Perspectives 2019 Global to Local: Insights into the South Florida Real Estate Market

PERSPECTIVES GLOBAL TO LOCAL: THE ECONOMIC LANDSCAPE AND ITS INFLUENCE ON SOUTH FLORIDA REAL ESTATE

IN COLL ABORATION WITH

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

TABLE OF CONTENTS Welcome 3 Global Outlook 4

South Florida snapshot 16

As markets stabilize, prices adjust globally

The ‘Great Tax Migration’ Gives Sunshine State a Boost

page 5

page 17

strong dollar will continue to create shift in U.S. buyer Base

Political, Economic Concerns Will Continue to Influence Latin American Buyers

page 7

page 18

Cooling Effect of Taxes, Capital Constraints Could Worsen in 2019, Diverting Buyers Toward Low-Tax Locales

Financial, Tech Industries Could Bring New Buyers

page 8 U.S., Emerging Economies to Drive Luxury Sales of Tomorrow

page 10 Rising U.S. Luxury Hubs: Las Vegas, Nashville, and Fort Lauderdale

page 12 A competitive landscape leads to enhanced offerings in pre- construction

page 13 New condominiums compete via amenities and services

page 14

page 20 Improving Infrastructure Sets South Florida Up for Future Growth

page 21

Local deep dive 22 Global Trends Will Benefit South Florida Market

page 23 Lifestyle Will Remain Driving Force Behind South Florida’s Housing Market

page 25 South florida heads towards next development cycle more stable and primed for price growth

page 28

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

Welcome elcome to the 2019 Perspectives Report by ONE Sotheby’s W International Realty, where we look

to the future of high-end real estate on global, regional, and local levels.

As a truly international brand in a very internationally focused market, it is important for us to look outside our local statistics to understand future growth. In this report, we have done just that. We have worked with Mansion Global Custom Studios to develop a piece that highlights international trends that have implications for our local South Florida market.

As the following pages show, changes in global and regional taxes have been and will continue to play a role in the way real estate is bought and sold. Increases in second-home taxes around the world and changes to the U.S. tax code have made certain high-income locales more expensive, and have already led more buyers, both from the U.S. and abroad, to purchase properties in lower-tax states such as Florida. Home sales in our area have already improved in the first quarter of 2019. Sales in the state are overperforming in 90% of the submarkets compared with just two years ago.

That’s in part because of these changing taxes and the fact that Florida is a state with no personal income tax.

When it comes to pre-construction real estate, all of these factors are

3

also strong indicators for stable price growth in the coming year, as newdevelopment units and demand find balance—leading into a robust nextdevelopment cycle.

The number of new millionaires around the globe is multiplying— with the U.S., China, and Japan leading the pack. The number of millionaires worldwide is expected to reach 55 million by 2023, and those people will, of course, buy high-end real estate, boosting some already-established areas, such as South Florida, as well as emerging parts of the country and world.

In South Florida specifically, we’re seeing an influx of new technology and financial-sector jobs. With major headquarters opening up throughout South Florida, employment opportunities are vast, and competing with other primary markets around the country.

With those new jobs comes the need for improved infrastructure. The introduction of Virgin Trains USA was a very welcome change for many who wanted to live in more-suburban areas but still have access to a competitive job industry, which tends to reside in the city centers. Living in areas like Palm Beach and working in Downtown Miami is now very possible due to the commuter line. And its recent partnership with none other than

Richard Branson is sure to inject additional potential into this project.

Other huge capital improvements are also underway in the Port of Miami. Cargo traffic as well as cruiseship offerings are expected to grow, thus solidifying our position as a necessary international hub. In addition to being a key trade center, South Florida plays a critical role when it comes to connecting the Americas through data. The Network Access Point of the Americas in Downtown Miami has recently completed a major expansion project to house its 160 network carriers for data traffic flowing from Central and South America to more than 140 countries internationally—a project estimated to have cost about $60 million.

We are fortunate to live and thrive in an area that has significant promise and impact on a global scale. Our long-favored weather and geographical surroundings are now accompanied by substantial capital investment and an incredible increase in jobs, which make South Florida poised for significant and sustainable growth. We are incredibly fortunate and proud to be a part of it.

Daniel de la Vega

President ONE Sotheby’s International Realty

O N E S ot h eb e b y ’s ’s Re ealt a lt y 2 0 1 9 P e r sp s p e cti ct i v e s

G LO B A L

Global outlook How much space you can buy for US$1 million How many square feet of property does US$1 million buy in these popular cities?

CITY

Square Feet

Fort Lauderdale

Manhattan

1,927 sqft 1,811 sqft 1,587 sqft 1,326 sqft 1,266 sqft 1,002 sqft 950 sqft 699 sqft 608 sqft

HONG KONG

363 sqft

Miami Boston Sydney Palm Beach Paris San Francisco London

Source: REBNY; Trulia; Midland Realty; LondRes; Notaires de France; Miami-Dade County (sales >$1 million), Palm Beach County and Broward County MLS

4

Getty Images

A

round the world, 2019 is shaping up to be a year of finding balance in luxury housing markets, where sellers will likely have to amend their expectations to make a deal, a broad shift after years of white-hot price growth.

Wealth creation (especially in the tech sector), rising migration, and political uncertainties will continue to be the X-factors in key cities, such as New York, Los Angeles, San Francisco, Dubai, Sydney, and London. We took a look at these important markets—and ours here in South Florida— to identify how price growth and economic shifts could influence luxury buyers in the coming year.

O N E S ot h eb e b y ’ s R ealt e a lt y 2 0 1 9 P e r sp s p e ct ctii v e s

G LO B A L

Tower Bridge in London

As markets stabilize, prices adjust globally elentless price growth in the overall housing market has triggered recent warnings of a bubble in cities such R as London—which is in the midst of a downturn—and

5

“We have a crisis of affordability now, and that’s a global problem...

We see prices in those [gateway] cities have grown too fast, too much.” thomas veraguth

Zurich-based strategist at UBS Global Wealth Management’s Chief Investment Office.

Getty Images

Hong Kong, and to a lesser degree, San Francisco and Sydney.

House prices in major cities worldwide have increased 35% on average over the past five years, to the point where buyers are struggling to see value at current asking prices.

“We have a crisis of affordability now, and that’s a global problem,” said Thomas Veraguth, a Zurich-based strategist at UBS Global Wealth Management’s Chief Investment Office.

“We see prices in those [gateway] cities have grown too fast, too much.” As such, even high-net-worth individuals who can afford luxury properties are scoffing at the prices.

For our purposes, the price point for luxury properties starts at $1 million. That amount, of course, carries a wide range of implications depending on where a home buyer happens to be looking. In San Jose, Calif., for example, $1 million will barely cover a starter home, as the median sale price stands at $1.25 million. Whereas, in Miami, $1 million will get you a two- to three-bedroom condo in a high-rise overlooking the ocean.

Another way to consider the relative cost of luxury housing is through the broader price-to-income lens.

How many years must a skilled employee work to be able to purchase a basic 650-square-foot condo near the city center? Based on average annual income in the “highly skilled service sector” of their respective cities, an employee must work 15 years in London, 11 in New York, and four in Los Angeles, according to the latest socalled Bubble Index from UBS, which tracks the risk of market contraction.

It’s not only the high prices damping activity around the world. The state of the housing market this year can

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

London’s housing market will lift by the end of 2019 or early 2020. Activity in the £10 million-plus segment spiked in the first few weeks of this year, a signal that deeply depressed prices and a climate of negotiability are enticing multimillionaires. That confidence could trickle down into the rest of London’s market later this year, barring unexpected headwinds from Brexit.

By contrast, price and economic uncertainties aren’t running quite as high in Dubai, which is a bit of an outlier. Contrary to record price growth around the world, the transportation and trade hub that’s home to more than three million people has become increasingly affordable for foreigners looking to invest.

Unlike Hong Kong, San Francisco, or Manhattan, Dubai also contains flat, unoccupied swaths of land where construction of, say, a shopping mall is feasible. That’s key because the United Arab Emirates city is preparing to host millions of international visitors for the World Exposition in 2020, which could give a boost to home sales and prices in the run-up to the October 2020 kickoff.

Like Dubai, Miami’s luxury housing market offers relative affordability compared with other luxury markets.

