Back in 1991, Columbia University sociologist Saskia Sassen coined the term “global city” to describe an urban area crucial to the world’s overall economic, cultural and political development. Although Sassen initially wrote of cities such as London, Tokyo and New York, 20 years later she declared Miami to be one of the era’s most “exceptional” example of global city growth.
Nothing better confirms Sassen’s observations than Miami’s rapidly ascendant real estate market. Hard-hit by oversupply and underfinancing after the 2008 crash, Miami has not merely survived, but is now thriving at record levels.
Last summer, a 10-bedroom/30,000 sq ft compound on Miami’s Indian Creek Island sold for a record $47m; while in March, US “infomercial” entrepreneur Ajit Khubani reportedly paid $34m for a 16,000 sq ft penthouse at developer Ian Schrager’s 26-unit Miami Beach Edition project – a record for a Florida condominium. An 18,253 sq ft penthouse is now on sale for $50m at nearby Faena House, where 45 condominiums are being designed by Foster + Partners, and a 17,000 sq ft penthouse on top of South Beach’s 10-year-old south tower of Continuum is now listed for $39m.
“Unlike before the recession, luxury Miami developers are building far fewer ‘mass-market’ projects with hundreds or even thousands of units,” says Peter Zalewski, of local property consultancy Condo Vultures. “They’re focusing on maximum pricing rather than maximum capacity.”
Such figures represent the top end of the Miami market but prime property values have grown at all levels, from Atlantic-front South Beach across to Downtown and the Miami Design District, northward to Mid-Beach and up to Sunny Isles Beach. Indeed, agent Knight Frank says high-end Miami real estate prices rose by 19.5 per cent last year – the highest in North America and the fourth highest in the world, after Dubai, Bali and Jakarta.
Prime Miami real estate (defined by Knight Frank as the top five per cent of the market) now averages between $1,300 and $1,440 per sq ft, with average sector condominiums now $1.57m and single-family homes $2.02m, according to a mid-April report by Douglas Elliman Real Estate. The firm says Miami’s high-end market begins at $730,000 for condominiums, and $850,000 for single-family homes.
Already costlier than metropolises such as Tokyo or Mumbai, Miami prices are predicted by Knight Frank to grow by five to 10 per cent this year as more buyers enter an increasingly shrinking premium property pool.
Although domestic buyers, particularly New Yorkers, have shown interest in the highest-end projects such as Faena House and Edition, foreign buyers – notably Brazilians, Argentines and Venezuelans – remain the strongest players in Miami. Last year, foreigners comprised some 60 per cent of the city’s total market, according to the Miami Association of Realtors.
“Certain key prime markets have bounced back stronger than ever and Miami is one of them,” says James Price, Knight Frank’s head of international residential development. “Aided by international buyers, the level of [over]supply that had brought the market down has completely reversed itself.”
A recent report by realtor Douglas Elliman found that Miami’s property inventory shrunk 12.5 per cent in the first quarter of 2013 compared with 2012 – and a full 30 per cent from 2011. The number of distressed properties – the short-sales and foreclosures that dominated recession-era sales – fell nearly 25 per cent from last year and almost 50 per cent since late 2010.
Today, says Ron Shuffield, head of Christie’s affiliate EWM Realty International, Miami’s property inventory hovers between four and six months, well below the nine to 12 month threshold required to maintain market health. “Building in Miami came to a near-halt for almost five years,” he says. “We have a substantial number of projects being built but they’re still two to three years from completion.”
According to CVR Realty, across South Florida nearly 125 towers with 17,700 units are either under construction or in the development stages – nearly half in Miami itself.
As in New York, Miami developers are associating many of their highest-end projects with top architects: Foster’s Faena House, John Pawson at Edition, Denmark’s Bjarke Ingels at the Grove at Grand Bay, Mexican Enrique Norten at South Beach’s One Ocean and 321 Ocean, Zaha Hadid’s One Thousand Museum and Herzog & de Meuron at Jade Signature.
Developers are also thinking bigger: units at Hadid’s building will reportedly start at roughly 4,500 sq ft, while apartments at Norten’s One Ocean average roughly 3,000 sq ft. “Buyers want larger spaces; simpler spaces that are functional from moment one,” says Edgardo Defortuna, founder of Fortune International, which is building Jade Signature. “Adding a name like Herzog & de Meuron takes it to the next level” – and adds roughly 20 per cent to the price.
With dozens of new projects now in development and apartments at Edition and Faena now topping $3,000 per sq ft, Miami’s undersupply could shift into overabundance – or at least overpricing. “The ingredients and conditions are certainly there for another bubble,” says Condo Vulture’s Zalewski. “Two-thirds of all Miami sales are still under $300,000, so it’s hard to see the highest prices continuing to appreciate at such rapid rates.”
Yet with prices still 37 per cent below their pre-recession peak, local agents say Miami may even be undervalued – at least compared with premium markets in London, Hong Kong or New York. Meanwhile, bank financing has now become far scarcer across the US, helping Miami’s market to develop what Shuffield calls “its own set of checks and balances” to ensure new projects remain solvent. “The bulk of new condo buyers are purchasing in cash – with deposits of 50 to 70 per cent. These new terms are giving the market far greater stability.”
● Florida has no restrictions on foreign ownership – but the US Internal Revenue Service levies a 10 per cent withholding tax on foreign-owned property
● Florida accounts for 26 per cent of all sales to foreigners in the US, says the National Association of Realtors
● Florida is one of nine US states with no personal income tax
● Of the 22,000 pre-recession condos built in downtown Miami only 600 remain unsold
What you can buy for:
$500,000 A two-bedroom/two-bathroom 1,129 sq ft apartment in a five-year-old building in Miami’s Downtown ($515,000)
$1m A two-bedroom/ two-bathroom apartment at the Palau at Sunset Harbour, which opens in 2014 ($1.059m)
$5m A two-bedroom/ two-bathroom, 2,338 sq ft condo at Faena House with 1,190 sq ft of outdoor space ($5.15m)