will go up in 2022 because of escalating construction costs. Industrial vacancies are approximately 3%, an all-time low. So, I think in 2022, demand will continue to outstrip supply continuing to put upward pressure on lease rates.”

Brian Smith, Executive Managing Director and Industrial Lead, JLL

“The outlook for South Florida’s industrial market is bright for the coming years, fueled by the steady population growth [and] tourism, as well as business and wealth migration the region continues to experience. Miami-Dade County is expected to remain the epicenter for distribution, given that it reaches the largest population within the tri-county area. Submarkets such as Miami Gardens, Hialeah and Opa-Locka will continue to be a hotbed for new development due to the availability of land and optimal access for distribution and last-mile facilities. It is our belief that the next three years will be very active for the region’s industrial market given that it supports many of South Florida’s primary industries, including tourism and hospitality, retail, construction, cruising and e-commerce.”

Retail

Scott Sherman, Co-Founder and Managing Principal, Tricera Capital

“In the retail market, there is a premium for outdoor space, especially for food and beverage tenants. Additionally, many national chains are pivoting to drive-thru locations and delivery service. Miami is particularly seeing a wave of new chefs and concepts popping up in second-generation restaurant spaces that did not make it out of the pandemic. Dry retail has been slower to come back but should gain steam in 2022 … Over the next five years, the rest of Wynwood will fill in and become the most dynamic and exciting neighborhood in all of Miami. Further north, the MiMo District (where Tricera is partnering with 13th Floor Investments and Wexford Capital on The Boulevard development) is poised for substantial growth and investment.”

Hotels

Devlin Marinoff, Co-Founder and Managing Partner, DWNTWN Realty Advisors

“The hotel sector will experience significant consolidation in the year ahead. The market in South Florida is completely different than the rest of the U.S. — we are an island as far as the hospitality industry is concerned. There are many companies with a lot of money to deploy into hotel acquisitions here. It is too early for new hotel development, however. Financing simply is not available yet.”

Silvio Ursini, Vice President of Bvlgari Hotels & Resorts

“Each day, people around the world dream about traveling to Miami and Miami Beach. It’s an iconic destination, and it’s become even more attractive with the growth of Art Basel, new neighborhoods like the Miami Design District, and the arrival of top restaurants concepts from around the world. Leisure travel is driving South Florida’s hospitality sector, with Miami consistently ranking as one of the top-performing tourism destinations and hotel markets in the U.S. Bvlgari Hotels & Resorts operates elite properties in the world’s most dynamic cities, making Miami Beach a natural entry point into the U.S. market. [Bvlgari Hotel Miami Beach is slated for completion in 2024.]”

Multifamily

Tomas Sulichin, President of Commercial Division, RelatedISG Realty

“The greatest opportunity for commercial real estate in 2022 is in multifamily development. This sector is experiencing tremendous growth in South Florida, especially because of the continued daily migration of out-of-state buyers driving the need for housing. In all, the three major South Florida counties combined accounted for more than 30,000 units under construction, or more than 8% of the current inventory. That would rank the combined region third in the country in terms of normal units underway, behind only New York and Washington, D.C. With rents rising to factor in the influx of demand for homes, multifamily developments are becoming a sought-out solution to providing more inventory at more attainable prices. The demand for them will rise in 2022 given current market conditions.”

Greg West, CEO, ZOM Living

“The investment community clearly has recognized the resilience of the multifamily space and as we head into 2022, we see more capital interested in this space than we did in 2019. I think that trend will continue because the risk profile of the space has been proven and tested in very extreme ways in recent years. Its performance compared to other real estate asset classes, with the exception of industrial, has been far superior. Multifamily and industrial are going to be the favorite asset classes for investors for years to come.”

Todd Rosenberg, Managing Principal and Co-Founder, Pebb Capital

“The recent omicron variant, along with possible future mutations, will push trophy student housing and ‘Class-A’ office product to the top, while assets without consistent demand drivers, such as top universities where students and job seekers flock to, will be at risk. Recently, we sold Monarch Heights, a trophy student housing asset in New York City, for the second-highest price per bed. We anticipate the investment appetite will continue into the new year, with vaccine mandates, such as New York’s for the private sector, to become more commonplace, and pent-up demand for in-person education to continue rising.”

