Miami's Hot Investment Sales Market Takes An Ice Bath

The flood of investment sales spurred by the pandemic in Miami has turned into a trickle. 

Commercial real estate sales in Miami fell to $194M in the first quarter, down 80% from the same period last year, according to a report from Dwntwn Realty Advisors. The decline, which was felt across all asset classes, returned transaction volume to near pre-pandemic levels as increased interest rates and uncertainty in the banking sector bring new challenges to deal financing nationwide.

“Transaction volume from Q3-4 in 2022 to Q1 2023 was abruptly compromised as deals with inertia and committed capital dried up,” wrote the report’s authors, Managing Partners Tony Arellano and Devlin Marinoff. “Less debt is being used today because there is less quality debt as lending standards tighten, tethered to higher borrowing costs.”

Office was the hardest hit asset class, with only $6M in sales in the first quarter across Miami-Dade County, a 97% decline from the $226M in office sales during the same period last year, according to data from Dwntwn Realty Advisors.

Only two transactions closed in the first quarter compared to 10 transactions during the same period in 2022. Sales volume still outpaced the first quarters of 2019 and 2020, which each saw one transaction priced at less than $2M. 

Class-A office space in Brickell remains in high demand, the report says, and owners are continuing to transform industrial buildings in the trendy Wynwood neighborhood into office space aimed at startups, tech companies and creative industries. 

Multifamily assets saw the second-largest drop in sales volume, falling 83% to $40.6M in the first quarter compared to the $235M in sales seen during the same period last year. The first-quarter figure was slightly behind the pre-pandemic pace — the area saw $42.5M in sales during the Q1 2019.

The return to something resembling pre-pandemic sales volume signals that the inflow of new residents to Miami has shielded it from some of the broader headwinds in the economy and banking sector, according to the report.

“As we look forward into 2023 and 2024, not in all markets but in Miami, the growth outlook and positive sentiment remain resilient,” Arellano and Marinoff wrote. “Some cities will deal with decade-long recovery cycles, while Miami will continue to densify and improve with its population growth as a primary driver.”

Land transactions in the first quarter also declined when compared to 2022 but were in line with 2019. There were eight land sales in the first quarter totaling $55M, a 77% decline compared to the $244M in sales volume during the first quarter of 2022 but $2M more than the same period in 2019.

The hospitality and retail sectors saw more activity, but also significant drops as a result of the Federal Reserve raising interest rates by nearly 5% between March 2022 and 2023.

Sales in the hospitality industry totaled $26.5M in the first quarter, a 29% decline from the $38M during the same period of 2022 but significantly higher than first-quarter sales in 2019 and 2020. 

Wynwood is an emerging hotel market, the report says, adding that the Arlo Wynwood recently opened and that there are more than 700 hotel rooms planned in the neighborhood. 

South Beach and Wynwood remain the preferred destinations for retail sales, according to the report, with those submarkets accounting for nearly half of the $1B in 2022 sales volume. 

Nonetheless, the $58M in first-quarter retail sales this year represented a 65% decline compared to the same period in 2022 and is well below the $100M in transaction volume during the first quarter of 2019.

While overall sales volume in 2023 is expected to continue lagging pandemic-era highs, the report’s authors said that the market remains “a preferred destination for many investors across the country.” 

“Miami is not immune to this forecasted recession but instead is well prepared,” they wrote. “In the words of Warren Buffet, ‘Predicting rain doesn't count, but building an ark does.' Miami has an excellent ark for the current business and economic climate.”