Miami's Sizzle is Fizzling
Aug 1, 2007 12:00 PM, By Elaine Misonzhnik
Getting off on the ground floor
Making matters worse is the fact that many of the high rises being erected include ground-floor retail. But because a lot of those spaces feature the wrong configurations and ceiling heights for retail uses, owners will be challenged in finding tenants eager to take them, according to Paco Diaz, senior vice president of retail properties with CB Richard Ellis Group, Inc. “They'll get leased, everything gets leased with time, but it will take a little longer [than usual],” he says.
But brokers in the market do think that retail real estate will be buffered somewhat by the fact, that unlike the multi-family sector, it is not being overbuilt, in part because large sites are hard to come by in Miami. The lack of developable land means that new construction is expensive. It encourages vertical development. That, in effect, limits how much new retail can be built, because only the first three floors of a tall project would ever be considered for retail uses.
“There are not a lot of [sites] for new development and the entitlement [process] is challenging, so what you do is redevelopment given the density in the area,” says Paul Maxwell, vice president of investments with Regency Centers.
An example is the Shops at Midtown Miami, a 633,001-square-foot property being built by Beachwood, Ohio-based Developers Diversified Realty Corp. on North Miami Avenue. The project is integral to the redevelopment of the 55-acre Buena Vista Rail Yard site near the city's downtown and will be surrounded by performing arts venues and office buildings. The redevelopment does, however, also include construction of 3,000 new condo units.
Another mega-project currently in the works is Metropolitan Miami, a $1 billion mixed-use property downtown being developed by Miami-based MDM Development Group. Metropolitan Miami will boast a 120,000-square-foot Met Square lifestyle center, 120,000 square feet of additional retail, 750,000 square feet of class-A office space and a 386-room luxury hotel, as well as 1,144 condominium units. It is scheduled for completion in the third quarter of 2009.
Meanwhile, Regency Centers is undergoing the entitlement process for a traditional 400,000-square-foot shopping center in West Miami that will include big-box retailers, smaller shops, banks and restaurants. The development is set to come online in 2010.
Cuts both ways
In a bit of good news, 2007 has brought a respite from hurricane-related insurance rate increases and the labor shortages that have plagued the Sunshine State over the past few years. In the wake of Hurricanes Rita and Wilma, insurance rates in Florida skyrocketed by as much as 600 percent. However, in the last month, brokers including Diaz have noticed a 10-percent decline. Rod Castan notes the rates have flatlined.
With the housing market cooling off, industry observers note at least one positive. It's been easier for developers to find qualified construction professionals, a task that had been a challenge during the white-hot construction boom of 2006.
Building in Miami, however, is still not cheap. Overall, construction costs have gone up 8.9 percent between January 2006 and January 2007, according to Reed Construction Data. The city currently ranks as number 35 on Reed's list of the most expensive markets to build in, behind New York, Las Vegas and Washington, but ahead of Orlando and Atlanta. Last year, Miami ranked as number 41.
“We've seen labor costs ease a little bit, but steel and concrete prices remain pretty high,” says Castan. “The good news is that there is more availability of contractors, so you can get more competitive bidding on your projects, but there hasn't been a huge change in [overall construction] costs.”
FLORIDA
POPULATION TRENDS
Population in 2000: 5,007,564
Population in 2007: 5,503,911
Percent Change 2000-2007: 9.9%
UNEMPLOYMENT RATE (MAY 2007)
Miami Metropolitan Area: 3.1%
Florida: 3.4% U.S.: 4.5%
MEDIAN HOUSEHOLD INCOME 2007
Broward County $44,680
Miami-Dade County $41,983
Palm Beach County $47,665
Source: Pitney Bowes MapInfo, July 2007.