Rishi Kapoor, CEO, Location Ventures

“The future is Flex. In both the residential and commercial market, the desire for flex space grew significantly over the past year and I anticipate it will further take hold in 2022. There are still several unknown factors, from corporate coworking to hybrid schedules, to world health, that are preventing companies from making long-term decisions and flex is an opportunity that fits. For employers and entrepreneurs, the ability to work from anywhere, and the growing acceptance to do so, is also fueling demand for flex office space. We’re seeing a similar trend in residential markets. A large segment of renters is moving away from signing annual leases in search of furnished apartments with flexible terms, allowing them to live in one city for a few months and then another, all while maintaining digital connectivity. The rise in short-term rental projects has already been seen locally and I foresee that it will continue, especially with the new projects planned.”

Condominiums

Ibrahim Al Rashid, Chairman, Limestone Asset Management

“The luxury condo market looks good for 2022. Housing supply is constrained nationwide. With interest rates in the floor and demand high, residential real estate will continue to experience significant tailwinds. When you add that to South Florida’s high growth story and an increasing population, especially among the luxury buyer pool, you have a situation whereby prices can continue rising. Of course the nationwide housing story is different from Florida’s luxury condo market. Single-family home prices won’t move in lockstep with condo prices, especially in speculative towns like Miami. But the general positive tailwinds referenced above remain intact and I believe will bode well for luxury condos for the foreseeable future.

Edgardo Defortuna, President and CEO of Fortune International Group

“A significant amount of existing inventory was absorbed throughout 2021. While the market has not launched any new projects in 2019, 2020 or the first half of 2021, existing inventory has not experienced competition with new products being delivered and any pre-construction inventory being sold now will not be ready for the next three to four years. There is currently a gap in the market and an increasing demand for new inventory, especially now that buyers are primarily looking for turnkey, move-in-ready homes. Those buyers are having a hard time finding attractive properties because the inventory has been absorbed. I believe this will continue through 2022 and may even be accelerated by the Latin American buyers who are finally able to travel to the United States. Due to sociopolitical issues, luxury buyers in countries including Brazil, Mexico, Chile and Peru are eyeing Miami as the perfect location to purchase real estate for many reasons including safety and the overall lifestyle the city offers.

Ryan Shear, Managing Partner, Property Markets Group (PMG)

“I expect … the industry to witness the widespread integration of cryptocurrency. Since PMG has implemented the ability for buyers to purchase condominiums with cryptocurrency, alongside our partner FTX, we have seen an immense demand from buyers who are choosing to purchase property with this method. We anticipate this interest to rise exponentially next year as purchasing real estate assets through crypto has broadened opportunities for all kinds of buyers, from domestic buyers who are keen on investing in digital currency to international buyers whose purchasing process has become more simplified than ever, thanks to cryptocurrency converters such as FTX. I am confident cryptocurrency is here to stay no matter where the market goes in 2022.”

Maximilian Beltrame, President and CEO of Bel Invest

“Next year, we’ll continue seeing international and recognized lifestyle and fashion brands cross over into luxury residential. Diesel Wynwood Condominium is a prime example, along with Major Food Group’s announced tower, and even Martha Stewart’s new venture. These collaborations are a testament to the selling power that established iconic labels have in the marketplace. Much like expanding into kitchenware or clothing, offering a unique real estate product allows buyers to fully experience their favorite moniker in a new iteration. For us, we’re looking to push the envelope with condo residences that are made ‘only for the brave,’ with Diesel Living furnishings and modular wall systems; something we engineered with sophisticated individuals in mind, who need flexible living spaces and often travel. We just launched sales and have been seeing great interest, including from the northeast metro areas and foreign buyers now returning to the U.S.”

Victoria Huguet, Director of Architecture, Bel Invest

“There will be a shift toward more conscious design that hones in on high-quality, timeless features and sustainability. With climate concerns on the rise, affluent buyers will resonate more with living spaces that are thoughtfully built, maximizing function, while boasting certifications, such as LEED and Well, which can be seen at Diesel Wynwood Condominium. Since people spend more time at home now than ever before, having good air and water quality is essential for one’s health. And, all of this can be done without sacrificing aesthetics.”

