Category Archives: Economy

Information pertaining to Miami’s business environment

The Neighborhood Economy Barometer: Starbucks

Starbucks on 47 West Flagler, in the Central Business District, not surprisingly has the least working hours of all others in Miami

I’ll have a double espresso and a glance at the neighborhood economies, please. Starbucks can provide more than an array of caffeine rich products. It can tell us a bit about the vitality of neighborhood economies. How? Hours of operation.

Starbucks and the Hood

Starbucks is an indicator of neighborhood economic activity because its operating hours, more often than not, coincide with that of its neighbors. For example, in South Beach, Sushi Samba on Lincoln Road and Pennsylvania closes at 2AM on Saturdays, a half hour after Starbucks across the street. Nearby Van Dyke Cafe opens its doors one hour after Starbucks, daily. In Brickell, Publix (in Mary Brickell Village) opens its doors a little over an hour after the nearby Starbucks, and PF Changs, right around the corner, closes at the same time as Starbucks on Saturdays and just one hour later on the weekdays. The correlations repeat wherever you go.  Continue reading

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Filed under BoB Articles, Brickell Village, CBD: Financial District, CBD: Jewelry District, Economy, Uptown: Edgewater

Commercial Development: Brickell Village Outlook

The chart below is one of several I prepared that are based on the latest DDA Development Activity Breakdown Report. It represents office/retail development (built, under construction, and approved) from 2002 to mid-2007 in Brickell Village. In an effort to compare DDA data with with an alternative source (to get the best overall picture), I deferred to CBRE’s market outlook. Let’s look at the DDA derived chart first:

Chart Data Source: DDA

According to the DDA, there is currently 1.45 million square feet of office space under construction in Brickell Village. Let’s take a look at what CBRE reports:

The CBRE office construction sum (which doesn’t include office condo development) is +/- 1.4 million sq. ft. This coincides with the DDA figures. Since 2002, there has been a total of 461,000 square feet of new office space added to the Brickell market. The 2007 office construction figure constitutes a major increase in inventory compared to the last five years. There is an underlying concern that the demand for new office space is insufficient for a healthy rate of absorption, but falling vacancies and rising lease rates are contradicting this claim. Let’s take a look at Brickell’s vacancy history since 2004:

Chart Source: CBRE (Market Pulse)

In the second quarter of 2005, while the residential condo market was still hot, vacancies in the office market were at a dismal 16.9%. However, since then (in the third quarter of 2007), vacancies have gone down to 8.0%.

Let’s take a look at recent rental rate averages:

Chart source: CBRE (Market Pulse) [Firefox users, right click to view larger clearer image]

From when the vacancies were at their highest level in the second quarter of 2005 to their lowest point in the 3rd quarter this year, the average rental rate per square foot has gone up from $28.34 to $33.03–with one instance of an asking rate of $50.00 in a prestigious Class A office development (according to CBRE, a first for the Miami office market). Decreasing vacancies and increasing rental rates are healthy growth indicators but the 1.45 million sq. ft. of new space brings the market’s absorption rate into question. Let’s take a look at the rate of absorption for new construction in Brickell Village since 2004:


Chart Source: CBRE (Market Pulse) [Firefox users, right click to view larger clearer image]

As you can see above, there hasn’t been much new space added to the market since 2004 when 260,000 sq. ft. came online. Still, 247,982 sq. ft. was absorbed that same year compared to the 260k added–a pretty good absorption precedent, but minimal when considering the projected 1.4 million sq. ft. coming online during the next year or so.

2008 is going to be pivotal for Brickell Village’s office market. The addition of over 1.4 million square feet of new space will test the market’s vitality but a successful transition will increase the overall value of Brickell Village real estate, create new jobs, add to the commercial and residential allure of BV (which already has higher office rental rates than the CBD), and balance the scales of development more evenly with the heavy residential side. If all goes well in 2008 and into 2009, and growth is proven sustainable, then who knows, the office sector might see a significant construction surge.

