2023 Miami Luxury Condo Report – Market Records new highs for 2023! | Q1/Q2 2023 Analysis

The single-family home relationship with the new and existing luxury Condo market.

Given the increasing scarcity of luxury single-family homes (especially waterfront) and their soaring entry-level prices, many buyers are now shifting their attention toward condominiums both new and pre-construction. Luxury buyers most often wish to live by the water – the Bay or Ocean. These buyers are opting for waterfront condos as an alternative to very expensive waterfront homes in order to get the ‘turquoise blue’. Furthermore, there is a growing trend of affluent Americans choosing Miami as their primary home and choosing it for all the benefits Florida offers PLUS its waterfront views.

We see many buyers closely examining new condominium projects, with updated building codes, superior interior, and architectural features as well as ‘resort level amenities’. With more ’empty nester’ buyers than ever before, transitioning from houses to condos, developers are adapting to this demand by constructing larger, family-friendly condo residences.

Nevertheless, a significant challenge remains: there are only 6,400 units currently in development, with 1,100 of them scheduled for delivery in 2024/early 2025. Inventory constraints persist, and developers are struggling to construct condos quickly enough to meet the surging demand. The resale market has only a few months of inventory and existing luxury Condo owners are resistant to sell as they have ‘nowhere to go!’

 David discusses the Miami Luxury Condo Market with ISG co-founder and CEO of International Sales Group and RelatedISG, Craig Studnicky

What are we defining as a ‘Luxury Condo?’

As a parenthesis to this report “Luxury’ is defined as anything over $5m. Furthermore, given the limited inventory and thus lower level of sales, we decided to add a specific ‘Luxury Condo’ report outside of the individual neighborhood reports. We did this because as in all reports, we cannot draw conclusions on very very small data sets. In fact, it is most useful to study luxury Condo sales across Miami as it gives us the ability to see trends and patterns more clearly. Of course, there is some variety across neighborhoods, so for a more granular review please call me directly or book a time at the bottom of the screen in our ‘calendly’ app and I can explain in more detail.

Inventory Challenges

Luxury condo buyers often do not want to wait for 3-5 years, especially in the luxury real estate market, where time holds more value than money. Waiting for five years is often out of the question. While some buyers may consider the resale market, it’s important to note that available inventory there is dwindling rapidly. High-quality, newer properties are selling swiftly, and in just a year from now, we anticipate a significant problem as inventory levels are nearing depletion. As of today, finding a spacious unit of 2,500 square feet is already a challenge, let alone one measuring 4,000 square feet.

Construction Delays

To address this issue, we need developers to commence construction projects. However, despite their willingness, developers face obstacles such as fluctuating prices and the absence of guaranteed maximum prices from contractors, which hinder their ability to secure loans. Furthermore, the Federal Reserve has raised reserve requirements on banks as a measure to combat inflation, resulting in reduced lending capacity for banks. This impact is particularly severe on the construction market in South Florida. For developers, it is impossible to meet some of the deadlines and we might start seeing construction delays. There is also no financial motivation to start construction now. Give it another 6 months and you will see more movement in this market as costs might come down for a variety of reasons. See our previous podcast about the Miami real estate market with FIU Professor Eli Beracha.

Inventory Challenges leads to Surge in Resale Prices

Although the new construction market has witnessed a 10% increase in price per square foot, the luxury resale market has experienced an unprecedented 20% surge, the highest percentage increase ever recorded. So, for those concerned about the high asking prices per square foot for new condos, it’s essential to understand that property values are likely to continue rising over the next few years, even at their peak, due to the scarcity of available inventory.

The Below Graphs Show the Evolving Miami Luxury Condo Market ($10M+) over the last 6 years.

Inventory is down, condo availability is down and dollar per SF is up

A New HIKE in Prices is expected

Those relocating to Miami are eager to make a purchase promptly. Delaying until these condos are completed is not a feasible option, which means they will turn to the existing resale inventory. The luxury condo market in Miami is dealing with a substantial backlog of demand. Just envision the potential impact if interest rates were to decrease from 7% to the lower 6% range under the present market conditions. Currently, we are witnessing 20% fewer transactions compared to 2022, while prices have surged by 10%, and inventory has declined by 15%. If interest rates were to decrease, it could trigger a surge in the market, as all the capital that has been patiently waiting on the sidelines would finally be unleashed. This influx of new buyers would further strain an already limited inventory.

Actionable Advice for New Construction Buyers

• If you need a quick move-in date, go for the smaller, low-density condos or the ones that are lower than 30 floors. These units typically take about 2 to 2.5 years to complete.
• When making an investment, consider purchasing larger units. Even if you’re an investor, it’s often wiser to acquire a single large unit rather than several smaller ones. There’s a growing demand for spacious residences, and the resale market is currently experiencing a shortage of such units. Although new condo developments are offering larger units, the supply cannot keep up with the demand.
• Hospitality-branded condos tend to outperform other condominiums. They appeal to buyers primarily because of the services they offer and the peace of mind they provide. Global hospitality brands have a well-established and tested formula, making resort-level living increasingly desirable.
• Exercise caution when it comes to “value engineering,” which essentially involves developers cutting costs to stay within budget. With inflated construction costs, this approach carries higher risks. Genuine hospitality brands typically do not permit value engineering because they maintain strict standards and are actively involved in the construction process.
• Be wary of projects that prioritize branding over the quality of floor plans, measurable finishes, services, or views. Avoid developments where branding has little relevance to the building itself.
• Steer clear of properties that permit short-term leases or Airbnb rentals (for more details, see below)

Actionable Advice For Resale Buyers

• Very very low levels of high-quality inventory so be aggressive in your search and work with someone who is connected and can offer you inventory before it hits the market.
• Don’t wait. Prices will jump again. Once interest rates go up, prices will jump. Everyone is currently waiting and once we see a slight improvement in the interest rates, the “Siteline” buyers will start making offers and prices will go up.

What not to buy

Avoid investing in hotel condos, condos that permit short-term rentals, and Airbnb-oriented projects. Most reputable projects enforce restrictions on short-term rentals, often requiring a minimum lease duration of six months or even a year. I’ve highlighted this in previous reports, and Craig has also emphasized this in his reports.

To begin with, resale prices of Airbnb properties have decreased due to an oversaturated market. The accessibility for everyone to list their properties on Airbnb has led to market saturation. Moreover, it’s essential to note that these types of condos typically do not appreciate in value. Take, for instance, the Four Seasons in Brickell, which offers both traditional condo residences and condo-hotel units (essentially, owning a hotel room). While the traditional condos at the Four Seasons have appreciated by 200% over the past few years, the condo hotel units have seen just a 1% increase in value.

Verdict of our Miami Luxury Condo Market Report

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