As Miami’s Multifamily Market Moderates, New Challenges Emerge

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Miami emerged as a migration magnet during the COVID-19 pandemic, encouraging a boom in rental apartment construction. Now, rent growth has flattened as those new apartments hit the market and debt-dependent developers struggle to build more. 

But no one expects flat rents and decelerated apartment construction to last long in Miami, especially if the area’s bulging population of newcomers continues to grow.

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“Miami is still, in my view, the most robust market in the state,” said Michael Neal, CEO of Kast Construction, a West Palm Beach-based general contractor that operates throughout Florida. Multifamily is Kast Construction’s biggest business segment but volume is down, Neal said, because high interest rates, rising insurance expenses and inflation-swollen construction costs have made apartment construction loans harder to get.

“I’m hearing universally from all my clients that the lending environment is incredibly restrictive. We saw that start to happen in the second quarter of 2023, and it’s only gotten worse,” Neal said. “We’re clearly seeing fewer [apartment construction] starts as a direct result of financing. Where there is a construction loan needed, that is the No. 1 reason we are seeing why starts are being delayed, or they’re simply not moving forward at all.”

Starts aside, plenty of apartment construction is already started and in progress. Multifamily property developers expect to deliver more than 11,000 new apartments in Miami this year, up from just over 8,000 in 2023, according to a report from Fort Lauderdale-based Matthews Real Estate Investment Services. The brokerage also reported that average asking rent in the Miami multifamily market increased just 1.2 percent in the 12 months ended in October.

“Over the next year, maybe year and a half, you’re going to have quite a lot of [rental] units delivered,” said Rafael Aregger, the Miami-based head of U.S. investments for Empira Group, a Swiss developer that plans to deliver an apartment building in Brickell with 310 units and another near Brickell with 85 units in the first half of 2026. “So, you’ll probably see lower rent growth, some concessions here and there, and slower lease-up speeds. By the time we deliver, we probably won’t have a lot of competition.” 

The Miami area’s wave of newly built apartments “will drop off significantly toward the end of 2025,” Aregger added, “because there’s not a lot of construction starts happening today.”

Yet demand for rental housing remains strong. Increased migration to Miami and the rest of Florida from high-tax cities and states has continued after surging during the COVID-19 pandemic. The number of out-of-state driver’s licenses exchanged for Florida licenses in Miami-Dade, Broward, Palm Beach and Martin counties increased 8 percent annually last year to 153,347, according to a December research report by Miami Commercial, an association of commercial real estate agents. New Yorkers accounted for the largest share of the license exchanges in 2023, followed by Californians and New Jersey residents. The total number of driver’s license exchanges in the last two years, just under 300,000, is nearly equal to the population of Orlando.

In the last two years, competition among tenants for apartments declined but remained more intense in Miami-Dade County than in any other metropolitan market, according to studies by RentCafe, an online apartment-search platform with listings across the nation. Last year, each apartment listing in Miami-Dade attracted an average of 22 prospective renters — a 42 percent drop from Miami-Dade’s average of 38 renters per available apartment in 2022.

Rental vacancy rates have risen in Miami as apartment developers have delivered thousands of units in the last two years. Miami-Dade County’s rental vacancy rate nearly doubled to 10.1 percent in last year’s third quarter from 5.6 percent in the third quarter of 2022 and loomed well above the 6.6 percent vacancy rate nationwide, Miami Commercial reported.

But rental apartment developers aren’t overbuilding in Miami like condo developers did before the financial crisis that triggered the Great Recession 15 years ago, said Peter Mekras, president of Aztec Group, a Miami-based provider of capital and transactional advice to real estate owners, investors and developers.

“We definitely have not reached the absurdity that occurred prior to the Global Financial Crisis, and that is mainly because we’re a more mature market,” Mekras said. “I don’t mean that from the standpoint that we’re more mature and making better decisions. I mean there’s less land available, and it’s harder to build as much as we did in those times.” He said lender caution is also slowing the pace of apartment construction starts in Miami: “The risk tolerance of banks has been heavily constrained.”

