Adapting to headwinds as Greater Fort Lauderdale real estate leaders navigate market shifts
Writer: Eleana Teran
December 2024 — Greater Fort Lauderdale’s commercial real estate market is standing its ground amid rising interest rates, soaring costs, and shifting consumer preferences.
According to Avison Young, Fort Lauderdale’s office and retail tenants are increasingly pursuing a flight to quality, with 67% of leases greater than 10,000 square feet signed in Trophy and Class A office buildings, driven by the need to attract top talent and optimize hybrid workspaces.
On the retail side, Matthews’ 3Q24 retail market report highlights a slowdown in leasing activity over the past 12 months, with 2.5 million square feet leased compared to peak levels of 3.3 million. Despite this, the report notes that demographic growth and robust tourism spending are fostering a cautiously optimistic outlook for the sector.
In the industrial sector, CBRE’s 3Q24report revealed net absorption slowed, with the trailing 12-month absorption at -185,000 square feet. And upcoming large move-ins could potentially push the market into positive territory by year-end. Vacancy rates are expected to remain relatively stable due to minimal speculative construction, providing a cushion against rent declines. Annual rent growth has decelerated to 6.1%, down from the pandemic peak of 18.5%, reflecting broader economic moderation. These trends highlight the sector’s resilience amid fluctuating tenant demand and rising costs.
To delve deeper into these trends and their implications, Invest: spoke with Daniel Chaberman, real estate developer and leasing director of Grupo Eco and Jean Francois Roy, CEO of OceanLand Investments, Inc. Their insights offer a firsthand look at how market players are navigating challenges, leveraging opportunities, and planning for sustainable growth in this competitive environment.
How have recent market conditions and broader economic trends shaped your strategies and priorities over the past year?
Daniel Chaberman: Last year was a tricky one because, obviously, the macro environment was not at its best. With high interest rates, the market, especially here in South Florida, experienced challenges. South Florida had seen a significant positive impact from the post-COVID period, with the market skyrocketing in 2021 and 2022. However, prices became very high, not only in terms of construction costs but also real estate costs. Rents, on the other hand, remained relatively stable.
It was undoubtedly a complicated year due to these factors, compounded by the uncertainty surrounding the elections. Despite these challenges, we did not experience a market crash like some other states did. This was largely due to the continued influx of people, both families and corporations, moving into the state, especially South Florida. This steady inflow was, in my opinion, a major factor that kept the market from crashing. That said, there was a noticeable slowdown in activity across the board, including condo sales, retail leasing, office space.
Now, post-election, the environment feels different. Interest rates have started to decline, and I am optimistic about what lies ahead for Miami, Broward, and Palm Beach in the near term.
Roy: Over the past year, the market presented significant challenges, primarily due to rising interest rates. Many buyers hesitated to move forward and sign contracts, while we also faced elevated construction and insurance costs. Despite these obstacles, we successfully navigated these hurdles and achieved notable milestones. Most significantly, we closed a deal on a construction loan — an exceptional accomplishment in today’s climate, marked by political uncertainties and high expenses.
Rising interest rates and inflation have certainly impacted our development projects, but we continue to move forward by educating buyers about the reasons behind the increased costs. At the core of our business, land banking remains a key focus. Our challenge is effectively communicating the realities of these cost increases to potential buyers. However, challenging times, like the ones we’ve just experienced, often create new opportunities. We focus on securing the best sites, taking calculated risks that others may avoid, and working to change zoning to unlock the full potential of these properties.
How are evolving market trends and shifting consumer preferences influencing your approach to development and investment strategies?
Chaberman: The real estate market has been remarkably stable, and I believe it will continue to grow. The office market, however, will depend heavily on specific locations. The work-from-home trend, which became widespread during COVID-19, still persists, even as more people return to the office. Many corporations continue to allow employees to work remotely, so the viability of office space will vary based on asset class and market conditions. Construction costs remain high, and rents have not continued to grow significantly. This creates challenges, especially in markets where premium rents cannot be charged, as it becomes difficult to make the numbers work.
In the coming year, I anticipate a significant increase in opportunities for retail development across various markets in South Florida. The region’s continued population growth, strong economic activity, and evolving consumer preferences are driving demand for innovative and community-focused retail spaces.
Jean Francois Roy: The market remains dynamic and competitive. The price of beachfront properties continues to rise, but not all buyers are willing to meet these high costs. We are observing similar trends both nationally, such as in New York where properties are becoming smaller, and internationally. This is a rapidly changing market, and at OceanLand Investments, we make it a priority to stay ahead of these evolving trends and adjust our strategies accordingly.
We’re seeing a significant influx of people moving to South Florida; however, many newcomers are unable to afford the high cost of acquiring housing, and until recently, there were no viable housing options to meet their needs. Now, we’re seeing major foreign developers stepping in and building smaller units designed for this demographic. This market for smaller units is something new for South Florida. Additionally, there’s been a rise in the rental and Airbnb markets, as many people still want to live here but cannot afford the rising cost of homeownership. As a result, buyers are becoming more strategic, seeking out creative solutions to manage the high cost of living in the area.
How are you planning to drive future growth and create a lasting impact on the communities you serve?
Chaberman: Our primary goal is to continue undertaking new projects and to grow alongside the region. South Florida has been a fortunate place to operate, particularly during the pandemic, when we experienced less disruption compared to other areas. Policies and political decisions in this state have largely worked in our favor, enabling businesses to thrive.
Moving forward, I want to keep contributing to the growth around us and to remain active in developing projects that bring value to the community and our clients.
Roy: We have a long-term vision for OceanLand, and our top priority is staying prepared and avoiding overextension. In the short term, we aim to focus on strategic growth while ensuring we maintain a solid foundation. We also want to increase our involvement in philanthropy and community initiatives. It’s important to me that we build a lasting legacy in the communities where we operate, contributing positively both through our developments and our outreach.
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