Business Monday

Broker’s view/commercial real estate: Beware when the cranes fly away

DIXON
DIXON

Once again, as I drive around South Florida, I can see cranes on the top of all the new buildings under construction. My guess as of October 2015 is that there are more than 35 cranes in the air. According to Peter Zalewski of CraneSpotters.com, more than 44,700 new condominium apartment units have been announced between 2011 and Sept. 28, 2015, as having been constructed in the three-county area. At an average of 11,200 units per year, the economic impact of this new construction is amazing.

If the average condo unit has a construction cost of $300,000, this represents an annual inflow of over $3.4 billion per year to the South Florida economy from only condominium construction. This inflow of money is used for the purchase of materials and labor used in construction. If half of the construction cost is labor, the impact to economic activity and demand for local housing and purchasing is a major stimulus.

The Department of Labor reports construction employment in the South Florida area increasing from 84,000 jobs in 2011 to over 108,000 in 2015. This increase in employment is in part fueling the demand for housing. The demand for housing in turn increased the demand for construction workers, which fueled further demand for housing.

What will happen to South Florida when this construction boom comes to an end? Construction workers and all the associated tradesmen will need to move to other locations to seek employment. This will then create vacancies in single family homes and rental apartments. As you can see from the employment chart, there is a direct connection between the last real estate cycle, which peaked in 2007, to construction employment.

The cycle of construction creates demand for more housing for workers. When the cranes fly away, this is a sign that the cycle of overbuilding is coming to an end and there will be a downturn in the local economy.

What will replace the inflow of money used for construction? Remember South Florida generates jobs from trade, tourism and construction. If we lose the inflow of funds from construction the economy will have to rely on trade and tourism, until the next boom cycle of construction.

Thomas Dixon is president of Dixon Commerical Real Estate specializing in commercial brokerage and tax assessment appeals. He was 2004 President of the Miami Association of Realtors.

Realtors may submit columns for Broker’s View of 700 words to to rclarke@MiamiHerald.com. This feature is intended primarily for residential brokers, who will be given preference, but pieces about commercial real estate will also be accepted as space allows.

Got a Broker’s View?

Realtors may submit columns for Broker’s View of 700 words to to rclarke@MiamiHerald.com. This feature is intended primarily for residential brokers, who will be given preference, but pieces about commercial real estate will also be accepted as space allows.

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