Everyone has an opinion of SE Florida's 2023 commercial real estate ride, so here's an MAI perspective. Despite a generally downturned business activity and prevailing concerns like spiking interest rates, declining business optimism, inflation, potential recession, and labor supply issues, South Florida's commercial real estate market is not all doom and gloom. The region's unique demand attributes play a significant role in influencing marketability, lease rates, and sales prices.
South Florida's business space demand can be described as migratory or akin to a game of "whack-a-mole." Downsizing businesses create a demand for smaller facilities left vacant by retirements and closures, while relocations from other parts of the country and expanding niche companies contribute to demand pressure across various sectors. This has led to a somewhat gridlocked inventory despite economic weaknesses, obvious to any active MAI Appraiser describing the current state to readers.
One universally unfavorable statistic is the increased time properties are taking to sell. However, the market in South Florida remains balanced. The 2023 perspective is that businesses are not easily relocating, expanding, or downsizing due to the lack of affordable substitute spaces in the current "down-market."
Analyzing our MAI Appraiser in-house research resources, we find that despite a decline in industrial sales volume and an increase in vacancy, inventory, and cap rates, there is reported rent growth, higher sale prices, and lease rates per square foot. The retail sector is experiencing positive rent growth with higher rates and prices per square foot, and generally lower vacancy rates, though sales volume is down. In the office sector, sale prices per square foot have declined, while cap rates and inventory have increased, but there is still favorable rent growth with mixed trends in vacancy rates.
However, multi-family investors in most markets are facing more challenging conditions, with rent growth slowing and interest rates nudging cap rates up in 2023. An MAI Appraiser will explain in an appraisal report that, overall, rent growth has stalled, and the price per unit has declined. The apartment market is deep in the cycle in most cases.
On the positive side, there is a strong demand for all types of land as an inflation hedge, and it remains untouchable in the hottest redevelopment markets where developers are already planning for the next cycle beyond 2023.
Despite being somewhat weaker compared to a few years ago, the 2023 commercial real estate markets haven't seen a significant impact on companies seeking space to lease or buy.
The MAI Appraiser's perspective beyond 2023 is uncertain, as the commercial real estate markets may eventually be affected if the lower business activity persists. Yet, they are currently managing to function efficiently, supported by the influx of businesses and consumers from other parts of the country.
We continue to price investments competitively on the brokerage sales and leasing side, avoiding fire sales except in extraordinary circumstances, and as an MAI Appraiser I am not witnessing compelling evidence that yesterday's sales were higher than today's. However, investors seeking increasing returns may consider liquidating for other investment opportunities as we don't foresee an immediate recovery around the corner.