Buying South Florida commercial real estate 101

If you’re looking to invest in commercial real estate in South Florida, you’ll discover a wealth of lucrative opportunities. The Miami metropolitan area, which takes up the majority of South Florida, is home to a wide variety of commercial properties with the potential for significant returns. Compared to other investment types, commercial real estate is a relatively stable investment that’s rewarding, diverse, and can be a great source of passive income.

Are you investing in commercial real estate for the first time? This is the guide for you. Read on to learn about South Florida’s current real estate market, the different types of commercial properties, and what to consider before investing in a profit-generating space.

Overview South Florida’s commercial real estate market

South Florida, is known for having one of the strongest commercial real estate markets in the country, a market which shows no signs of slowing down. It has continually shown increased activity in terms of real estate investments and in the construction of commercial properties.

The area’s pro-business environment is a huge reason why many companies, enterprises, and start-ups are moving here to set up. It’s a region making a name for itself as the nation’s newest tech hub and more companies (especially those coming from outside of Florida) are choosing to relocate to Miami-Dade County, further fueling the demand for office space.

The rapid increase in South Florida’s commercial real estate market can also be attributed to the region’s thriving hospitality and tourism sector. Tourism is the biggest industry in The Sunshine State, with over 32.6 million domestic visitors and 1.9 international visitors in the latter half of 2022. According to Visit Florida, the state’s tourism marketing agency, hotel room occupancy grew by 6.2% and the amount of hotel rooms sold also increased by 9.2%.

Types of commercial real estate properties in South Florida

What type of commercial property you acquire will very much depend on the commercial venture in which you’re looking to engage. These are the most common commercial real estate properties in South Florida:

1. Office spaces

   Typically used by business owners, medical professionals, and tech companies, offices can come in the form of suites, single-floor spaces, or even entire buildings.

   Office spaces are typically grouped into three categories: Class A, B, and C properties. Class A properties are sought-after by credit-worthy tenants for their high quality and its architectural features. Class B properties are more utilitarian and they appeal to a wider range of tenants as they are functional but not priced at a premium. Class C properties, on the other hand, tend to be below average in quality but they have potential for high cash flow.

2. Retail spaces

   Retail properties are used for the selling of goods and services, such as shops, and grocery stores. A retail space can be a standalone building, a multi-tenant property, or a pad site (a freestanding area that’s usually next to a mall or shopping center).

3. Industrial spaces

   This type of commercial property is usually located outside of the city, neighborhood, or urban area. Industrial properties are used for a wide variety of industrial activities like warehousing, manufacturing, and storage. Some industrial properties may also have a combination of offices and warehouses.

4. Multi-family housing

   While residential in nature, multi-family housing is considered as a commercial property if it has five or units. A multi-family property can be a condominium, apartment, or townhome. And just like an office space, multi-family properties are also classified into Class A,B, and C categories.

5. Mixed-use properties

   A mixed-use property is one that typically combines a residential and a commercial property. These properties offer convenience, walkability, and a sense of community. Mixed-use properties are generally located in a city’s downtown area, in a live-work unit, or in a land development.

Why South Florida is an ideal location for investing in commercial real estate

As one of the most prosperous regions in the country, the advantages of investing in South Florida are plenty. Here’s why South Florida is the top choice for your commercial real estate investment:

1. South Florida is centrally located

   Location is a crucial factor when it comes to investing in commercial real estate and South Florida checks all the right boxes.

   The southern region of The Sunshine State is a part of three counties: Broward County, Miami-Dade County, and Monroe County. The region’s major cities include Miami, Hollywood, and Fort Lauderdale. Miami, which has a good investment market, is regarded as the region’s cultural, economic, and financial center. The city’s downtown area is among the fastest-growing communities in South Florida and is often in need of more residential and commercial spaces.

2. South Florida has strong population growth

   Population growth provides an opportunity for economic development and Florida happens to be leading in terms of number of residents. Overall, Florida is the 3rd most populous state in the nation, after California and Texas. The Sunshine State’s population now sits at 22 million people. According to the U.S. Census Bureau, Florida’s population grew by 1.9% between 2021 and 2022, and it has shown consistent growth since the 1950s.

   The population of the Miami metropolitan area has increased in 2022 as well. The Miami metro has steady population growth, with the area’s total number of residents now at 6,265,000. Due to the influx of new residents and tourists, goods, services, and retail spaces are in high demand.

3. South Florida has a thriving retail market

   South Florida is showing strong performance in its retail market, especially in Miami-Dade County. The city of Miami, in particular, ranks among the top retail markets in the nation. Among the three counties in South Florida, Miami-Dade County had the lowest vacancy rate in the fourth quarter of 2022, with the retail market dipping to 3.3% and its office market going down to 10.1%.

4. South Florida is a tax-friendly area

   Florida is one of the few states with no personal income tax. Also, small businesses thrive here due to the minimal business regulations and low barriers to entry. Sole proprietorships, limited liability companies, and S corporations are tax exempt while standard corporations have an income tax rate of 5.5%. This bodes well for commercial real estate investors since it’s easier to attract and retain tenants.