Indeed, while sales in cities across the U.S. slowed in the second half of 2018, activity in South Florida remained stable and even increased in most places, as buyers fleeing expensive, high-tax areas—from New York to Toronto—headed south.

20%

Luxury prices in London are down as much as much as 20% since their peak in 2014.

Condo price-to-income How many years must a skilled employee work to be able to purchase a basic 650-square-foot condo near the city center? Average annual income based on an employee in the “highly skilled service sector.”

City

years worked

Los Angeles

4

new york

11

London

15

650-square-foot Condo in a city center

Sydney Harbour

6

Getty Images

be tied to a broad sense of economic uncertainty. U.S. tax-law changes and a volatile stock market, Britain’s looming Brexit decision, and a pullback by foreign investors due to steeper taxes for international buyers in Australia and the U.K., as well as political unrest in South America, have caused affluent buyers to take a wait-and-see approach.

In Australia, ahead of May elections and after years of record price growth, agents at Sotheby’s International Realty Sydney affiliate report potential buyers are getting pickier regarding luxury properties for either investment purposes or primary residences. For now, cash buyers there are in a better position to make a move this year, at least until the results of Australia’s federal election this spring.

If the Labor Party prevails, it would usher in major proposed changes to tax policy and financial regulations that govern real estate transactions.

Meanwhile in the U.K., Britain’s exit from the European Union has offered the starkest example of how political uncertainty spills over into the real estate market. Tensions crescendoed at the end of 2018 and into early this year, as lawmakers attempted to hammer out a deal before the March departure deadline.

As a result, price growth nationwide plummeted to its lowest point in seven years, and London continued its losing streak with luxury prices down as much as 20% since their peak in 2014.

But there are signs the pall over

G LO B A L

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

G LO B A L

strong dollar will continue to create shift in U.S. buyer Base n New York, where glistening high-rise condos with river views and top-shelf amenities can run $3,000 to I$4,000 per square foot, the strengthening of the U.S.

dollar against other currencies has contributed to lagging interest from foreign buyers, who tend to gravitate toward the most expensive properties.

There, the strong dollar has had a destabilizing effect on the high-end condo market that’s left condos in the $10 million to $20 million price range gathering dust.

It’s resulted in a buildup of very expensive inventory at the top of the market, which already targets a limited pool of multimillionaires globally. It’s a story of oversupply that’s familiar to Miami, where a drop-off in Latin America buyers, specifically Venezuelans, from 2015 onward resulted in an increased supply of new developments in certain areas that were more exposed to international markets.

There’s an upside here for locals. A decline in foreigners, especially all-cash offers, can create more negotiating power for domestic buyers. In New York, there’s been increased activity in the more affordable price bands of luxury, namely the market between $1 million and $3 million. Buyers who need to move can wait only so long, so if sellers can yield on price, there’s reason to expect restored activity in New York and healthy sales in other

softened U.S. markets in 2019.

The strong U.S. dollar also creates opportunities for wealthy Americans looking for second homes abroad.

U.S. millionaires are more active in London and Paris, as well as vacation markets such as Turkey, where Americans ranked among the most active foreign buyers in the country last year.

Looking forward to the rest of 2019, however, there are a few currencies on the upswing that could bode well for South Florida despite the strength of the dollar.

The Brazilian real is predicted to be one of the strongest emerging market currencies, thanks to promised economic reforms and improving oil prices. Florida real estate agents have already begun to register an increase in Brazilian home buyers, according to an annual report from the National Association of Realtors in mid-2018.

Foreign currency needed to buy US$1 million home 2017– 18

14%+

15% % increase from 2017–18

Due to currency fluctuations, the price of a $1 million home in the U.S. got this much more expensive over the past year for a range of foreign buyers.

10%

12%+ 8%+

8%+

6%+ 4%+

5%

8%+

average increase

3%+

2%+

0%

Australian Brazilian dollar REal

British pound

Canadian dollar

Chinese European Israeli yen union euro shekel

foreign currency

7

Mexican peso

Russian ruble

Source: WSJ / Tullett Prebon Measured on March 22, 2018 and March 21, 2019

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

G LO B A L

Cooling Effect of Taxes, Capital Constraints Could Worsen in 2019, Diverting Buyers Toward Low-Tax Locales

10%–20%

Prices in London are now 10% to 20% below their 2014 peak, in response to Brexit and a weighty tax increase.

15%–20% Buying has cooled in Vancouver, which introduced a 1% empty-homes tax and increased a foreign-buyer tax from 15% to 20% in 2017.

15%–20% Singapore recently increased its foreign-buyer stamp-duty tax from 15% to 20%.

8

ising taxes on second-home purchases, foreign buyers, and other strategic cooling measures have added R another element of uncertainty hampering activity in cities

around the world.

While these interventions have successfully slowed or halted runaway home-price growth in specific cities, they’ve also put off buyers and cooled sales. In some cases, punitively high taxes divert home buyers’ foreign investment toward cities and countries with lower taxes and even residency or citizenship incentives.

Among the taxes that have had the biggest cooling effect on local home prices are the U.K.’s Stamp Duty Land Tax and 3% surcharge transfer tax, which brought the maximum tax rate up to 15% on buy-to-let and second-home luxury properties. Prices in London are now 10% to 20% below their 2014 peak, in response to Brexit and this weighty tax increase.

Similar levies pegged to foreign buyers have cooled activity and price growth in Vancouver, which introduced a 1% empty-homes tax and increased a foreign-buyer tax from 15% to 20% in 2017. In Sydney and Melbourne, overseas buyers face increased stamp duty and land taxes and have been limited to buying in new developments since 2010. Meanwhile, Singapore recently increased its foreign-buyer stamp-duty tax from 15% to 20%, and similar taxes on second homes or purchases by foreign buyers can be found in New Zealand and Scotland.

In Hong Kong, where there’s already a 15% stamp-duty tax for nonpermanent residents, a new vacancy tax proposed in mid-2018 has already compelled developers to sell thousands of vacant flats in fear that they would otherwise have to pay a hefty fee, equal to about two years of rental income or 5% of the property’s value, if the tax goes into effect.

It appears we’re in an era of escalating real estate taxes, which are poised to grow in 2019 and perpetuate the cooling effect already experienced in places like Hong Kong and Sydney.

O N E S Ot h E B y ’ S R E A Lt y 2 0 1 9 P e r S P e CT I v e S

G LO B A L

rising taxes and cooling markets

20% vaNcOuver

The foreign-buyer tax was raised another 5% in February for parts of British Columbia, including Vancouver.

15%

15%

15%

Transfer tax imposed on nonresident foreigners at the end of 2017.

Maximum stamp-duty tax on second-home purchases, plus the U.K. is mulling an additional 1% foreignbuyers tax.

Stamp duty on nonpermanent residents.

tOrONtO

LONdON

HONG KONG

8% sydNey

The stamp-duty surchage for nonresidents in New South Wales is the highest in the country.

0.6% MiaMi

Documentary stamp tax on sales price of all home sales in Miami-Dade County.

British lawmakers are reviewing a proposal to increase stamp-duty taxes for foreign buyers by another 1%. And the New York State budget for 2019–20 will increase the basic propertytransfer tax and institute a progressive mansion tax on homes over $1 million beginning July 1. The mansion tax rate is 1.25% on sales between $2 million and $3 million and rises to as much as 3.9% on the sale of homes of $25 million or more. The increased transfer tax marked an unofficial compromise between state lawmakers and the industry stakeholders in New York City, who balked at a more severe annual property tax on pied-à-terres.

Support for tax hikes on luxury property in the city galvanized following a $238 million condo sale earlier this year that shattered a U.S. price record.

What do new taxes mean for the flow of international home buyers moving forward? While some buyers decide to take the hit, others reroute their investment into more welcoming locales—a trend low-tax Florida 9

3.9%

New yOrK city

The mansion-tax rate increases to 1.25% on sales between $2 million and $3 million and rises to as much as 3.9% on the sale of homes of $25 million or more starting July 1.

stands to benefit from. Miami-Dade County has a standard transfer tax, called the documentary stamp tax, of only 0.6% of the sale price, regardless of residency status. That rises to 0.7% in the rest of the state, but is still a bargain compared with the 20% rates levied on nonresidents in London or Vancouver.