NEXT: Commercial Development: Central Business District

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Real Estate Market Recovery Patterns

Matt Woolsey at Forbes comes up with a great analysis on the national real estate market downturn and the recovery patterns that often ensue. It references three recovery pattern types:

  1. V-shaped: “where a market experiences a sharp, fast decline but comes out strong once it hits bottom”
  2. U-shaped: “where prices decline gradually and recover slowly”
  3. L-shaped: ” a hard, fast fall with paltry price bounce back following the market trough.”

A strong real estate market is cited as having a 1.5% vacancy rate. The current national average is 2.8%. In Miami and Tampa the figure is around 3.5%–Atlanta and Denver are in the same boat. Tampa is mentioned as following the V-shaped recovery pattern.

High investor shares are cited as the main factor in deepening the price dive. Tampa, according to the report, has a 25% investor share; Phoenix is mentioned having a 26.1% investor share. Although the article does not reference Miami’s investor share. recently, real estate analyst Jack McCabe was quoted in the NY Times as saying that up to 70% of the condos purchased during the boom in the Miami area are investor-owned.

Is Jack McCabe’s number too high? What source substantiates it? What recovery pattern could Miami follow? Is it too early to tell? Is the recent report regarding Jade a microcosm of the larger picture? There are many questions but the article presents an interesting method for looking at the problem.

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Wall Street Journal: Florida is Housing Shakeout Epicenter

The WSJ points out that Florida’s decrease in building permits, construction material sales, and credit quality on residential construction loan portfolios make it the center of the housing “shakeout”:

“Speculators who have held back on selling now bear heavy costs. According to the U.S. Commerce Department, the number of vacant homes for sale in Florida doubled last year to 4.3% of the state’s total housing stock. That’s the highest vacancy rate in the country. As more speculators throw in the towel, Florida housing prices may have much farther to fall”

Interestingly, although the article makes reference to Miami, the Magic City is set apart from Florida as a whole. Recent reports have touted Miami as a stabilizing factor in Florida’s overall market while others have singled it out as over-priced. WSJ is looking at some critical indicators of a downward tumble, but two of the three, the decline in permits and construction material sales, are less an indication of a downward market slide and more of a reflection of the leveling off of construction activity; a necessary and expected halt in residential unit production. Credit deterioration, insurance rate and property tax increases, however, paint an ugly picture for Florida in general.

A recent comment posted here by a reader named Brad describes the current situation as a reflection of “the current stalemate between buyers and sellers and sellers’ unwillingness to lower prices.” The ongoing increase in residential unit inventory will likely result in the capitulation of the latter and a property value hiccup, but not a longterm one. Miami’s market still holds significant value potential and rests its laurels on a historic level of construction activity, a substantial rise in tax revenues, a unique and expanding economic position, and a thriving tourism sector.

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Miami Real Estate Market Contradictions

Forbes recently listed Miami as America’s second most over priced real estate market. Now CNBC lists Miami as number 4 in its top five metro areas in (property value) appreciation.

CNBC analysis goes on to report:

“But there continue to be puzzling stories in the national mix that appear to defy employment and land supply. Take, for example, Miami. Florida is leading the housing bust, with existing single-family home sales in March down 28% statewide from a year ago. Prices statewide are down 4%, but not so in Miami…While single-family home prices in the city are flat, condo prices are up 18% over last year, despite the fact that the Miami skyline is still teeming with cranes.”

If you read the Forbes list you saw two of its targets on the downside of the CNBC list (San Diego and D.C.), but Miami, a Forbes target, is on the upside of the CNBC list. The articles are both looking at property value appreciation in the same city but drawing two very different conclusions.

The Forbes conclusion is that the prices in the Miami market are too high to sustain further growth. Forbes formed their conclusion by looking at the median household income of Miami-Dade county but ignoring the city’s appeal to domestic and foreign buyers.