5. South Florida has innovative development projects

   South Florida is seeing a lot of new construction activity, specifically in Miami. Slated to open between 2023 and 2024, the Miami Worldcenter is one of the country’s biggest urban developments. The $2 billion project will be a mix of residential, retail, office, and entertainment spaces. Another notable development project in South Florida is the Magic City Innovation District in Miami’s Little Haiti neighborhood. The mixed-use development aims to build a sustainable and walkable area filled with office spaces, retail spaces, hotels, and residential properties.

6. South Florida draws more foreign investors

   Foreign buyers have a relatively large presence here in South Florida. And its commercial real estate market is a favored among local and foreign investors for its predictability and profitability. According to news website Axios, foreign buyers purchased around $6.8 billion of residential real estate in the region. Florida also takes the 4th spot among in all states when it comes to receiving Foreign Direct Investment (FDI).

What to consider when investing in South Florida commercial real estate

It’s no secret that commercial real estate can be one of the most lucrative investments out there. However, a successful real estate investment requires thorough planning and research. Before investing in a particular South Florida commercial real estate property, consider these factors:

• The real estate market

  Staying ahead of the current real estate trends and the local economy is key to success when investing in commercial real estate. First you’ll want to see that the local economy continues to show signs of positive economic growth. Learn about the vacancy rate and the market rental rate in your chosen area. This data, which varies from market to market, tells you about the property or neighborhood’s desirability.

• The location

  One of the most important factors to consider when investing in commercial real estate is the location. A commercial property in a prime location attracts more tenants because of its convenience and accessibility to major roads, malls, and other establishments. The location of your commercial property also affects its value. Similar to a residential property, a commercial property in a sought-after and strategic location retains a high value.

• The amenities

  The right amenities can up the value and appeal of your commercial property. The typical amenities in a commercial property vary from fitness facilities to garage parking. An ideal office space, for example, is one that has built-in parking, outdoor amenities, and Wi-Fi connectivity.

• The risk

  While commercial real estate comes with high rewards, it also carries certain risks. As an investor, it’s important to be aware of the possible risks of the commercial property you’ll be investing in. Also known as risk assessment, this process entails researching the local real estate market, the location, and the property itself.

• Your budget

  A common mistake that many investors make is underestimating the costs of purchasing and owning a commercial property. Aside from the purchase price, you also have to account for the closing costs, repairs, and operating expenses. And proper maintenance of your commercial property is necessary for maintaining its look, structure, and market value. When you set a budget, factor maintenance, repair and general operation costs as well as the money you’ll need to purchase the property.

How to buy commercial real estate in South Florida

Getting into commercial real estate can be overwhelming, especially if it’s your first time to invest in this kind of property. To prepare for your real estate investment journey, here are the important steps you should know about:

Determine why you’re investing

First, know your investment goals. Ask yourself why you plan on investing in commercial real estate and what you want to gain from it. With these goals in mind, it will be easier for you to determine the type of commercial property that can help you reach it. For example, if your main goal is to hold on to a property and wait for its value to grow, investing in land is an ideal choice. If it’s passive income you’re after, there are a variety of investment types that allow you to earn without having to manage it yourself.

Find a real estate professional

Investing in commercial real estate is a different ball game than purchasing a residential property. That’s why it’s best to hire an experienced agent who specializes in commercial real estate in South Florida. Aside from knowing the ins and outs of commercial property investing and providing you with up-to-date market information, a real estate professional represents your best interests during the negotiation process.

Obtain a commercial real estate loan

The next step to buying commercial real estate is to secure financing. Offered by banks, independent lending institutions, and insurance companies, commercial real estate loans usually have shorter terms and higher interest rates. When shopping for a lender (and make sure to do this before you start looking at commercial properties), ask about their loan-to-value (LTV) ratio since this tells you how much they are willing to lend.

Complete the due diligence period

Due diligence is an important part of the commercial real estate buying process because it can make or break the deal. During due diligence, every part of your chosen property is assessed, from its physical condition to the financial statements. The legal aspects, such as making sure that the property has no liabilities, is part of the due diligence process. For commercial properties, due diligence takes around 30 to 45 days.

Close the deal

Once the due diligence period is over and you’re satisfied with the results, the final walkthrough is the last step before closing the deal. With your real estate agent, inspect the property one more time and see to it that any conditions have been met. When everything looks good and the paperwork is completed, you can now call the South Florida commercial real estate property yours.

Start your real estate investment journey today

As a first-time investor, it’s crucial to work with a commercial real estate expert that can walk you through the process. Count on us at The DeMarco Real Estate Group.

Led by top producing Realtor John DeMarco, we go the extra mile for each client when representing their best interests and finding the right property to achieve their goals. Our knowledge and expertise has earned us the top spot as RE/MAX Network’s #1 commercial team in Florida.

Let the The DeMarco Real Estate Group be your guide to South Florida commercial real estate. Get in touch with the team at 954.453.1000 or send us a message here.