Separately, some foreign buyers are drawn to so-called golden visa schemes, which offer residency or citizenship in exchange for a pricey real estate investment. For instance, 6,500 people have received a golden visa from Portugal since the program was launched in 2013, offering citizenship to property buyers who spend more than €500,000 on a property.

Cyprus is another country of interest for its fast-track visa program, which offers a three-month turnaround for permanent residency for people who invest €2 million in local real estate. Malta, Spain, and most recently, Italy, also offer golden visas— in the latter for a fixed tax payment of

€100,000 on global income.

Although these sorts of programs are likely to face increased scrutiny in the future, given concerns voiced by the Organization for Economic Cooperation and Development about their contribution to corruption and tax evasion, they will continue to draw in foreign buyers, just as new tax measures push them away.

While some buyers decide to take the tax hit, others reroute their investment into more welcoming locales— a trend low-tax Florida stands to benefit from.

O N E S Ot h E B y ’ S R E A Lt y 2 0 1 9 P e r S P e CT I v e S

G LO B A L

u.S., EmErGiNG ECONOmiES TO drivE Luxury SALES OF TOmOrrOW hen it comes to capital creation and where newly minted millionW aires, multimillionaires, and billionaires

(net worth) call home, the U.S. continues to lead the race, with China firmly in second place—and gaining steam.

Halfway through 2018, there were 42.2 million millionaires worldwide, according to the Credit Suisse Research Institute’s Global Wealth Report. The number of millionaires—“a sign of a country’s economic health and its ability to generate opportunities for wealth creation,” according to the report—increased by 2.3 million people in the 12 months ending in July 2018, with the U.S. adding 878,000 new millionaires, or 40% of the global increase. France, Germany, the U.K., and Italy each added about 200,000 new millionaires in

that same term; China added 186,000 and Japan 94,000.

In total, the U.S. has the most millionaires, with 17.35 million, followed

by China with 3.48 million, and then Japan with 2.8 million. The U.K., Germany, and France are close behind Japan, before a big drop-off to Italy, Canada and Australia, which each have about 1.3 million millionaires.

The Credit Suisse report predicts there will be 55 million millionaires worldwide by 2023, with that number increasing by 18% in the U.S. (to 20.48 million millionaires) and by 62% in China (to 5.6 million millionaires).

A growing proportion of the world’s millionaires are coming from emerging economies. China, which is considered one of these emerging economies, had only 41,000 millionaires in 2000, com-

pared with its 3.5 million today. The country passed Japan in 2014 in terms of the total number of millionaires.

India has grown much more slowly, with 39,000 millionaires in 2000, and only 343,000 today, according to the Credit Suisse report.

There are roughly 149,000 ultrahigh-net-worth (UHNW) individuals, defined as those with wealth greater than US$50 million. That number is expected to surpass 206,000 by 2023, with half of the ultra-high-net-worth (UHNW) population residing in North America, and about 28% in the Asia-Pacific region.

The continued strength of North American wealth bodes well for the U.S. real estate market, as the vast majority of high-net-worth individuals prioritize primary and secondary

cHinese % of foreign buyers across soutH florida

42.2 m 55 m

6% 5% 4%

4%

Halfway through 2018, there were 42.2 million millionaires worldwide.

the Credit Suisse report predicts there will be 55 million millionaires worldwide by 2023.

10

2% 1% 2009

3%

3%

2016

2017

2% 1%

2010

2011

2012

2013

2014

2015

2018

Source: Florida Realtors / National Association of Realtors

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

G LO B A L

top 20 countries with UHNW GROWTH Adults with wealth greater than $50 million

homeownership in their own country before making investments abroad.

But global centers of wealth will find Chinese buyers playing a larger role in their real estate markets over the next decade. Florida has seen a steady increase each year in the percentage of Chinese buyers, who were the fifth biggest buyer pool in the Miami metropolitan area in 2017–18.

In 2000, emerging economies only accounted for 6% of the UHNW population. Emerging nations now account for 18% of this population, with China alone adding 16,430 people to this group since the start of the century.

In Latin America, the number of Brazilians worth north of $50 million is on track to top 1,400 by 2023, an increase of 23% and the largest pool of ultrawealthy in the region. The number of such wealthy individuals in Mexico is predicted to increase by one-third to nearly 1,000.

In terms of how wealthy people are spending and investing their money, Deutsche Bank’s Wealth Outlook Report 2019 sees this year as being one where funds go toward enhanced infrastructure and ESG (environmental, social, and governance) spending—meaning environmentally and socially responsible investments.

In contrast, 2018 was a year where investments tended toward health care, smart mobility, and artificial intelligence. But even as the world’s affluent shift their investment focus, real estate will remain a top and growing priority for personal investment, with as much as one-fifth or more of their wealth tied up in personal real estate holdings.

So where are the affluent moving?

11

Millionaires

projected % of change millionaires 2018– 23

2017

2018

2023

1

United states

64,421

70,540

93,175

32%

2

china

15,867

16,511

26,794

62%

3

germany

7,029

6,323

8,913

41%

4

united kingdom

4,376

4,665

6,041

30%

5

japan

3,474

3,576

4,799

34%

6

india

3,368

3,399

5,208

53%

7

Italy

3,050

3,217

4,271

33%

8

france

3,475

3,036

4,265

40%

9

canada

2,957

3,007

4,643

54%

10

australia

2,877

2,906

4,091

41%

11

switzerland

2,473

2,646

3,606

36%

12

korea

2,384

2,364

3,218

36%

13

russia

2,495

2,132

2,493

17%

14

spain

2,088

2,086

2,952

42%

15

hong kong

1,874

1,907

2,572

35%

16

taiwan

1,867

1,829

1,989

9%

17

sweden

1,672

1,495

1,946

30%

18

brazil

1,507

1,133

1,403

24%

19

Netherlands

1,009

1,029

1,377

34%

20

Singapore

988

999

1,303

30%

Internationally, London is always appealing to Chinese, Middle Eastern, and Indian buyers, given its relative safety and strong educational opportunities. San Francisco, Los Angeles, Sydney, and Hong Kong are also popular with Chinese buyers, although controls on outbound spending can make these sorts of purchases difficult.

Wealthy Indian buyers have been laser-focused on Dubai in recent years, while luxury mainstays like New York draw buyers from all over the world.

Meanwhile, wealthy elite from Latin America and the Caribbean have strongly favored Miami and the broader South Florida market, which has also seen increasing numbers of Chinese, British, and Emirati buyers.

Even as the world’s affluent shift their investment focus, real estate will remain a top and growing priority for personal investment.

Source: Credit Suisse

Country

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

G LO B A L

Rising U.S. Luxury Hubs: Las Vegas, Nashville, and Fort lauderdale about a decade, industry experts have observed an outflow of migration from high-tax U.S. states (which Falsoorward contain large concentrations of wealth)—and Florida

Las Vegas | Synergy Sotheby’s International Realty

Nashville | Zeitlin Sotheby’s International Realty

5,000

An expected 5,000 new jobs following Amazon’s decision to open an operations center in Nashville boosts Tennessee’s housing market.

12

Fort Lauderdale | ONE Sotheby’s International Realty

ONE Sotheby’s International Realty (3)

isn’t the only state to benefit from it. In 2019, we can expect that migration to pick up steam parallel to job growth in smaller cities—as the lure of a lower cost of living and good wages draws workers away from financial centers.

In the U.S., contenders for up-and-coming luxury markets include Denver and Las Vegas, which are both experiencing gradual market growth and population influx as their respective economies have diversified. Meanwhile, Nashville is riding high on a two-year housing boom poised to get supercharged by Amazon’s recent decision to open an operations center there and create 5,000 jobs.

Salt Lake City is also a burgeoning hub for luxury real estate. The region’s fast-growing tech center is the main attraction, especially for wealthy residents of high-cost states like California and New York looking to relocate to protect their earnings. Nicknamed “Silicon Slopes,” the hub of Salt Lake City and nearby Provo and Park City, Utah, are home to thousands of tech companies. Facebook plans to build a data center just south of the city, joining Adobe, Overstock.com, Microsoft, and others.

Median home prices in Salt Lake City rose nearly 8.1% from the fourth quarter of January 2018 to the fourth quarter of January 2019, making it one of the 25 most expensive metro areas for home buying in 2019, according to mortgage analytics firm HSH.com.

