Capital, Companies, and People: The Migration to South Florida
An unprecedented amount of investment interest has made its way into South Florida over the past year.
New-to-market tech companies are moving to Miami. Billionaires are relocating to Palm Beach. Multifamily investors are buying in Broward County.
They all are propelling the region forward in recovery. We have broken this trend down into three separate buckets of analysis — capital, companies and people — taking note of the most impactful drivers of South Florida’s economic success in 2020 and beyond.
Capital has been finding its way into South Florida at a heightened rate. The region has experienced a wave of investment from investors seeking higher yield, but also new capital investment, such as infrastructure upgrades, from venture capitalists. In fact, raised business capital is at a decade-long high, with an elevated amount from venture capitalists.
Monthly capital markets sales volume in South Florida hit a two-year high in December, with almost $2.6 billion in activity, according to data from Real Capital Analytics. Granted, this could be explained by a build-up after activity significantly reduced in April and May. However, the market saw several, new-to-market investors, especially for multifamily assets. These investors took advantage of local private capital waiting for an opportunity to invest in assets at a discount, which did not happen on a widespread scale, especially for prime assets. These investors included life companies, private investors seeking 1031 exchanges, and even some crowd-sourced investors.
The momentum has continued into 2021, as a fund managed by Blackstone Group purchased 2 and 3 MiamiCentral in Downtown Miami, the former being where they recently relocated their tech division. This purchase is significant in two ways: first, as Blackstone’s first major office investment in South Florida and, second, because of the rise in value of the asset. The $230 million consideration was 44 percent higher than when the property last traded in 2019.
Regarding business capital, approximately $6 billion was raised across all funding rounds in 2020, which was double the amount from 2019. This included a 33 percent rise in investment from venture capital entities. This is a number that is sure to rise in 2021, as several new funding entities, such as Pareto Holdings and Florida Funders, are placing a stake in South Florida, not to mention the potential for heightened local investment from long-standing major funders, such as SoftBank, which in January set aside $100 million in funds specifically for Miami-based startups.
Companies recognize South Florida as a connected global city, which is decidedly more business-friendly than primary coastal markets that have restrictive regulation and higher business taxes. In the past, proposed cost-saving moves to South Florida have been balanced against the availability of labor — but in today’s remote work world, that balance has been shifted. In the meantime, the talent pool in South Florida continues to grow, even during the pandemic.
In 2020, South Florida’s new-to-market tenant base exploded. Real estate professionals focused on occupier advisory report “unprecedented levels” of new-to-market activity, from full-on headquarters moves to corporations moving a division or just expanding into the market. As a result, asking lease rates in Miami and throughout South Florida have been relatively stable, despite other markets seeing significant discounting. What’s more, Miami is the only office market in the U.S. projected for rent growth over the next two years, according to recent reporting by CBRE. Additionally, for office occupiers already in the market, relatively few have exercised downsizing strategies. Sublease space within South Florida has remained relatively stable at just 2.4 percent of the market, significantly below the average of the top 10 U.S. markets, which sits at 3.7 percent.
People are also investing in South Florida. The lack of a state income tax is enticing people into the region, in the form of both remote workers who are seeking a higher quality of life, and by high-wealth households who continue to relocate and expand in the area. What is emerging as the potential game-changer has been the relocation of several tech venture capitalists, who are establishing new investment entities with South Florida addresses. This trend has encouraged a vibrant media buzz from both traditional outlets and social media platforms.
This recent interest has heavily impacted the housing market, with February sales volumes sometimes double the level of the same month from a year ago. This is across the board on condos and single-family homes, at various price levels, especially on homes priced above $1 million. This is according to the latest data from ANALYTICS.Miami, an independent data source which focuses on the for-sale residential market.
The rising velocity of activity toward South Florida is undeniable. While the U.S. recession hit bottom in the spring of 2020, a strong economic recovery is now underway across the country. This recovery has been elevated in South Florida, due to this wave of new interest in the region. This should keep confidence high for investors of all South Florida opportunities now and onward.
Brandon Isner is an associate director of research for CBRE, based out of Miami.