The new construction pipeline has been historically active in recent years. In some areas, this new supply is beginning to negatively affect market performance. Miami is one example, and the issue is rearing its head in conventional properties at the top of the market.
Class A1 properties in the Miami area had an average occupancy of about 89% five years ago, in September of 2014. Since then, more than 22,000 new units have been introduced in the market. This new supply represents 34% of the existing conventional capacity from 2014.
As of the end of September 2019, the national average occupancy for Class A properties stood at 87%. This is right in the neighborhood of the Miami figure from 2014. Unfortunately, after the flood of units, average occupancy in the top price tier now stands at just under 71%. That, after a decline of about 15-basis points in the average over the last year. Additionally, the national average for effective rent gain in Class A properties was 3.8% between September 2018 and September 2019. In Miami, average rent regressed 2.3% at the top of the market in the same period. As would be expected, the percentage of properties in the top price tier offering a rent discount in Miami is twice the national average, at 36%.
For more details about the Miami market, click here for our Market Review.
When considering units currently in the construction pipeline as a percentage of market capacity, the Miami area now sits at 38%. Meaning, there is more new supply on the way than has already been delivered in the last five years. In fact, whereas about 22,000 new units have been brought to market in the last five years, there are more than 41,000 units in the pipeline now. 22,000 of those units have not yet broken ground, and now is the time to consider pressing pause on those.
1 Class A properties have an average effective rent inside the top 12% of the market