Meanwhile, in South Florida, the areas north of Miami have seen robust activity over the past year, including Fort Lauderdale, the boating capital of the world—where the median price per square foot rose 6% year-over-year in the fourth quarter of 2018. Empty nesters and Northeasterners drove sales in and around the city, causing the number of closings in Broward County in 2018 to rise 2% over the previous year.

G LO B A L

One Thousand Museum is Dame Zaha Hadid’s first and last residential skyscraper.

A competitive landscape leads to enhanced offerings in pre- construction

13

evelopers face an increasingly competitive landscape as they try to offer the highest-caliber lifestyle for D the right price point, attempting to reach clients through

differentiation.

Some have their finger on the pulse of luxury consumer trends, adding amenities like yoga rooms and on-site farmers’ markets, and go so far as to let prospective buyers experience the property before they buy.

Others are partnering with award-winning, Pritzker Prize-winning architects—such as Zaha Hadid-designed One Thousand Museum in Miami—to add the luster of modern design to attract buyers. There’s evidence that doing so pays off for both developer and owner, with some findings showing that units in starchitect-designed buildings sold for a measurable price premium.

Other developers have targeted the brand-conscious consumer by teaming with luxury companies having significant lifestyle cachet, including car makers, luxury retail brands, and flagship hotels.

ONE Sotheby’s International Realty

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

G LO B A L

Signature Sky Club at Turnberry Ocean Club Residences has three floors dedicated to wellness amenities.

New condominiums compete via amenities and services ellness is increasingly a priority for investors in highend real estate. These buyers are seeking more than W pools and fitness centers, they want features that promote

14

Villa Valencia has over 19,000 square feet of amenities for 39 units.

ONE Sotheby’s International Realty

their well-being and are fully integrated into their homes.

Wellness is a $3.7 billion industry and growing rapidly, according to the Global Wellness Institute. In the world of real estate, this includes lifestyle amenities that enhance residents’ physical and emotional health, as well as architecture and landscaping features that benefit the environment.

In the past, wellness may have meant the inclusion of high-end gyms and spas in new luxury developments, but today, communities and homes are being designed specifically with the holistic health of their residents in mind.

And buyers are prepared to pay more for residences that offer an antidote to stress, pollution, and social isolation: The Global Wellness Institute found that wellness-focused real estate developments sell for an average premium of 10% to 25%.

There’s more demand than ever from wealthy buyers for holistic wellness amenities, which promote not only physical well-being but also emotional health through mindfulness, relaxation, and connection to nature. For example, a new condominium in the Los Angeles area seeks to fulfill this by integrating greenery throughout the base of the property and arranging homes so they face a courtyard and green wall, while subterranean parking keeps cars out of sight.

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

Turnberry’s 31st floor is a temple of body and soul with a state-of-the-art indoor and outdoor fitness center, and a yoga-pilates studio with breathtaking ocean views.

Villa Valencia’s 78-foot resort-style pool deck with private cabanas.

$3.7 b 10%–25%

Wellness is a $3.7 billion industry and growing rapidly, according to the Global Wellness Institute.

The Global Wellness Institute found that

wellness-focused real estate developments sell for an average premium of 10% to 25%.

740

For healthy-living buyers, wellness communities hold tremendous appeal, and will grow to a $180 billion industry by 2022, with 740 such communities now being planned worldwide.

15

It goes without saying that Florida is particularly well positioned to accommodate consumers and home buyers as their interest in holistic wellness grows. New developments that go beyond standard-fare amenities include the boutique project L’Atelier in Miami Beach, with only 24 units and hotel-level services, such as a spa facility and treatment room, beauty salon, hammam, and a peaceful landscaped “hammock garden.” Villa Valencia has over 19,000 square feet of amenities for 39 units. They have unique amenities such as a lush 10,000-square-foot park they are donating to the city, an entertainment space with a golf simulator, a driving simulator and billiards, a 78-foot resort-style pool with lush landscaping, a waterfall, and private cabanas.

One resort residence under construction in South Florida has integrated yoga and mindfulness programs through which residents can participate in guided meditation and sound baths, an ancient healing practice. It also offers services like on-site restaurants and collaborations with nutritionists to create personalized diet and exercise plans. They

even boast lighting that promotes good sleep hygiene.

In the coming years, more luxury developments in cities will pitch themselves as sanctuaries from the hectic pace of urban life. One Brooklyn development to be completed this year is offering three floors of wellness-forward amenities, including an arboretum and rooftop observatory, along with yoga and meditation rooms and a fitness center that features an infrared sauna.

Other home buyers want the environment that promotes healthy living to extend beyond their front door. For these buyers, wellness communities hold tremendous appeal, and will grow to a $180 billion industry by 2022, with 740 such communities now being planned worldwide.

These communities have arisen as a reaction to urban sprawl and the way it divides and isolates people. Built upon substantial acreage, these communities can go so far as to include their own commercial centers, organic farms, and farmers’ markets.

There’s also shared entertainment spaces and theaters with artists- or musicians-in-residence programs.

The properties are often built with sustainability in mind through the use of solar and geothermal energy.

Buyers in wellness communities are also drawn to the benefits to their emotional health, as they find like-minded neighbors in much the same way a golf club is built upon a common interest. They offer interpersonal connections during a time when more high-net-worth individuals are concerned about the pace of their lives and a feeling of greater isolation.

Trends toward green living are influencing more high-net-worth individuals, particularly from outside the U.S., to purchase houses designed to be environmentally sustainable. This means looking beyond green buildings to projects that aim to be self-sufficient by harnessing solar power, reusing rainwater, offering on-site vegetable gardens, and more.

ONE Sotheby’s International Realty (2)

G LO B A L

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

R EG I O N A L

SOUTH Florida snapshot buyers fleeing high-tax states.

The new U.S. tax law, the largest overhaul of the code in 50 years, went into effect Jan. 1, 2018, but the vast majority of taxpayers hadn’t felt its impact until filing this tax season.

However, the expectation alone that changes would hit some high-networth individuals and families has already caused what real estate agents and economists describe as “an influx” of buyers from high-tax states.

That’s giving real estate in Florida (as well as in other low-tax states like Texas and Tennessee) a boost, even as the number of Latin American buyers, who once accounted for as much as 75% to 80% of deals in cities like Miami, has shrunk.

In the past, South Florida had been branded as having a boom-or-bust market, as a large cohort of foreign buyers had an outsize effect on sales, according to Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors (NAR). While South Americans continue to play a significant role in the market, growing internal migration offers a more stable flow of home buyers, a trend that is likely to pick up as the federal tax rewrite is better understood.

Aside from the attraction of affordability and warm weather, South Florida has also seen significant job growth

ONE Sotheby’s International Realty

ome sales across South Florida are outperforming 2017 in 90% of subH markets, an increase many attribute to

90 Leucadendra Drive, Coral Gables

since 2009, which not only is drawing out-of-state buyers, but also is helping to retain local talent. The new Virgin Trains USA has created a corridor for commuters between Palm Beach and Miami, and other infrastructure additions are fueling the economy.

While the region’s shifting demographics, including the decline in Latin American buyers, will cause some growing pains in the near term, the outlook for 2019 is cautiously optimistic, with a much stronger forecast heading into 2020–21.

Virgin Trains USA route A new corridor for South Florida commuters—the Orlando route is estimated to be completed by late 2021 or early 2022.

ORLANDO

2 HOURS

Total Florida home sales 2017– 18 Source: Multiple Listing Service

Miami-DadE

Home sales across South Florida are outperforming 2017 in 90% of submarkets.

16

county

90%

2%

palm beach Martin 0

FORT LAUDERDALE

3%

Broward

1% 1%

20,000

40,000

60,000

number of sales

WEST PALM BEACH

80,000

MIAMI

30 minutes 30 minutes

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

R EG I O N A L

The ‘Great Tax Migration’ Gives the Sunshine State a Boost gents are seeing an uptick in interest from the full gamut of high-tax A states. While much has been said

about buyers from New York, New Jersey, and Connecticut uprooting to Florida, which has no state income taxes and lower property taxes, people from high-tax areas as far away as California have also begun to arrive in increasing numbers.

With the end of the 2019 tax season upon us, the ramifications of the individual tax changes are finally beginning to become clear. The changes included a $10,000 cap on state-and-local-tax deductions, and allow a deduction for mortgage interest on a loan up to $750,000, reduced from $1 million. The lack of income tax in the Sunshine State is particularly appealing to high-income earners who can no longer write off as much of their income and property taxes.