Mekras sees little evidence of multi-family overbuilding in Miami. He said the number of building permits issued in Miami and the rest of South Florida for single-family and multifamily residential construction averaged about 22,000 a year from 2021 through 2023, down from about 23,000 annually from 2015 through 2017. 

“So, in the last three years, we’ve built less than we built from 2015 to 2017, and our population is 5 to 7 percent larger,” Mekras said.

The shortfall might be due to a drop in
single-family construction. “It’s all correlated. Part of the increased demand for multi-
family is because we can’t produce enough single-family homes.” Last year, he said, building permits were issued for just 1,477 single-family homes in Miami-Dade (which has a population of 2.6 million) and for 805 homes in neighboring Broward County (population 1.9 million).

New apartment buildings in the Miami area are typically Class A properties with a rich mix of amenities and the rents to match, a trend that’s doing little to produce affordable rental housing for working-class tenants. The median asking rent in Miami-Dade has jumped 45 percent since 2019, while the average weekly wage in southeast Florida has risen only 20 percent, per the Miami Commercial report. 

Indeed, housing affordability may no longer rank along with warm winters and the absence of income taxes as primary reasons to migrate to Miami, according to a South Florida multifamily research report by Institutional Property Advisors. The investment sales firm cited “tempered overall migration trends due to the region’s elevated affordability hurdles.”

Affordable rentals aren’t necessarily affordable for the developers, either. They usually have to rely on government incentives such as property tax exemptions and low-cost financing through the Low-Income Housing Tax Credit program run by the Florida Housing Finance Corporation. So, breaking ground to build rent-restricted apartments for middle- and low-income tenants is as challenging as starting construction of market-rate apartments, said Jeffrey Burns, founder and CEO of Affiliated Development, which blends both types of units in its mixed-income apartment projects.

“The low-income housing developers — these tax-credit guys like Housing Trust Group and Related Urban — they’ve been having the same problems as everyone else getting deals to pencil out,” Burns said. “When they went in [and applied] for their tax credits, they were underwriting certain costs. And then when that cost went up dramatically in the past couple of years, the deals didn’t pencil. They needed more tax credit. They needed more help.”

Not a lot of help is coming from banks. “In the past two years, construction costs have been the biggest challenge to apartment projects getting built,” Burns said. “But, now, it’s going to be availability of capital and banking.

“So, while construction costs are coming back in line, banking has tightened up. Lending parameters are not what they were,” he added. “We’re probably going to see, in the next year or two, a lot of projects that aren’t advancing because the economics don’t make sense. There are going to be some deals out there that can’t get financed.”

New legislation may refine a state law that incentivizes developers to build rent-restricted affordable apartments in Florida. The Florida Senate recently passed a set of amendments to the Live Local Act, including a provision that limits the amount of parking such projects may require. Enactment of the amended version of the Live Local Act is pending approval by the Florida House of Representatives and Gov. Ron DeSantis.

“We’re big believers in Live Local,” said veteran developer Asi Cymbal. He is chairman of Miami-based Cymbal DLT Companies, which soon will start moving tenants into Laguna Gardens, an apartment complex next to Hard Rock Stadium in Miami Gardens. Cymbal designated all 310 apartments in the complex as rent-restricted units, qualifying them for property tax exemption under the Live Local Act.

Flat rent and slow-paced apartment construction starts aren’t permanent features of the Miami multifamily market, said Cymbal, a native New Yorker with more than three decades of experience as a developer. He sees current market conditions as a short-term transition to a new multifamily development cycle without rising interest rates.

“We’re seeing flat growth in the near term, but in about 24 to 36 months there should be a spike in rent growth,” Cymbal said, citing his expectation that migration will continue to bring large numbers of wealthy people and their companies to Miami. “The big seismic shift is we have real jobs in South Florida. It’s a completely different region than it was five or 10 years ago. 

“There are a lot of people making real money who can afford real rents,” he said. “Over the long term, we’re going to be much stronger than other markets around the country.”