Moody’s economist predicts slowdown in Miami commercial real estate sector

Much of South Florida’s commercial real estate market is headed for a slowdown that’s expected to thwart certain property deals in the broad sector.

In particular, retail, restaurant and hotel operators and owners are facing challenges, said economist Jeffrey Havsy, commercial real estate industry practice lead at risk-assessment company Moody’s Analytics.

Havsy presented his commercial real estate forecast at the Miami-Dade/Monroe District chapter of the Florida Certified Commercial Investment Member’s 2023 Commercial Real Estate Conference on Wednesday in Miami. Business owners and managers should expect higher operating costs due to a potential looming recession, increasing interest rates and Florida’s continuing trend of property insurers exiting the state.

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Florida’s protracted property insurance crisis is hurting a wide range of commercial and residential property owners who have been paying escalating annual policy premiums for years. After Hurricane Ian smashed the state’s southwest coast last fall, even more insurance companies left Florida or hiked renewal premiums sharply.

Here are key takeaways from Havsy’s remarks at the commercial real estate forum:

▪ “If I don’t have to sell, I’m pulling that property off the market. You’ll see a decrease in volume. What’s my biggest fear? High inflation and no economic growth.”

▪ “With decelerating rent growth (in retail), returns are down. You’ll see a decline in volume. Lending volume pulls back, almost across the board. Everyone is putting everything on pause or being more cautious.”

▪ “Expect [commercial loan] default rates to be higher in 2023 than in 2022.”

▪ “Insurance costs around the country are through the roof. That to me in Florida — with the hurricanes — that’s where I worry the most. How do you handle that cost with insurance companies exiting? That’s one of the biggest risks you have to worry about. And the state’s insurance company [Citizens] should be the insurance of last resort.”

▪ “I’m most optimistic about office [real estate] than most people. Telling people go back to the office is like telling your kids, ‘Because I said so.’ The thing is you need to tell your employees why they need to be in an office. The issue is why you’re going back to the office. Compliance training, papers can be done at home. You need to explain where the value is in going back to the office.”

This story was originally published January 12, 2023 5:30 AM.