If you want to know which direction South Florida’s real estate markets are headed, take a close look at the traits and preferences of the Millennial generation. Rather than drive everywhere, they often prefer a ride-sharing service. Instead of cooking dinner, they have it delivered. They buy lots of things online, but still enjoy a trip to the mall for a social and entertainment experience – not just a shopping trip.
As a result, walkable neighborhoods with convenient amenities like downtown Miami, South Beach, Brickell, Coconut Grove and Wynwood have become attractive residential destinations, reflecting the national and global urbanization trend. And that’s why new sports arenas, for example, are being built in downtown rather than suburban locations.
Millennials’ preferences are having an impact on South Florida’s commercial and residential markets, which continue to attract investment capital from U.S. and international sources for existing properties and new developments.
In the past year, there has been a slowdown in investment money from Asia, Russia and the Mideast. On the other hand, foreign capital continues to pour in from Venezuela as well as other South American countries.
While there are continuing concerns about overbuilding, inventory continues to be tight on both the residential and commercial side. Therefore, while there’s a consensus that our real estate market follows a cycle – and that it’s currently strong – it’s not clear when a market correction is likely to occur.
Meanwhile, the pulse of real estate activity in terms of sales, development and leasing continues at a fast pace in South Florida’s urban market. Investors are willing to pay higher prices on a per-square-foot basis for condominiums, offices and retail space in downtown properties than those in the suburbs. Lenders also like these markets, as shown by the number of cranes in the air for new developments.
Since many Millennials want to reduce their dependence on the car, new developments in these locations may be able to reduce their parking requirements, perhaps changing the footprint of a new project and freeing construction capital for other purposes. Existing garage space may need to be repurposed.
Rather than 1.5 parking spaces per bedroom, for example, a new residential project might need only one space, cutting the size of a parking garage by a third. Another alternative for developers is a public-private partnership with the municipality, with a commitment for the lease of a certain number of parking spaces.
On the retail side, shopping malls are updating their concepts and bringing in new tenants who can offer Millennials varied dining, entertainment and shopping options. With the steady growth of online shopping, malls are focusing on experiential retailing. To take one example, Tesla put an automobile showroom in a South Florida mall, so shoppers could see and touch their vehicles – a very different approach than the traditional car dealership experience.
Real estate owners, investors, lenders and developers should pay close attention to the Millennials, as they are shaping South Florida’s real estate market of the future.
Ron Kriss concentrates his practice on commercial real estate law in Stroock’s Miami office, and serves as chair of the firm’s Distressed Property Group.