With the tax filing, some homeowners, particularly those with large mortgages or who pay income taxes in more than one state, have found themselves with fewer ways to reduce their tax bill this year. Preliminary data from the Internal Revenue Service show the average refund among early filers was down 8.4% this year. And that could have some thinking about moving.

Some have referenced the trend as “the great tax migration,” and, indeed, the state has seen an uptick in its population. Florida saw its highest level of net domestic migration from July 2017 to July 2018, the latest period for which U.S. Census data are available. The same report indicated New York had seen the biggest fall in population, with Illinois taking second place on that list.

People of all ages are looking to make a move, not just those on the verge of retirement. Young families and professionals who may have once been tied to the Northeast or other areas of the country because of job prospects are looking to work in the area or telecommute.

Where they settle, of course, depends on what kind of lifestyle they are seeking. Many New Yorkers have traditionally found homes in Palm Beach County, while Latin Americans and Europeans settled in Miami-Dade County. Broward County, which tends to be more affordable, attracts a bit of all three groups looking for value.

The Great Tax Migration is driving luxury sales along Florida’s Gulf Coast, too. Sarasota has consistently ranked as one of the hottest second-home markets in the U.S., with the number of sales over $1 million booming.

In January, the average sales price in Sarasota was nearly 13% higher compared with the same month last year, according to statistics from the Multiple Listing Service.

Professionals who may have once been tied to the Northeast because of job prospects are looking to work in the area or telecommute.

13%

In January, the average sales price in Sarasota was nearly 13% higher compared with the same month last year, according to statistics from the Multiple Listing Service.

State migration 2017– 18 domestic

Population migrating

350,000

international

250,000 150,000 50,000 -50,000 -150,000 -250,000

fl

tx

az

nc

wa

ConN

Mass IL

Cali

NY Source: U.S. Census Bureau

17

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

R EG I O N A L

Political, Economic Concerns Will Continue to Influence Latin American Buyers ome neighborhoods facing inventory challenges include Brickell and Edgewater in Miami and suburban S single-family home market Weston, areas largely fueled by

sales to South and Central American buyers. Activity from such buyers has tapered off in the past two years, largely because of political and economic instability abroad, and the increased strength of the U.S. dollar. Because of the slowdown, absorption has been slower, and these areas have an oversupply of condominiums. In some areas, that’s also meant price flexibility and more accommodating terms as units stay on the market longer.

In 2013 and 2014, Latin American buyers, including immigrants and foreign nationals, made up the majority of luxury home sales in Miami. Now, such buyers account for about 53% of deals through ONE Sotheby’s, down from a peak of about 75% to 80%. Foreign buyers purchased $22.9 billion of Florida’s existing homes in the 12-month period from August 2017 to July 2018, a 5% decline from the previous 12 months, when their activity totaled $24.2 billion, according to the National Association of Realtors. Most of those buyers—67%—paid entirely in cash in 2018, down from 72% in 2017.

While buyers from Mexico, Colombia, Chile, Argentina, Peru, and Brazil, among others, are still very active, clients

Foreign Buyers of south Florida homes Buyers in Miami, fort Lauderdale, and west palm beach from July 2017–July 2018

12% Brazil

20%

CANADA

7%

Colombia

7%

Venezuela

UK

2% Peru

Latin American buyers, including

immigrants and foreign nationals, account for about 53% of deals through ONE Sotheby’s.

67%

18

2%

Ecuador

Foreign buyers purchased $22.9 billion of Florida’s existing homes in the 12-month period from August 2017 to July 2018, 67% of those buyers paid entirely in cash.

4%

Argentina

3%

53%

4%

CHINA

2%

2%

Chile

India

2%

Trinidad and Tobago

2%

Dominican Republic

2%

2%

2%

France

Russian Federation

Germany Source: The National Association of Realtors / Florida Realtors

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

19

in 2019, according to a poll of 11 investment banks released in early March by The Wall Street Journal.

Those prices affect many buyers from Venezuela, Colombia, and Mexico, as well as Brazil, the largest economy in South America and another source of wealthy buyers in South Florida.

Some say a per-barrel price of more than $50 is the equilibrium, meaning people are making money and set to invest their earnings. With prices staying strong, that could bring some buyers from oil-rich regions back to South Florida.

In addition, Mr. Yun also predicted the South Florida market will start to attract more Chinese real estate investors, a group with significant buying power. Those buyers have been active throughout the Pacific Northwest and other regions, but haven’t had as active a presence in Florida. Chinese buyers may enter

the market as they see the relative value in cities such as Miami and Fort Lauderdale compared with mainstays like New York, San Francisco, and Vancouver.

The strength of the U.S. dollar is another external factor affecting sales to overseas buyers in South Florida, a headwind that extends well beyond South Americans. Fewer Canadians, Middle Easterners, and certain Europeans have been active in the South Florida market than in previous years, while there’s been a noted uptick in buyers coming from Spain, Italy, France, and Monaco from Europe, as well as the United Arab Emirates, where the currency is pegged to the dollar. Monaco and Dubai are tax havens in their own right, but the cosmopolitan nature of Miami, as well as the long-term stability of U.S. markets, adds appeal for international investors.

Latin American Millionaires Adults with wealth greater than $1 million

200,000

NUMBER OF MILLIONAIRES

from Venezuela, previously the most important source of foreign nationals, have mostly dried up in the wake of growing political and humanitarian crises there. As NAR’s chief economist puts it: “Venezuela was one of the most important countries for Miami real estate.” Potential regime change in that country could have a significant bearing on the regional market, which stands to gain from a resurgence of Venezuelan capital if President Nicolás Maduro is removed from office.

The decrease of South American buyers has also meant slower presales in large new developments, some of which have struggled to get off the ground without foreign investment.

Canceled or postponed projects have helped drastically reduce the number of new developments in the pipeline over the next few years. If we analyze the completion profile after 2020, the number of new units hitting the market is very limited, allowing for a new equilibrium and improved absorption rate moving forward.

That, in turn, has led to a buildup in new development that’s keeping price growth muted even as activity picks up in South Florida.

But of anywhere in the U.S., South Florida is best positioned to receive Latin American buyers when economic and political conditions improve. Mr. Yun referred to Miami as “the capital of the Latin American economy in essence,” noting that all the South American-based banks have branches there. And the protection of their assets in the U.S. continues to draw the very rich from that part of the world.

Meanwhile, countries like Brazil also could be on the brink of coming back to the market. Brazilian business owners are bullish on the economy back home, predicting a big rally in the next year to two years. That could create opportunity in South Florida, as wealthy Brazilians look to invest internationally to protect their assets.

Another factor affecting would-be buyers in South Florida is the price of oil. Brent crude, the global oil benchmark, is expected to continue to average more than $67 a barrel

R EG I O N A L

2018

24% 32%

150,000

31%

100,000

33% 50,000

0

2023

Brazil

Mexico

Chile

Colombia

36%

Peru

38%

38%

39%

Argentina Costa Rica Uruguay Source: Credit Suisse

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

Financial, Tech Industries Could Bring In New Buyers has enjoyed booming job growth in recent years, with the unemployment rate in the state plummeting Ffromlorida an all-time high of more than 11% in 2010 to a near-all-

time low of 3.3% in December 2018.

Last year, Florida created 231,000 new jobs, a 2.7% increase from 2017, according to the U.S. Bureau of Statistics. By comparison, Texas and California also created more than 200,000 jobs in 2018, while Massachusetts and New York each created more than 100,000 jobs. Some of that recent job creation in Florida has come from financial firms shifting their entire workforce and base from New York City and Connecticut to Florida, a trend that bodes well for the housing markets where these companies land.

Large hedge funds have started shifting their businesses south, as well as private equity groups and other financial services companies. For example, I Squared Capital, a $12 billion private equity fund, announced a move from New York to Miami last year. And South Florida officials, armed with promises of fewer taxes, are actively trying to lure additional firms.

Tech jobs have been increasing in South Florida, further diversifying the economy. Miami is attracting more tech companies, including outposts from European and Latin American firms. And in Palm Beach County, there are hundreds of small energy-engineering and consulting firms that attract talent from Connecticut and elsewhere in the Northeast.

