Jan 9, 2024 - News

Commercial real estate outlook could brighten in 2024

Tall buildings in the background and a causeway in front

The downtown Miami skyline. Photo: Jeffrey Greenberg/Universal Images Group via Getty Images

Inflation and a steep rise in interest rates have kept wannabe homeowners out of the market — and hurt commercial real estate as well.

What's happening: These factors affect offices, stores, warehouses, restaurants, hotels and the construction of new residences.

Why it matters: "Dramatic" short-term rate hikes "have caused delays in numerous real estate projects throughout most markets and worsened housing shortages," Noah Breakstone, CEO of BTI Partners, developer of projects like Hollywood Young Circle, tells Axios.

  • "Some properties may face financial distress in 2024 due to higher refinancing costs, potentially prompting buyers and sellers to continue to reevaluate and reprice deals."

Yes, but: Miami is better off than many cities, largely because a wave of companies relocated here since the pandemic.

  • Nationally, the vacancy rate for offices reached 19.2% in Q3 2023, but in Miami-Dade County, total vacancy was just 9.6%, according to Colliers. The 830 Brickell trophy office building that's nearing completion is fully leased, with tenants including Microsoft and Citadel.
  • Office rents will likely grow in 2024, according to Kevin Gonzalez, Colliers' senior vice president in South Florida. Tenants who can't find space in Brickell and Coconut Grove have been looking to Downtown Miami, Coral Gables, and the Miami Freedom Park micro-market, he says.
  • Though hotels faced high insurance costs and operating expenses last year, Miami's status as an international destination and "gateway to Latin America" should "continue to drive the demand for luxury and high-end hotels," Liam T. Krahe, managing attorney of Miami-based Cohen Property Law Group, tells Axios.

The big picture: Industry execs are hopeful that interest rates will drop this year, as the Federal Reserve has suggested.

  • Scott Sherman, founder and principal of Torose Equities, says, "there is still going to be some pain and resetting in values but this will lead to price discovery and the ability for transaction volume to pick up again."

What we're watching: A December outlook by J.P. Morgan advised investors to "optimize their cash so they can capitalize on opportunities as they arise."

  • Rafael Aregger, head of investments U.S. for Empira Group, a Switzerland-based firm building housing developments in Miami, says decreasing construction costs should open "a window of opportunity for developers" in 2024.
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