The COVID-19 pandemic has forced the South Florida real estate industry to rethink the answers to a range of questions, including how buildings are designed, how goods are delivered, and where and how tenants want to live.
Here are eight emerging trends local industry leaders are watching.
- Outdoor space is desirable
Retail stores and restaurants took a big hit as shutdowns, restrictions and health concerns changed consumer’s spending habits. Instead of going out to eat, people stocked up on food and avoided in-person shopping, causing a surge in online sales.
Jonathan D. Carter, executive managing director, retail services with Colliers International, in Miami.
Jonathan Carter, executive managing director at Colliers International, says there are a number of deals being done to adapt current spaces to modern environments. And while outdoor environments and open-air concepts in retail stores and restaurants were trending before the pandemic, now there’s a bigger emphasis on it.
“If you had told me in August where we would be today, I wouldn’t have believed you,” Carter said.
Carter said the market has gone from having almost no tenants, to what he would now consider a landlord’s market.
“Landlords who previously had space with a lot of outdoor areas that weren’t perfect, suddenly those spaces are in demand,” Carter said.
- Drive-thru operators are thriving
Last year, the rise in demand for food deliveries, curbside pickup and drive-thrus at quick-service restaurants has been especially prevalent in South Florida, according to Zach Winkler, executive vice president of JLL’s South Florida retail brokerage.
Zach Winkler, senior vice president and market lead for JLL’s South Florida retail practice in Miami. Courtesy of JLL
“The demand for more drive-thrus is probably more intense here than any part of the country. I think it’s part of the way the restaurant world has shifted a little bit,” Winkler said.
Winkler said sales have remained strong for fast-food restaurants like Louisiana-based Raising Cane’s, and he expects to see an expansion of the chain in South Florida.
“Their sales remained very strong during COVID, and the fact that they’re one of the most efficient drive-thru operators out there,” Winkler said.
- Offices are morphing
As large amounts of people continue to migrate to South Florida and many others prepare to return to the office after a year of working from home, companies are looking at different models for remote and in-office workers. With social distancing changing the way people interact with one another, employers want to give their employees more space and a healthy environment.
Jonathan Kingsley specializes in office and industrial representation of landlords at Colliers International, and he said returning workers are typically getting more square feet per person, while offices are being redesigned.
Remote work is here to stay, but Kingsley feels it won’t be on the scale everyone thought it would.
“Certain employees are absolutely required to work in the office 100% of the time,” said Kingsley, “There’s a second-tier in which there is a three-day at the office, two-day at-home model, three-day at home, and two at the office, and then there is another model where you work from home 100% of the time.”
- Industrial is expanding
The industrial sector was the least impacted, according to Kingsley, because it served as the lifeblood of the economy during the pandemic, benefitting from the need to get goods and services delivered as e-commerce boomed.
“We found that companies were taking additional industrial space, placing forward orders for products knowing that there was a high demand,” Kingsley said. “People needed goods and supplies at home, but also they were thinking ahead that, if this continues, they want to stockpile as much as they can.”
- Migration trend isn’t slowing
When Miami law firm Berger Singerman conducted its annual real estate survey in April, polling more than 7,000 professionals in South Florida’s real estate industry, it found 85% felt the suburban migration trend will continue.
“They don’t need to live near the offices, and they want a dedicated home office, they want more space and you’ll get more bang for your buck as opposed to the city,” said Jeff Margolis, an attorney at Berger Singerman.
Margolis said employers are also considering moving offices out of downtown Miami to suburbs such as Coral Gables, to facilitate a better work-life balance for employees.
“People are very productive working from home and I think we’ll see a lot of flexibility and as a result, it may result in tenants needing less office space.”
Greg West of ZOM Living —one of the country’s largest developers of multifamily housing — said markets such as Florida, Texas, North Carolina, and Arizona are seeing an increase in jobs since businesses are migrating to those areas and creating new opportunities.
ZOM Living CEO Greg West. Courtesy photo
“Despite the pandemic, more than ever they needed a place to live,” West said. “They had to have their own safe environment, and that environment was not only where they were living in the normal sense, but also working.”
- Tenants driving new multi-family demand
And although people are going back to the office, West said owners of multi-family buildings are rethinking how they’re providing space to accommodate a demand for safe living and co-working spaces to tenants.
ZOM Living recently opened Las Olas Walk, a 458-unit apartment complex in Fort Lauderdale, and found the demand was more than they expected.
“We’re leasing 40 to 50 apartments every single month, and we would be happy if we were leasing 20 or 30,” West said. “We’re doubling the pace of our expected result.”
West is seeing an influx in senior citizen housing and, as the largest producer of luxury senior housing in Florida, his company is pursuing projects to meet those demands.
“The amount of traffic from those customers now that they’ve been vaccinated and they feel comfortable coming out is skyrocketing,” West said. “It’s nice to see that market coming back to life.”
- New markets for projects
The local real estate market is strong with a lot of opportunities for growth, according to AJ Mueller of ORIGIN Construction, a general contracting company in South Florida.
AJ Mueller, of ORIGIN Construction Inc. Courtesy photo
“Developers that have capital and that have investment opportunities and partners are using the opportunity to build new projects. There’s a lot of cranes popping up all over the region,” Mueller said.
Mueller said he’s noticed plenty of bids for remodels and new development deals, highlighting downtown Fort Lauderdale and West Palm Beach as areas enjoying some overflow from the Brickell and downtown Miami areas.
“We’re able to tap into that new market because there’s a lot of new inventory available that wasn’t there before. It was a very limited inventory,” said Mueller.
- Raw material prices impeding construction
Although a lot of new structures continue to go up, there is one problem affecting every sector of real estate: a continual increase in the cost of supplies. Saul Ewing Arnstein & Lehr attorney Lisa Colon said she’s seeing major price escalation due to the lack of materials such as lumber and steel, which is slowing down construction projects.
“Projects that were in the pipeline in December in 2019 got stalled as COVID came in. Those contracts were signed and those prices were in place,” said Colon. “If you’re a contractor and you have a contract to build something for $3 million from 2019, I’m sure that pricing looks very different now. That’s a big issue for contractors right now.”
Because of that, Colon expects to see delay claims over the next six to eight months.
A strong recovery?
Before COVID-19, construction saw a big shortage in labor, which is now exacerbated by the pandemic.
“Most of my clients will tell you it’s hard to find labor, especially skilled labor,” Colon said. “I think folks are still hesitant to get back to work.”
As more and more people get vaccinated, real estate leaders are hopeful that the workforce will return to its new normal.
“I think the world is looking to bust out and get back outside and get back to social environments,” said Carter of Colliers International.
South Florida is in a good position, according to Margolis of Berger Singerman, who said 62% of respondents in the firm’s real estate survey believed the real estate market will recover strongly and rapidly from the pandemic: “I shouldn’t have been surprised that people see South Florida real estate very positively, and as a good investment.”