Kerdyk Real Estate has found the owner-user market to be very strong. However, commercial real estate brokers in South Florida have generally had a difficult Q4, with property sales plummeting 55% compared to the previous year, according to property data firm Vizzda. Commercial real estate sales worth at least $1 million in the tri-county area were $5.2 billion, a drop of $11.6 billion from the previous year’s period. Additionally, the number of transactions fell 40% to 631, with a decrease in the average price of each deal. The significant reduction in sales was primarily due to buyers and sellers being unable to agree on a price, coupled with the lack of bank financing. The drop may be due to lenders who were asking for much more equity in deals, stretching the available cash reserves of buyers.
The rise in interest rates affected commercial real estate prices as it made debt more expensive, reducing return margins for buyers and increasing expenses for development. The multifamily and office markets saw the most significant declines in sales, falling 72% and 65% to $1.2 billion and $455 million, respectively. Retail dropped 31% to $1.1 billion despite vacancy rates remaining low for retail in South Florida. Population growth will continue to drive demand for space, but rising interest rates are still expected to decrease demand. The industrial market was the least impacted, with sales only declining 11% to $1.14 billion.
Looking ahead, we expect the number of deals to increase in the second half of 2023, but prices won’t return to the peaks from early 2022. However, with the unprecedented influx of people and investment dollars coming into Florida from the US, Europe, and Latin America, we are well-positioned to weather these market shifts.
The first wave of deals will involve properties with maturing debt, as owners may decide to sell instead of refinance at a higher rate. More deals will occur once the Federal Reserve stops raising rates, as banks need to lend to make money. By the second half of the year, the market is expected to return to more activity.