Justin Oates, Senior Vice President, Cain International

“As we come out of the pandemic, investors like Cain are leading the response to the increased demand for best-in-class, highly amenitized spaces, whether those spaces are commercial, residential, or hospitality-focused. The South Florida market, in particular Miami, is increasingly attracting institutional capital from domestic and overseas groups, a trend that we expect to continue in the years ahead. While investors are being drawn to high-quality commercial spaces, Miami is also witnessing record hotel rates, rivaling some of the world’s most popular travel destinations and reaffirming its position as a world-class leisure destination while establishing itself as a preeminent gateway city for commerce.”

Marinas

Nelson Stabile, Principal, Integra Investments

“Marina investment will continue to institutionalize in 2022. With an uptick in boat sales during the pandemic, investors are eyeing tired marinas to reposition them into high-performing assets. We partnered with BLG Capital Advisors to acquire $200M in marina assets. Marinas are transforming from simply dockage to a lifestyle destination, with on-site amenities and F&B. An example is our in-house vertical, Integra Marinas, successful disposition of Islamorada Marina and Angler House Marina for $18M after overhauling the docks and slips, building a large Tiki and resort-style pool, and upgrading amenities to include an on-site restaurant operated by Square Grouper. The marina asset class previously yielded higher cap rates; however, with increased demand by investors, there is added competition in the market and cap rates are now being compressed to rates that were historically more associated with multifamily assets.

Affordable Housing

Willie Logan, President and CEO, Opa-locka Community Development Corp.

“The percentage of income that Floridians are paying for rent has been creeping up the income ladder. There are only two ways to fix this. One: make housing cheaper. And two, increase wages for the 59% of jobs in Florida that pay a median income of less than $20 per hour. But to do that, because of the nature of the jobs held by that 59%, you have to push out the national chains and mega-retailers and bring back the local businesses … In 2022, the affordable housing picture will get even more bleak because not only will building new affordable housing be more expensive [due to rising interest rates, higher prices for construction labor and materials, and supply chain issues], but a new enemy to the preservation of existing affordable housing will be revealed. We are very concerned by the number and speed with which privately owned affordable housing portfolios are being bought up by private investors. This puts this housing stock at risk of being taken out of the affordability market.”

Construction Costs

Ian Weiner, President and CEO, PEBB Enterprises

“The biggest macro concern is inflation and how that will affect the overall economy. We’re seeing it on the construction side, with construction costs surging. But we’re fortunate to have rents rising in lockstep with those cost increases. That will continue in 2022. We’re seeing land costs increasing because of the multifamily and industrial construction going on, so it’s getting expensive to acquire land with such limited supply. I’m still bullish, but we’re getting to the point in the market where land prices and construction costs will make it a little more challenging to make deals work … The land constraints and rising prices could lead to some investors looking for opportunities just north of the tri-county area, such as the Treasure Coast.”

Chris Jahrling, Vice President and General Manager, Turner Construction, Miami

“We are facing impacts from rising costs, increased lead times, source material delays, transportation delays and worker shortages. And it is not going to change soon …. We track availability and costs for all major construction commodities so that we can provide our clients the most current market information so they can make informed decisions. There are several measures that can be taken to mitigate these risks. For example, it is important to lock down critical commodity-based items as early as possible (i.e. Mechanical & Electrical Equipment, Specialty Glass, Steel) as well as to buy as close to the source as possible. This does increase complexity in managing but savings can be realized. Additionally, early involvement by the general contractor or construction manager on the project is the best way to optimize design, cost and schedule.”

Adam Mopsick, CEO, Amicon

“Markets are smart and have a tendency to work themselves out, even if it takes a while. During this near-term surge, projects are at risk of taking longer and costing more as there are shortages of labor and materials. In 2022, I believe we will see labor pools from other, less active locations finding their way into more heated areas like South Florida and I have confidence the supply chain issues will eventually ease. Use a large local expert or project manager with a strong local network and larger portfolio to help mitigate these issues.”

 

Source: Bisnow

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