The CNBC report looks at the property value increases as positive and the reality on the ground as highly active. The conclusion is that Miami’s real estate market, particularly the condo sector, is defying the odds and continuing to increase in value.

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Miami Office Investment Rises as Vacancies Decline

The Miami Herald has reported that “real estate giant” Tishman Speyer has bought Courvoisier Centre for $150 million. Tishman Speyer owns the landmark Rockefeller Center and Chrysler Building in NYC, and according to the Herald, the New York firm recently closed on the biggest real estate deal in U.S. history by acquiring an 80 acre apartment complex in Manhattan for $5.4 billion. Tishman Speyer’s reemergence into the Miami office market is not the only exciting news. Chicago-based Equity Office Properties recently acquired stakes in two Miami office buildings. Transwestern Investments, another Chicago-based company, bought a large office complex in the Gables. In the CBD, office vacancies have gone from 14.4% in the year 2005 to %10.2 in the present. On Brickell office vacancies have gone from 15% in 2005 to 7.7% in the present.

The boom in high rise construction in Miami has been mostly residential. This unprecedented vertical growth in the residential sector is highly unusual. Historically, high density booms throughout the globe, for the most part, have been composed of office buildings. Even today, in the major urban centers of the world (Shanghai, Hong Kong, Moscow, New York, Chicago, etc.) the most impressive high rises are commercial. This is not the case in Miami where there are plans for three 1,000ft towers, all residential, along with dozens of other residential skyscrapers taller than 400 ft.

With the economic growth and trade surplus of Miami, the city is primed for office growth. As mentioned here before, an increase in office development in Miami is inevitable and may eventually evolve into a boom.

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Malaysian Trade Mission to Miami Generates Millions

A Malaysian trade mission toured three (3) U.S. cities in a 10-day effort to boost trade ties with the U.S. The embassy made its first stop in Miami. The Malaysian National News Agency now reports 78.93 million in sales having derived from the Miami trade mission alone. It has mentioned here before that Miami’s trade ties with Malaysia are increasing. The fact that the trade mission began in Miami is symbolic of the city’s growing importance for Malaysia’s trade with the U.S. and Latin America.

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Miami on Down Side of the China Effect

Miami is vital for U.S. trade with Latin America and the Caribbean. Bob: Miami spends quite some time discussing the Free Trade Area of the Americas despite the trade talks having stalled. This blog’s attention remains on the FTAA because negotiations for the trade bloc have been occurring since the first Summit of the Americas in 1994, which by no mere coincidence was held in Miami. In other words, the FTAA was not dreamt up yesterday and has maintained over 12 years of lasting power—at least as an idea. The FTAA is endangered not just because of lack of dialogue and compromise but also by the China Effect.

This is critical for Miami because the People’s Republic of China (PRC) invests little in the city whereas PRC investment in Panama and other Latin American and Caribbean nations is high in comparison. The PRC, with its growing capital influence, can create an economic paradigm shift in the entire region. Already the PRC has recognized the Panama Canal’s significance in its overall trade strategy and as a result the trans-oceanic waterway’s two main ports (Cristobal and Balboa) are controlled by Hong Kong based Hutchison Whampoa Ltd. The managing company’s actual name is Panama Ports Co., but it is a subsidiary of HW Ltd. This replacement of U.S. control with Chinese is symbolic.

This level of PRC involvement is not conducive for economic unification among the south, central, and southern portions of the hemisphere. Instead, PRC efforts in the region are subversive and serve to reduce interest in the FTAA. PRC investments are bolstering the economic stance of cities such as, Panama City and countries such as Venezuela, while at the same time tempting other Latin American and Caribbean nations away from U.S. orbit. The economic pull of the U.S. is weakening in its own backyard. When it comes to U.S. trade with Latin America and the Caribbean, Miami is the focal point. Naturally, the inevitable effects of PRC intervention in Latin America and the Caribbean will be felt there first.

