How South Florida is winning the nation’s real estate war

In downtown Miami, ground is being cleared for Florida’s tallest office tower, with 1.5 million square feet to be filled by firms that have, yet, no actual presence in the state.

Condo towers branded as St. Regis and Waldorf-Astoria are also planned for the area. Their completion is years away, but their unbuilt units are largely claimed with buyer deposits.

The same thing further north in West Palm Beach, where the arrival of financial giants such as Goldman Sachs and Blackrock sent office rents to a record high during the second quarter of this year. Now, new workplaces with private terraces and access to yacht charters are rising along the city’s waterfront, while builders plan condos for those future employees.

“We’ve got four or five thousand people coming to West Palm Beach who have not yet arrived,” said Nick Bienstock, CEO of New York City office landlord Savanna. Eager for a share of that market, Savanna is now making its first Florida investment, a 275-unit condo called Olara — part of the 3,000 new homes now under development across West Palm Beach.

More than three years into a mass migration of both money and people to the Sunshine State, Florida’s property market continues to outperform nearly all of the rest of the US. What began as a warm-weather haven from pandemic restrictions, has turned into a place not only catering to the current influx of professionals but doubling down on the premise that even more are still to come.

“The old, 1980s Florida is disappearing,” said Ken H. Johnson, a housing economist with Florida Atlantic University’s College of Business. “We’re just not getting those retirement-community, fixed-income folks we used to. We’re getting people with significant incomes and they’re usually bringing in work and jobs with them.”

Indeed, Florida is the No. 1 destination for professionals aged 25 to 36 earning at least $200,000, according to a recent report by financial advisory SmartAsset.

Most crucially, high-earners arrivingin Florida have outnumbered those departing by over three-to-one in recent years. And along with youth and jobs, the newcomers are coming with cash, snapping up homes in a state that doesn’t have nearly enough of them.

The results: A market that keeps on crowning nearly every list of superlatives. Of the 10 most overpriced housing markets in the country, for instance, seven are in Florida, according to a monthly analysis co-published by Prof. Johnson. That means Florida buyers are paying the highest premiums for their homes nationwide when compared to price averages over the past 27 years. Miami’s median home price rose 14.6% in August over a year earlier, according to brokerage Redfin, and 5.3% in neighboring Fort Lauderdale — where the downtown population has swelled by 80% since 2010.

The spikes arrive just as other much-hyped pandemic-era “boom-towns” endure ongoing declines: Phoenix home prices fell 2% in August, Fort Worth dropped 2.7% and Austin, which ranked dead last in Redfin’s price growth list, plunged 7%. And that’s the good news: These numbers follow double-digit corrections in Phoenix and Austin just a few months earlier.

“Texas is different from Florida even though both are identified as tax-free states,” said Eli Beracha, director of the Hollo School of Real Estate at Florida International University. “Florida is viewed as a tropical vacation place — where you can also live. People just don’t go on vacation to Dallas.”

Florida received the largest in-migration of wealth in the US during the pandemic. Just in 2021, newcomers increased the state’s taxable income by $39.3 billion — more than three times what second-place Texas pulled in, according to the Economic Innovation Group, a DC think tank.

Census numbers released in September suggest this growth will continue: Florida’s population rose by 2.13%. — the biggest jump in the US — between 2021 and 2022.

“Florida is being reset and restructured in a way that no one else is,” said Jonathan Miller, president of real estate appraisal firm Miller Samuel. What differentiates this current cycle is “that all of this is happening without a tremendous amount of [the] international demand” which fueled previous Florida housing and population booms. So what is, instead?

“New Yorkers are the new foreign buyer,” said Miller, nodding to the nearly 130,000 Empire Staters who relocated to the Sunshine State in 2021 and 2022 alone.

​​Many of these new residents split their time between cities while making no-income-tax Florida their primary home, Miller added. Little wonder there’s a construction boomlet of furnished Miami condos designed so owners can easily rent them while they’re away.

Florida has obvious appeal for northerners. Fed up with big-city crime and quality of life deficiencies — and lured by those tax benefits and beachy home offices  — the state provides a ready-made solution to many of urban America’s most serious ills. “It’s just a different way people are choosing to live and Miami is a big beneficiary of that,” said Nitin Motwani, managing partner of Miami Worldcenter Associates, master developer of the 27-acre Miami Worldcenter district, a $6 billion project spanning 10 city blocks.