In addition to no state income tax, Florida also has relatively straightforward business taxes, said Ken H. Johnson, a real estate economist at Florida Atlantic University in Boca Raton. Florida ranked No. 4 in the Tax Foundation’s 2019 state business-tax climate index, with a 5.5% corporate income tax rate. New Jersey, which has an almost

The Fairchild Coconut Grove, a collection of 26 waterfront residences, is inspired by its neighborhood.

9% corporate income tax rate, ranked last, with New York at No. 48 and California at No. 49.

Running a company in Florida isn’t as onerous as it is in other parts of the country, as business reporting and regulations have been minimized in the state, where businesses also find cheaper office rents and a lower cost of living than in many parts of the Northeast. Add to that the strength of the state university system, which is creating an educated and skilled workforce. There are a dozen public universities, with two specializing in STEM fields (science, technology, engineering, and mathematics).

These students will eventually be looking for jobs—and buying homes.

The telecommuting lifestyle is also bringing people to Florida to be yearround residents, many of whom work from home and have come to Florida to enjoy the beaches and easy lifestyle. In addition, native Floridians who’ve benefited from the strengthening economy are upgrading to bigger condos in the city or estates in less- urban areas.

South Florida officials, armed with promises of fewer taxes, are actively trying to lure additional firms.

3.3%

Florida has enjoyed booming job growth in recent years, with the unemployment rate plummeting to 3.3%, the lowest since mid-2006.

2.7% 5.5% Last year, Florida had a

2.7% increase in new jobs.

Florida is ranked No. 4 in the Tax Foundation’s 2019 state business-tax climate index, with a 5.5% corporate income tax rate.

20

ONE Sotheby’s International Realty

R EG I O N A L

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

R EG I O N A L

Improving Infrastructure Today Sets South Florida Up for Future Growth ajor infrastructure projects that link South Florida and improve M quality of life are setting the region up for future growth.

There’s likely to be an uptick in Miami commuters looking to purchase homes along the Virgin Trains USA route, where they can live in the less-congested, more family-friendly areas around West Palm Beach, Jupiter, and beyond. Young professionals looking for walkability and access to the Virgin Trains are settling in downtown West Palm Beach, which has also seen a crop of new condominium developments in the past few years. There are also plans to extend a route to Tampa, and talk of going as north as the Treasure Coast and Jacksonville.

Florida officials are looking to improve traffic conditions as well, and there are plans to expand interstate highways to make traffic flow more efficient. The “signature bridge” will rearrange traffic in Miami, and is set to be completed in fall 2023.

The Port of Miami is also under-

going major expansion in order to accommodate growing international trade and the robust cruise industry. The work includes a new tunnel to connect the port directly to the interstate highway system, and a new terminal complex to ensure the city remains one of the busiest cruise ports in the world.

Meanwhile, Miami is home to one of the fourth-largest Internet exchange points in the U.S., a center in Downtown known as NAP of the Americas. The owner, Equinix, is in the process of expanding capacity reportedly to the tune of $60 million.

Flights to the region have also increased, with United Airlines adding more service to South Florida, and key airlines from Middle Eastern wealth hubs, such as Turkey, the United Arab Emirates, and Qatar, have expanded their footprint in Miami. Executives benefit from more flights worldwide, and companies see the ease in transport as an asset when considering South Florida for potential relocation.

More flights also mean more tourists, which, as noted previously, are crucial to driving second-home sales. Agents see the region’s full hotels and busy tourism sector as a good indicator of things to come.

The migration from high-tax states is predicted to keep growing, and buyers from Latin America are expected to return in 12 to 24 months. The state’s infrastructure improvements will continue to fuel the economy, meaning more people coming to the state to work and live.

In 2019, Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors (NAR), predicted modest growth, with a 3% to 5% uptick in sales prices but no increase in volume. “But in the long term, I’m very optimistic,” he added. He thinks prices will rise significantly, even citing some worries about affordability in the future: “In 10 years, people will be saying, ‘I should have bought earlier,’ because of the strong run-up in prices.”

35 COUNTRIES AND 25 AIRLINES now HAVE DIRECT FLIGHTS TO MIAMI Based on travel from 2016–20

Source: routesonline.com

21

O N E S Ot h E B y ’ S R E A Lt y 2 0 1 9 P e r S P e CT I v e S

LO C A L

LOCAL dEEp divE he greater luxury housing market in South Florida will enjoy stable price growth in the coming year T as the supply of new developments finds balance with

demand, setting up the region for a more robust market as the next development cycle kicks off by 2021.

In 2019, we expect prices in the submarkets we cover, stretching from Miami to Palm Beach County, to rise moderately over the coming year. While this is a subdued forecast, put in a global context, the Greater Miami area is on track to outperform a broad swath of key luxury hubs, which are facing political and economic headwinds that will curb growth in their local markets.

Overall, the region’s enviable lifestyle continues to attract interest from individuals and companies both domestic and international. An inviting business climate and infrastructure improvements have led to significant job growth, while the lower cost of living is a plus for buyers from U.S. states with high taxes and expensive real estate. Migration to the Miami Metropolitan Area has been robust, and that trend is expected to grow on the back of U.S. tax overhaul.

Put in a global context, the Greater Miami area is on track to outperform a broad swath of key luxury hubs.

one sotheby’s international realty

22

Turnberry Ocean Club, Sunny Isles Beach

O N E S ot h eb e b y ’ s R ealt e a lt y 2 0 1 9 P e r sp s p e ct ctii v e s

LO C A L

Miami Beach skyline

Global Trends Will Benefit South Florida Market some of the global political and economic headwinds we’ve touched on in this report are net positives for Ithendeed, South Florida market, even as they cause hand-wringing

23

There’s incredible opportunity from Mexico, where the number of millionaires is expected to increase by one-third in the next five years to a population of more than 140,000.

Getty Images

elsewhere. Rising taxes, particularly punitive levies that target nonresident buyers from Canada to the U.K., and exorbitant price growth in major financial cores such as San Francisco hurt those local markets but, for better or worse, indirectly benefit South Florida.

On the domestic side, U.S. tax overhaul (laid out on page 9) is speeding up the movement of people from California, New York, Illinois, and other regions where they expect their tax liability to rise under the new rules. On the foreign side, the return of home buyers from our key feeder markets in Latin America will be gradual but steady as the region pulls out of recession.

Latin America—with the exception of Venezuela, which is mired in political crisis—is poised for a better year economically following election cycles, recessions, and strikes that stymied growth in 2018. A new conservative government in Brazil, and OPEC’s decision to cut oil supply, will help bolster the economy in an increasingly important market for us. Brazilians accounted for nearly one in eight sales to foreign buyers in the Miami–Fort Lauderdale– West Palm Beach statistical area in 2018, according to the National Association of Realtors. There’s also incredible opportunity from Mexico, where the number of millionaires is expected to increase by one-third in the next five years to a population of more than 140,000.

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

LO C A L

South Florida has always been a natural destination for Latin American buyers, thanks to the two areas’ cultural synergies. But foreign-buyer trends in 2018 show the days of exclusively relying on Latin America are behind us. Chinese buyers have steadily increased their presence from Miami to Palm Beach County, where they were the fifth-biggest cohort of foreign buyers last year. And the price of living in luxury in South Florida looks increasingly accessible when compared with other centers of wealth in the U.S., many of which are experiencing peak prices.

These broader economic trends have already started to bear fruit in the South Florida market, in the form of a stronger-than-predicted 2018.

Luxury homes, defined as condos and single-family houses over $1 million, saw values rise at a faster clip in 2018 compared with 2017—a departure from the broad slowdown in luxury markets worldwide.

In mainland Miami, the average sale price for homes over $1 million rose 4.4% in the fourth quarter of 2018 compared with a year earlier. In the first two months of 2019, that metric

was still increasing, with the median luxury home selling for $552 per square foot—still a fraction of what it costs to buy a high-end home in a place like Manhattan or Los Angeles.

In Fort Lauderdale and Weston, where sales to U.S. buyers have been particularly strong, the average price per square foot for a condo and single-family home rose 4.2% year over year for the fourth quarter of 2018.

Northeasterners have also helped drive the highest echelons of the single-family market across our coverage area, which logged several record deals. In the first quarter of 2019, ONE Sotheby’s has facilitated three sales of more than $25 million on the islands that make up Miami Beach.