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Not a Seller’s Market

The first quarter stats for home sales and foreclosures in Miami indicate a downward trend for the former and an upward trend for the latter:

In February 2007, there were 12,430 single-family homes for sale, and 519 homes sold. The story was very similar with respect to condos. In February 2006, there were 13,436 condos for sale in Dade, and 965 condos sold. In February 2007, there were 22,025 condos for sale in Dade, and 617 condos sold. According to a recent published report, Florida foreclosure activity in February of 2007 was up more than 63% from January. That’s one foreclosure filing for every 382 households in Florida. There were 19,144 foreclosure filings in Florida during February, the most of any state.

View the full article here.

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Hong Kong in Miami (Swire Properties Ltd.)

What do Hong Kong and Miami have in common? Well, for one, they are nearly on the same latitude. The city’s both deal with massive tropical storms, except call them by different names (hurricane and typhoons). Both metropolises are a hub for hundreds of multinational corporations, but Hong Kong is still leaps and bounds ahead of Miami. Aside from these basic similarities, the Magic City has a little bit of Hong Kong in it: Swire Properties Ltd. This international conglomerate is a big part of Hong Kong’s vertical evolution. The firm is one of the largest developers in the Chinese island-metropolis. They are the builders of Taikoo Shing, a 61 tower development. Swire also developed the monolithic multi-phase Pacific Place project, which includes four towers with three hotels (Shangri-La Hotel, Conrad Hotel, and J.W. Marriot – all with a presence in Miami: SLH in Island Gardens). Pacific Place also includes a high end shopping mall. Also in Hong Kong, the firm is the master mind behind the highly successful City Plaza project.

Their Far East projects are not confined to Hong Kong. They are building Taikoo Hui Cultural Plaza in Guangzhou (formerly Canton), north of Hong Kong. The impressively designed three tower project looks more like a new United Nations than a cultural plaza. The three towers are connected by a major hub in the center that includes a convention center, shopping mall, commercial spaces, along with a major transit interchange. The building’s main lobby is a massive glass-encased cube. Swire has built and is building dozens more major projects in Hong Kong and throughout the region.

  • Image Source: Emporis – Taikoo Hui Cultural Plaza in Guangzhou

The multi-faceted international conglomerate has the ability to build more than just “big”. Now, consider their involvement in Miami’s urban market. Swire has all but claimed Brickell Key (Claughton Island) as their own Miami outpost. As of late, Swire is responsible for all three Tequesta towers, the Courts, Courvoisier Courts, the Mandarin Oriental, the Carbonell, and their latest development, Asia (pun intended). As a result, Brickell Key has evolved into a highly unique urban island community. Swire Properties has played the role of catalyst.

What is amazing about Swire is that their projects go vertical consistently, quickly, with minimal buzz, and the result is always an excellent development. Strikingly, since the 1970’s, Swire has focused its North American real estate activity solely on Miami. From their site:

Swire Properties Inc., the USA real estate operation of Swire Pacific, has been active in the development of investment and trading properties in Florida since the 1970s. Its primary focus is on Brickell Key in downtown Miami, where a number of commercial and residential properties have been developed.

Could there be something in Miami that reminds Swire of Hong Kong? There is, and you can rest assured that it isn’t the weather. Miami’s abuzz with economic activity and Swire’s latest Miami developments have been their most ambitious to date. The Far East firm has a proven track record of success on Brickell Key. Its efforts have largely remained within the quaint man made island, but there have been mini-forays into other nearby markets: South Beach’s Floridian and Jade Brickell. A mini-foray however is nothing compared to what this quiet giant could really accomplish.

Swire’s activity on Brickell Key could be a microcosm of what might happen in mainland Miami should the firm delve heavily into it. Let’s just say that Swire is running out of space on Brickell Key, and the mainland looms temptingly close. Should Swire move more aggressively into the Miami urban market, there will be no doubt of its ability to execute and in grand style. The resulting development could bring Miami closer to Hong Kong than previously thought.

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