Motwani says he regularly fields calls from executives asking for logistical help on making a move south. “Sometimes it’s just things like ‘Where should we look?’” Motwani said. “Other times, it’s to talk about talent, or ‘Can you connect me with another C-suite person who moved?”

The advice is much-needed: According to media reports this year, top Miami-area schools have become so crowded that billionaire newcomers are literally writing multimillion “charity” checks to ensure places for their children.

By every metric, Florida’s real estate market is overperforming. While that may suit investors, a lack of affordable housing has become an issue for policymakers, who are trying to incentivize the development of more reasonably priced apartments. A recent report by the Florida Policy Project reveals that over 1 million residents statewide are spending more than 50% of their income on housing. And rising homeowners insurance premiums are only making matters worse. According to a recent study by the Florida Apartment Association, Florida will need some 500,000 new housing units by 2030 to curb costs and meet future demand.

Unsurprisingly, Florida’s housing shortage has translated into some of the highest price increases in the nation. Miami’s median home and condo prices have climbed 64% since mid-2019, according to Miller Samuel. This compares to a 14% increase in Los Angeles — and a 1.2% decline in Manhattan — during the same period. Price gains were robust outside Miami as well, jumping by 62% in Boca Raton and 59% in Delray Beach.

In finance-heavy Palm Beach, residential property was super-charged by the pandemic, rising 141% since the second quarter of 2019, according to Miller Samuel. While prices are beginning to cool, this year has already seen at least five homes trade for over $50 million, including a $155 million compound sold by the widow of Rush Limbaugh.  

“Forty years ago, Palm Beach was a place that old people went for their last few years, and that’s absolutely not the case now,” Savanna’s Bienstock said.

Much like residential developers, commercial property investors are also helping South Florida retain its real estate edge, pouring more than $63 billion into the three regional counties in 2021 and 2022, according to data by MSCI Real Assets.

In Miami, New York’s Related Cos and Swire Properties are taking the highest-profile bet yet that Miami’s human and economic capital migrations are both permanent and ongoing. The developers are currently building Florida’s tallest commercial tower, the 1.5 million square-foot/1,000-foot tall One Brickell City Centre in downtown.

Miami needs developments like One Brickell: Corporate relocations jumped 33% last year, while the total assets managed by financial firms in Miami reached $390 billion in August 2022 — up from $75 billion in 2019, according to the city’s Downtown Development Authority.

The missing link “is quality office space, and that’s the gap we’re aiming for,” said David Martin, senior vice president of retail and commercial leasing for Swire’s US operation. Indeed, office vacancies stood at just 10.4% in the second quarter of this year in Miami-Dade County, according to Colliers, compared to a record-high of 17.8% in Manhattan and over 30% in San Francisco. The city’s downtown is also now an easier commute to Boca Raton and Palm Beach thanks to the new $6.2 billion Brightline high-speed rail service.

Other New York-based developers — ranging from Harry Macklowe (the real-estate titan who once owned the GM building), to Chrysler Building owner Aby Rosen, to Upper East Side condo kings the Naftali Group — are all planning their Florida debuts. “There is still a migration of people,” says billionaire developer Richard LeFrak, who’s more than doubled his South Florida staff since the pandemic. “It’s not as dramatic as it was during COVID but it’s still a steady stream.”

For the moment, at least, signs suggest newcomers will continue to arrive over both the short and long terms: Miami’s current metropolitan area population of 6.26 million is expected to grow an additional seven percent by 2030. That could help Florida resist the eventual US housing downturn many experts fear amid soaring mortgage rates and ongoing inflation. Or even downturns: According to a recent study by the University of Florida’s GeoPlan Center, the state’s population could surge to 33 million from its current 21.7 million by 2070.

“Our economy here in Florida is when California was circa late 1960’s where it really started to expand,” Prof. Johnson said. “There was always the weather and the salt water, but now the professional opportunities are here as well. This expansion is going to go on for quite some time — and we’re going to be talking about housing for quite some time.”