Coastal areas remain the favorite destinations for ultra-high-net-worth individuals, who have very few budget constraints. Early last year, a lot in Indian Creek sold for $27.5 million via ONE Sotheby’s, blowing past the previous $20 million price record. And in February, the sale of a $50 million mansion in Indian Creek set the record for the most expensive single-family deal ever in Miami-Dade County.

1/8

+4.4% +4.2%

Brazilians accounted for nearly one in eight sales to foreign buyers in the Miami-Fort LauderdaleWest Palm Beach statistical area

in 2018, according to the National Association of Realtors.

24

In mainland Miami, the average sale price for homes over $1 million rose 4.4% in the fourth quarter of 2018, year over year.

Early last year, a lot in Indian Creek sold for $27.5 million via ONE Sotheby’s, blowing past the previous $20 million price record.

In Fort Lauderdale, the average price per square foot for a condo and singlefamily home rose 4.2% in the fourth quarter of 2018, year over year.

O N E S ot h eb e b y ’ s R ealt e a lt y 2 0 1 9 P e r sp s p e ct ctii v e s

LO C A L

West palm beach lifestyle features include: Good schools, less congestion, and Virgin Trains USA rail access

palm beach island lifestyle features include: Sandy beaches, a long stretch of shops, and eateries

Jupiter

Lifestyle Will Remain Driving Force Behind South Florida’s Housing Market

lifestyle features include: A golf mecca, hotspot for large family homes on the water

Fort Lauderdale lifestyle features include: Boating capital of the world in an urban, walkable setting with Virgin Trains USA rail access

ifestyle is at the heart of South Florida’s real estate and tourism markets, attracting visitors and residents with Lits pristine beaches, slower pace, pro-level golf courses,

and cultural events.

The region is the top destination for affluent travelers arriving by private jet, according to data from private aviation community JetSmarter. Private flights between Fort Lauderdale and cities such as Los Angeles and New York have continued to increase, and the number of private flights into South Florida have surpassed other popular destinations such as Las Vegas and San Francisco, the South Florida–based company said. (See the newest flight routes on page 21.)

The submarkets of South Florida have undergone rapid evolution over the past decade, broadening their appeal and blasting away the region’s fun-in-the-sun stereotype.

Miami is now a global nerve center for art and design, a scene that culminates each year at Art Basel, attracting serious investors and celebrity glitterati alike.

Tourists and businesspeople visiting the area are apt to find a lifestyle that appeals to them with a lower cost of living than other wealth hubs. Some come to live on a marina, where they can have easy access to their yachts; some settle into a luxury development right on the beach or anchored by a world-class golf course; or some choose a condo in an urban, walkable area.

25

Coral Gables lifestyle features include: Top private schools, golfing, museums, and fine dining

Weston lifestyle features include: Golfing, equestrian estates, stables, and horse shows

MIami lifestyle features include: Art Basel, the Miami Symphony Orchestra, bustling shops and restaurants, art galleries, nightclubs, and Virgin Trains USA rail access

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

Amenities at One Thousand Museum include a helipad.

Buyers flock to Miami Beach, where they can enjoy sand and symphony alike, settling in a new high rise or choosing the privacy of a mansion on one of the surrounding islands.

Others are heading north to Broward and Palm Beach counties for good schools and less congestion. West Palm Beach, in particular, is seeing action in its downtown, with a spate of new condo projects going up near the new Virgin Trains USA train station (discussed in more detail on page 21).

The golf mecca at the Bear’s Club in Jupiter, with a course by Jack Nicklaus, for example, is ultraexclusive, comparable to a mini version of the Augusta National Golf Club in Georgia. Twenty minutes to the east, there’s Palm Beach Island, with its long stretches of sand and the shopping and restaurants around Worth Avenue. To the south, condo owners are surrounded by restaurants and boutiques in vibrant Boca Raton and Delray Beach, and they can also find the boating capital of the world, Fort Lauderdale. Avid equestrians can find a home in Weston, where there are several ranches.

The city of Miami alone has a range of options, like artsy Wynwood, 26

thriving Downtown Miami with its bustling shops and restaurants, and the tropical oasis Coconut Grove.

Miami Beach attracts people looking for an international flavor, with access to the beach as well as nightclubs and restaurants.

Architecture is also adding to the city’s arts and culture cachet, including One Thousand Museum, the only residential building in Miami designed by the late Pritzker-prize winner Zaha Hadid, who encased the tower in an exoskeleton climbing 62 stories. The building fuses the concepts of high art and design with luxury living, and includes amenities like a helipad, two levels of indoor and outdoor wellness amenities, a private theater, and an aquatic center featuring Hadid’s dramatic architectural touch.

Among local buyers, the greater region is seeing a lot of movement, as locals accommodate the growing— or, in some cases, shrinking—needs of their families. Empty nesters are trading in their big homes inland for smaller beachfront condos, while new families are moving farther from shore toward larger homes in less expensive areas. ONE Sotheby’s agents are busy working in the inland areas, such as

Architecture is also adding to the city’s arts and culture cachet, including One Thousand Museum, the only residential building in Miami designed by the late Pritzker-prize winner Zaha Hadid.

ONE Sotheby’s International Realty

LO C A L

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

generations, who prefer modern condo projects in more urban settings, has softened the market for golf developments in places like Palm Beach County.

Even empty nesters are looking for more flexibility, which might mean limited membership at a golf course instead of living on site. In addition, many have tired of the classic Mediterranean ranch styles and are searching for homes with contemporary finishes and transitional floor plans. Some projects in Palm Beach Gardens have been quick to adapt to the changing desires of buyers by offering contemporary designs close to the links.

Softened prices in golf communities have provided immense opportunities for some buyers, who are flocking to older developments like the Admirals Cove in Jupiter. They are picking up homes in the 1980s development and embarking on extensive renovations or rebuilding from the ground up.

Royal Palm Residences in the heart of Downtown Boca Raton.

27

68

About 68 professional golfers call Palm Beach County home, a fact that commands considerable media attention and draws amateurs and enthusiasts to buy homes in the region.

ONE Sotheby’s International Realty

Weston, Coral Gables, and Sunrise, to facilitate both sides of the deal: Families scale up, while empty nesters downsize in a lively, urban setting.

Developers have responded to broadening tastes with boutique properties that seek to set themselves apart through their amenities. Take the Turnberry Ocean Club in Sunny Isles Beach, which combines oceanfront living with membership to a nearby golf course and country club, access to Fontainebleau Aviation Luxe Facility at the Opa-Locka Executive Airport, and a marina. That combination of some of the best of the area’s offerings with a 154-unit luxury development and white-glove service has turned out to be appealing to buyers.

Shifting tastes can also present challenges. About 68 professional golfers call Palm Beach County home, a fact that commands considerable media attention and draws amateurs and enthusiasts to buy homes in the region. But waning interest in the sport among younger

LO C A L

O N E S ot h eb e b y ’ s R ealt e a lt y 2 0 1 9 P e r sp s p e ct ctii v e s

LO C A L

Brickell and Downtown Miami

South florida heads towards next development cycle more stable and primed for price growth he narrative that voluminous new development inventory has held back price growth in and around Miami is T quickly coming to an end, as the factors already outlined in

28

5,500

Nearly 5,500 units completed in 2018 across the area, a figure that will plummet by one-third this year to less than 3,800 new units.

Getty Images

this report drove stronger-than-expected 2018 sales.

The next chapter for the region will be a rapidly declining construction pipeline, with diminishing inventory fueling ever-more-robust price growth in time for the next development cycle in 2020–21. As the supply-demand balance is restored, fewer developments will find themselves in direct competition, and the story of oversupply will be relegated to a few remaining neighborhoods. Prices may continue to moderate in areas like Edgewater, Brickell, Boca Raton, Delray, and Sunny Isles Beach, as these areas were hurt disproportionately by the decline in Latin American buyers. The upside is that these areas now present some of the best buying opportunities for affluent house hunters looking for brand-new, amenity-rich buildings in bustling, central locations.

Last year marked the last burst of new development coming online during the current cycle, which started in 2013. Nearly 5,500 units completed in 2018 across the area, a figure that will plummet by one-third this year to less than 3,800 new units. That number in turn will nosedive in 2020 by more than half. All that is to say that upward pressure on prices is all but inevitable moving forward, especially if sales hold at 2018 levels or increase due to more migration from high-tax areas.

