2 min read May 2023 — In an Interview with Invest:, Michael Fay, chairman of the US Capital Markets Executive Committee and principal and managing Director at Avison Young in Miami, talked about how the region is diversifying its business environment by attracting companies from private equity to technology, and how building climate resilience is crucial.
What are the latest overarching trends driving commercial real estate in South Florida and how is Avison Young looking to capitalize on them?
Well, let me start by saying that Avison Young, myself, and my direct team including John Crotty, David Duckworth and Brian de la Fe, have been involved in some of South Florida’s most significant and iconic transactions. The Genting transaction, for example, is a $1.2 billion sale that has garnered widespread attention in the media.
What has transformed, and is transpiring right now, is that we are seeing an overload of migration of people and companies relocating to South Florida, which is impressive. We believe it’s due to Miami’s numerous advantages; a diverse population, I would say the best of any city, especially because it is within a three-hour flight to 30 different countries. We’re also in close proximity to Europe and Toronto while remaining in the Eastern Time Zone where the markets are reflected, so it’s very good for us.
Furthermore, our corporate and state tax status is favorable, and governmental agencies manage safety, so people feel secure in Miami. Another advantage we have is the weather; it’s pleasant throughout the year, which only adds to the positive business climate. All these factors contribute to Miami’s reputation as an excellent place to live, work and do business.
Given Avison Young’s global footprint, what is the state of office spaces in Miami and other markets globally, and how are you capitalizing on those trends?
Some of the trends that we are focusing on include return to office (RTO) and work from home, which has been a global theme in major metropolitan areas. We are seeing a disconnect, however, in certain markets. Whereas Miami has been doing very well. Two significant office developments have been announced, which is incredible due to the migration of businesses to Miami. Furthermore, office rents are increasing, and the vacancy rates continue to be low. This trend sets Miami apart from other global offices, which experience some disconnect.
Regarding overarching trends, industrial is still strong due to the worldwide logistics changes. Many countries are deglobalizing and bringing their products closer to home or the consumer. Mexico is a significant beneficiary of this change, being very close to the US, which makes shipping, rail, manufacturing, trucking, and other transport possible and efficient. Additionally, multifamily units continue to do well in many areas, and new developments in Miami’s unique neighborhoods are attracting a lot of interest from investors. Also, despite the ongoing geopolitical issues and interest rate challenges, Miami’s real estate market is still thriving. Developers are thinking ahead and looking two to three years from now when delivering the products. Therefore, Miami remains a top choice for investors looking for sustained growth in the long term.
Which industries and sub-sectors are driving demand for commercial real estate in the Miami region?
Being born and raised in Miami, which is run on sun and sand – only takes you as far as tourism, banking and real estate. However, over the years, I’ve noticed an influx of manufacturing, private equity, financial and tech companies. This shift has made South Florida a destination for various industries and a crucial intersection for investment.
Despite the significant changes, Mother Earth remains a top priority. Climate change, sea rise and other environmental issues must be addressed. While I believe climate change is cyclical, we cannot forget to take care of our planet. We need to be more resilient and come up with new solutions that will help us adapt to rising sea levels and other challenges. One of the most significant issues we face is drainage. Miami was built years ago, and the drainage system cannot handle the current water levels during king tides. However, we’re making progress in terms of construction resiliency, and we’re developing new ways to deal with rising sea levels and drainage problems.
Also, there is a significant amount of investment coming in for resiliency building. For example, when it comes to hurricanes, we’ve made significant strides in technology and forecasting. We can now prepare and alert residents before a hurricane hits, making it easier for them to evacuate. Moreover, homes and buildings are now built to better withstand high winds and flooding. As a result, we’re better equipped to handle the destruction a hurricane can bring.
Are there any regulations or legislations that you are tracking?
The governor is currently signing a new bill that will increase the density and buildable properties in specific municipalities across the state. This move aims to encourage more development in certain areas, creating more affordable housing options and promoting walkability and other transit-oriented developments. Undoubtedly, affordable housing remains our state’s biggest issue, or as I like to call it, attainable housing – something that should be accessible to everyone. Unfortunately, the real estate market has witnessed a sharp increase in value over the last three years since the pandemic, and everyone’s migration into the state has compounded the situation. The key is to find innovative ways to tackle this issue, and one idea that I’m pushing for is affordable housing or attainable housing development credits, something like a mitigation bank. Here, developers could fully utilize a property and buy out of some of the attainable or affordable housing requirements. The next developer could then leverage these credits to buy down the costs of building new projects that buyers or renters could acquire at more affordable prices. Moreover, as much as I appreciate our road system and the quadrant system, I strongly feel we should invest in more public transportation in Miami. Thankfully, there are developments in this area that hold promise.
What is your outlook for the next two to three years and how does this inform your priorities?
We are keeping a close eye on interest rates, geopolitics and the war in Ukraine. With multiple Black Swan events, including the global pandemic, everyone is feeling the pressure. We need to pay attention to inflation and how it may lead to a possible recession – whether it’s a severe one or not. There will be some distress with mortgage maturities, which are loans that are coming to an end. This will make refinancing more difficult due to rising interest rates. However, we are well-positioned to help resolve these issues, especially with the rising property values and a migration of businesses and people coming into the area. While South Florida hasn’t been entirely immune to the current situation, it has been somewhat insulated due to the progressive business that’s been coming in. Hopefully, interest rates will stabilize or even go down in the next 12 months, leading to a positive outlook on a global and national level.
For more information, visit:
