October 23, 2014
Who’s willing to pay $3,150 a month for a smallish two-bedroom apartment in downtown Miami?
That’s how much developer Harvey Hernandez believes renters will soon be paying.
The real estate developer cited that figure during an industry panel discussion sponsored by broker CBRE that delved into the condo construction boom.
“We’re not going to have enough product to cover the demand,” Hernandez said based on predictions for a population influx in central Miami. “I think we’re going to touch $3.50 a foot at least.”
The chairman and managing director of Miami-based Newgard Development Group Inc. later told the Daily Business Review he was assuming for future projects that rents would hit $3.25 per square foot. Either figure would be a significant jump from current rates of $2.25 to $2.50 per square foot.
To temper the coming sticker shock, he suggested developers would start delivering smaller apartments than are the norm for Miami. A 900-square-foot, two-bedroom would be a good size going forward, Hernandez said.
An average rent for a two-bedroom space north of $3,000 would still be a steep rise from current levels. An August report by Zumper.com, a website that compiles rental listings in Miami and other cities, puts the median price for downtown Miami at $2,650. Those calculations are based on apartments of 1,100 square feet and up.
Hernandez, whose company focuses on centrally located neighborhoods and “pedestrian-oriented lifestyles,” is in charge of two large projects under construction: the 37-story loft-style, parking-free Centro tower in downtown Miami and the 46-story BrickellHouse in the Brickell financial district.
He wasn’t the only developer on the panel signaling a strong belief Miami rents will rise steeply in the coming years. Without offering specific numbers, Related Group condo division president Carlos Rosso said, “Rents in Miami have been going up, and they will continue to go up as the economy recovers.”
This contrasts with largely empty downtown towers after the housing collapse in 2007.
Developers are counting on sheer demographic and cultural forces—the influx of people into South Florida and the aversion by millennials to living in the suburbs—to hype rental demand beyond supply, a dynamic that would justify rent spikes.
A relative dearth in supply is playing into developer’s calculations. While the number of cranes in the Miami skyline would indicate a full pipeline, the number of units being built in the current real estate cycle is likely to be less than in the previous boom, Rosso said.
Developers built 84 new condo towers with more than 22,200 units during the last boom in an area real estate consultant Peter Zalewski describes as “greater downtown Miami,” from the Julia Tuttle Causeway south to the Rickenbacker Causeway and Biscayne Bay west to I-95.
One possible stumbling block developers tend to gloss over is the income of Miami’s residents must rise considerably to afford rents that would be 19 percent higher using Hernandez’s figure. Rent of $3,000 per month is considered unaffordable for a household making less than $120,000 per year.
Census data shows the median household income for ZIP codes 33132 and 33131, which represent much of Miami’s most desirable central neighborhoods, is $53,182 and $78,481, respectively.
Even though white-collar employment and income growth is low in South Florida, developers say they still believe they can hit lofty rent increase targets.
In an apartment charging $3.25 or more per square foot, “the target renter is the professional who wants to be centrally located.” Hernandez said.