It’s apparent that projects are faring better in locations where supply is limited, and there’s some pent-up demand from retirees moving from out of state. Pockets in Coconut Grove and Coral Gables have been performing particularly well, as has Miami Beach, with ONE Sotheby’s projects there sold out. As a sign that pressure is already starting

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

LO C A L

Annual growth in average price per square foot 2017– 18 Source: Multiple listing service

2017

luxury miami mainland

over the previous year.

29

+10%

Ft. Lauderdale

+4%

jupiter & palm beach gardens

+6%

boca raton

+8%

Delray $0

+11% $100

$200

$300

$400

Average price per square foot

crisis or even at the outset of our current cycle. Financing for land acquisition during the cycle from 2003 to 2008 was available at a loan-to-value ratio of 80%. Now developers in Greater Miami must rely largely on their own equity, with developers financing as little as 30% of a project.

The buyer side of the financial equation is also more stable than it was pre-2008. Banks continue to enforce stricter lending requirements, and additional government regulations now vet the source of funds in some cases. Despite more hoops, the proportion of mortgaged sales is increasing overall and specifically among foreign buyers. This can be interpreted as the banking industry’s growing confidence in Miami’s market and the population of buyers active here. With 30-year mortgage rates down slightly from their peak last fall, and the Fed holding rates steady for the foreseeable future,

+11% 4.4% Average price per square foot in Delray rose 11% by the end of 2018

+2%

Miami beach Location

to build in the luxury segment, the average price per square foot for both condos and single-family homes in Miami Beach (excluding barrier islands) rose a substantial 10% in the fourth quarter of 2018 compared with the same quarter in 2017.

Boutique projects have been performing well around the area, even in pockets that have otherwise slowed.

New plans for large developments with 300 to 400 condominiums are largely on hold, as financing has become more difficult for both the developers and the buyers. Successful projects include L’Atelier in Miami Beach, a lushly landscaped 25-unit building that has sold out, with an average price per square foot of more than $1,800.

While some developers have turned to smaller projects to ensure success, others have broadened the mix of units to attract buyers with a range of budgets. For instance, many Latin American buyers, who still account for about 50% of deals, are priced out of homes in the $650,000-and-up range.

Brokers are targeting these buyers, as well as those from Turkey and China, with smaller, less expensive units alongside a very high-end product that attracts high-net-worth individuals from Mexico and Brazil.

As an example, Okan Tower in Downtown Miami is offering residences ranging from $350,000 for a studio to $2 million for a penthouse.

The mixed-use project will also offer condo-hotel units in addition to private residences, plus office space.

In many ways this strategy is like building several projects in one.

Though it had some growing pains, the Miami metropolitan area has a much more stable new-development climate than it did before the financial

2018

30-year-fixed mortgages have declined from their high in November 2018 to 4.4% in mid-March.

the cost of borrowing is unlikely to present a headwind this year.

Low interest rates, combined with an influx of affluent home buyers from high-tax states and economic expansion in Latin America, particularly feeder markets such as Brazil, Mexico, and Colombia, will help bolster price growth and sales in South Florida and push the region’s luxury real estate ahead of the global growth curve in 2019.

We are clearly headed for an inflection point, where the supply and demand scales will tip in favor of sellers after this year. With that in mind, the coming months present an auspicious moment for buyers. They currently benefit from some negotiability, especially in pockets where developers face more competition, but buyers also stand to gain from rising home values in the not-toodistant future.

$500

$600

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

LO C A L

New development Pipeline 2012– 21 The number of new development units coming online peaked in 2018 and is headed for a steep drop-off.

34 projects 30 projects

6,000

5,506

24 projects 5,000 Number of units

4,124 16 projects

4,000

18 projects

14 projects

9 projects 3,000

2,510

5 projects

2,000

1 project

1,000 0

325

343

2012

2013

8 projects

3,749

1,775

1,451

1,513

2014

2015

1,252

2016

2017

2018

2019

2020

2021

New development deliveries dwindle 2018– 21 The next chapter for the region will be a rapidly declining construction pipeline, with diminishing inventory fueling ever-more-robust price growth in time for the next development cycle in 2020–21.

34 projects 2,000

30 projects

14 projects

8 projects

1,923

1,920

1,427

1,500

970 1,000

905

853 629

558

216

418

500

236

209

131

170

0 0

Q1

Q2

Q3

2018 30

Q4

Q1

Q2

Q3

2019

Q4

Q1

Q2

Q3

2020

Q4

Q1

Q2

Q3

2021

Q4

Source: ONE Sotheby’s new development survey

Number of units

1,717

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

LO C A L

Regional breakdown of projects under construction as of Dec. 31, 2018

total units

units available

units sold

price per SQ ft

BAY HARBOR ISLANDS

94

18

76

$640

BOCA RATON

759

476

283

$905

BRICKELL

784

38

746

$756

COCONUT GROVE

220

96

124

$1,052

CORAL GABLES

227

109

118

$625

DELRAY

105

44

61

$603

DORAL

238

57

181

$445

DOWNTOWN MIAMI

1,561

767

794

$945

EDGEWATER

349

214

135

$795

FORT LAUDERDALE

282

151

131

$945

FISHER ISLAND

96

33

63

$2,100

HOLLYWOOD BEACH/HALLANDALE

406

115

291

$715

MIAMI BEACH

315

184

131

$1,565

MIAMI RIVER

419

313

106

$875

NORMANDY SHORES

43

13

30

$420

NORTH PALM BEACH

30

26

4

$750

PALM BEACH GARDENS

30

17

13

$850

SINGER ISLAND

230

144

86

$913

SUNNY ISLES

61

30

31

$720

SUNNY ISLES BEACH

821

211

610

$1,304

Sunrise

263

93

170

$476

surfside

70

14

56

$2,500

West Palm Beach

69

4

65

$2,075

7,472

3,167

4,305

$21,486

Location

TOTAL 31

Source: One Sotheby’s new development survey. Based on projects sales centers information, news articles, press announcement, phone surveys, online search, among others. The accuracy of this information is not guaranteed.

Availability and prices are subject to change without prior notice.

Downtown Miami and the nearby submarkets of Miami River and Edgewater have hundreds of new homes under construction, while Boca Raton will also see a swell in new development deliveries.

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

LO C A L

ONe sotheby’s Exclusive Developments New residences offer a slice of the good life across South Florida.

Turnberry Ocean Club Residences

One Thousand Museum Residences

Okan Tower

Adagio fort Lauderdale beach

Downtown Miami Starting at $379K

Villa Valencia

Coral Gables Starting at $1.65 Million 32

Downtown Miami Starting at $5.8 Million

Fort Lauderdale Beach Starting at $1.9 Million

Royal Palm Residences Boca Raton Starting at $1.3 Million

The Fairchild Coconut Grove

Coconut Grove Starting at $2.2 Million

ONE Sotheby’s International Realty (7)

Sunny Isles Beach Starting at $3.9 Million

O N E S ot h e b y ’ s R e a lt y 2 0 1 9 P e r s p e ct i v e s

LO C A L

ONe sotheby’s Exclusive Developments

Boca Raton Starting at $1.75 Million

the reserve at Marina Palms Aventura Starting at $815K

Veridian Grove

South Miami Starting at $2.2 Million 33

111 First Delray Beach Delray Beach Starting at $465K

The Miami Beach Edition Miami Beach Starting at $7.9 Million

One Bay Residences Miami Starting at $380K

Forum Aventura Aventura Starting at $300K

ONE Sotheby’s International Realty (7)

327 Royal Palm

ONESOTHEBYSREALT Y.COM

S O T H E B Y ’ S I N T E R N AT I O N A L R E A LT Y: A T R U E G L O B A L N E T W O R K 22, 50 0 A S S O C I AT E S | 9 9 0 O F F I C E S | 72 C O U N T R I E S A N D T E R R I T O R I E S W O R L D W I D E

Y O U R S O U T H F L O R I D A R E A L E S TAT E E X P E R T S AV E N T U R A | B AY H A R B O R | B O C A R AT O N | B R I C K E L L | C O R A L G A B L E S | D E L R AY B E A C H | D E S I G N D I S T R I C T F O R T L A U D E R D A L E | J U P I T E R | K E Y B I S C AY N E | M I A M I B E A C H | PA L M B E A C H G A R D E N S | S T U A R T | S U N N Y I S L E S | W E S T O N

# O N LY W I T H O N E