S
outh Florida's real estate market has taken a hit as the office leasing boom that fueled record-breaking deals in 2021 and 2022 has come to an end. The Federal Reserve's aggressive interest rate hikes have made lenders skittish, while property expenses such as insurance have skyrocketed, taking a toll on investment sales.
According to CoStar Group data, investment sales are down not only from the record years of 2021 and 2022 but also from the pre-pandemic years of 2018 and 2019. "The equity required to raise is very difficult to achieve for large deals," said Transwestern's John Bell. "Smaller deals are trading, but at a reset pricing, while larger deals are few and far between."
Despite this decline, experts note that average price per square foot remains high due to South Florida's reputation as an office mecca. However, this year's average price per square foot has dropped from the record highs of 2021 and 2022.
The breakdown in investment sales is stark: $1.4 billion in deals for the one-year period ending September 11th, a 71% drop from the record $4.9 billion in 2022. The biggest sale in 2021 was Steve Ross's $282 million purchase of Phillips Point office towers, while Ken Griffin's $286.5 million purchase of the 1221 Brickell tower was the top deal in 2022.
A bid-ask gap has emerged, with buyers unable to match landlords' expectations for well-leased buildings. Financing has become more expensive and scarce, and investors have pulled back on equity due to higher interest rates and a wider economic slowdown.
Some sellers are settling for discounts: Brookwood Financial Partners sold Commercial Place I and II in Oakland Park for $26 million, 12% less than the firm's original purchase price. Others, like YMP Real Estate Management, are betting on an upside by purchasing discounted properties with high occupancy rates.
CoStar's data shows that South Florida occupancy and rents have remained strong despite the decline in investment sales. However, experts warn that incremental interest rate cuts won't make a significant difference in investment sales, and more distressed deals are likely to emerge next year as landlords face maturing debt and floating rate loans.
