Miami’s apartment market has been riding high. The city saw a wave of new construction in 2023, similar to other active regions throughout the country, but with greater levels of absorption and more resilient fundamentals than most other heavy-supply markets.

With a robust pipeline of more than 40,000 rental units under construction, however, Miami’s luxury market has started to soften. Recent signs of oversupply in the Class A space is leading to slower rent growth, as Lument’s Miami Apartment Market Report details.

At the same time, many domestic buyers have been sitting on the sidelines, due to rising insurance costs coupled with last year’s interest rate hikes. Given the resulting decline in investment sales and Miami’s need for more moderate-income housing, opportunities could ripen for local and regional mid-market investors focused on multifamily assets below the luxury tier over the long term.

Here are some of the key opportunities and challenges for stakeholders in Miami’s multifamily market for the remainder of 2024.

A Muddled Investment Landscape for Miami Multifamily

Miami’s apartment market boasted a low vacancy rate of 3.6% in the third quarter of 2023, well below Florida’s 5.5% and the national average of 5.1%.

But while Miami saw relatively stronger operating conditions, investment sales volume in the city tumbled by 67% year-over-year (YoY) in Q3 2023. That’s compared to a national YoY sales decline of 65%.

As operating and debt costs in Miami sharply increased, due to high interest and insurance rates, buyers and sellers found less common ground than in previous years. The decline in sales activity would have been even starker without the cushion from cross-border capital, which moderated slightly last year.

One of the big uncertainties for multifamily investors going forward is the rising cost of insurance. The average insurance cost for apartments in Miami rose by more than 30% YoY in Q3 2023—the 19th consecutive quarter of double-digit increases.

Monitoring Migration’s Impact on Miami Rents

Rent growth in Miami significantly outpaced the rest of the country and other major Florida markets in the third quarter of last year. Rents for professionally managed apartments increased by 4% YoY, per our Miami report.

The city’s extensive development pipeline is expected to deliver in the near term. However, to fill the growing number of vacant units, landlords in the Class A space may need to offer further concessions.

A key question looking ahead is whether Miami’s migration shifts will have a more profound impact on rent prices and property values. Miami-Dade County saw its population of more than 2.7 million people drop between 2019 and 2022, marking the first decline since the 1970s, according to the Federal Reserve Bank of St. Louis. The county lost nearly 80,000 people through net migration to other parts of Florida and other states due to rising home prices during the pandemic.

On the bright side, employment growth in Miami has continually outpaced the long-term historical average, supporting household formation and renter demand. Of course, if Miami’s population rebounds, the city’s transportation and infrastructure will need to keep pace.

Opportunities on the Horizon

As interest rates taper off and bank lending loosens, investment activity in Miami is expected to pick back up over the next few years.

For regional and local buyers who were priced out of Miami’s apartment market or stayed on the sidelines due to high-interest rates, the current decline in transaction volume and softening of luxury prices could provide a price recalibration.

It’s important to note that Miami has one of the deepest needs for more affordable and workforce housing. Considering the city’s limited land mass, however, fierce competition may drive the next growth period—especially if institutional and foreign capital flood the market again.

Contact Lument today to learn more about the latest market opportunities and cautionary signs from our Miami-based loan originations team.