What Miami Needs to Transform Current Moment Into Long-Term Success

With $2 trillion in assets under management having recently been infused into the Miami economy, Miami is now the No. 1 city in America for the formation of new businesses.

This was just one of the insights presented by André Dua, senior partner at McKinsey & Company and managing partner of the firm’s Miami office, in a recent conversation with Commercial Observer Executive Director Robyn Reiss at Commercial Observer’s South Florida Leadership Reception.

Over the past several years, Dua has grown McKinsey’s Miami presence from fewer than 100 employees to over 300, echoing the phenomenal business growth of the Miami market itself.

“Miami is the second-fastest-growing city in the country for venture capital,” said Dua. “That gives you a sense of the kind of energy that’s here.”

But Dua also said that relishing Miami’s current moment is less imperative than focusing on how to transform that moment into a long-term movement, which requires confronting vexing issues such as lack of affordable housing and building a more reliable talent pipeline. On these points, he noted that there is a common misconception about Miami’s supposed population growth.

“If you look at the last couple of years, there’s been some population decline, and perhaps a flattening out now,” said Dua. “Miami has become so unaffordable that for all the stories we hear of wealthy professionals and business owners coming here, there are two or three people moving out to other cities in Florida and to Georgia and Texas.”

Dua noted that Miami has become the most unaffordable housing market in the nation for both ownership and rentals, with the average rental costing an astounding 60 percent of area median income (AMI), and an overall shortage of housing units in the city of 150,000-200,000.

But on the positive side, there has been a massive influx of capital into the Miami market, which is a colossal benefit to industries including venture capital, asset management, private equity and wealth management.

Dua said the key question the Miami business community should be asking is: How does this community utilize the city’s current advantages to create an innovation economy?

“Can we become a place for more tech, and do better in life sciences and med tech, where there are green shoots? How do we transition from a hospitality- and real estate-driven economy to one that leverages those strengths but becomes an innovation economy? Because that’s the characteristic of the world’s truly dynamic economies,” said Dua.

Dua believes achieving all this requires the best efforts of all of the city’s leaders throughout both the public and private sectors.

“It’s time for private sector leaders to come together and act in the civic interest, and work together with government leaders,” said Dua. “It’s great that there’s terrific wealth moving down here, but how do we make Miami work for everyone? How do private sector leaders articulate a strategic vision for the city? What will it take in affordable housing and K-12 education? And, how do they partner with the public sector to make those things happen? That’s a hallmark of great cities — the private sector working together with the public sector.”

Next, Reiss asked Dua about the threats presented to coastal Miami by climate change.

“This is certainly a sunny place with a fabulous climate,” said Dua. “The downside of that is we have an expansive coastline, low elevation, and an incredibly porous limestone base. We’re at real risk from tidal flooding, sea level rise, and infiltration of our clean water by saltwater. Then, of course, you’ve got more extreme weather events with more hurricanes, increasing intensity of hurricanes, and so forth. This has some real implications.”

Dua notes that all real estate owners and developers in Miami should be closely examining the potential amount of risk in their portfolios related to climate change.

“Have you really thought through, looking forward to 2030 and 2050, what the valuation implications will be? What headline risk might you face? What’s the risk to financing as more banks are looking at climate risk? Real estate developers have to think about what steps should they take to protect their assets,” said Dua.

Dua also notes that success here will involve developers and owners working together, as success mitigation measures will require community solutions as opposed to efforts that affect only individual buildings.

Reiss then addressed the nationwide office crisis precipitated by the work-from-home/hybrid office trends. Dua noted that this trend is manifesting in a far different way in Miami than in many other major cities across the nation.

“If you look at all workers age 16 and over, only about 15 percent of those workers are doing remote and hybrid,” said Dua. “In Austin, remote work levels are at 40 percent, and in Washington, D.C., they’re at 50 percent. That has real implications for what the commercial real estate market will look like here versus in another city. One interesting side effect of this is that Miami is one of the few cities where Class A real estate continues to rise at accelerated rates.”

Relatedly, they completed the interview with a discussion of how Miami is attracting and retaining top talent.

“On the plus side, there’s a lot of professional young talent migrating here,” said Dua. “For example, at our office a few years ago, we had difficulty hiring 10 people. Last year, we hired 85 people. That’s an astonishing turnaround.”

But Dua also noted that while Miami is seeing success in this area, this influx is posing some real challenges to the region that will need to be addressed if Miami is to continue its great success, and establish itself as a prosperous city of the future.

“Our levels of performance in our K-12 system are not what they should be,” said Dua. “Also, Miami is among the lowest in the country for the proportion of people who have some post-secondary qualification — a degree beyond high school. So if you are a company that requires STEM talent, it’s more challenging to get all of the talent you need. So there’s real work to be done in the community regarding creating pipelines from Florida International University, from Miami Dade College, and from other universities that seek to gain a foothold in Miami.”