Two weeks ago, LeBron James said he wanted to take his talents to South Beach this fall. The irony is that while the NBA’s biggest free agent will be, indeed, heading to Miami (much to the dismay of Clevelanders), South Beach is actually losing some of its appeal to Downtown Miami, which boasts a more central location near the American Airlines Arena, according to Peter Zalewski, a principal with consulting firm Condo Vultures in Bal Harbour, Fla.

“If you’re a tourist coming here, you’ll probably be looking at South Beach,” Zalewski says. “If you’re a 24/7 user, you’ll probably be looking at downtown Miami more than you are looking at South Beach. It will be a seismic shift that will occur in terms of where people spend their time."

In some ways, Miami is already undergoing that shift, according to Zalewski and local market watchers. People are streaming back downtown from the outer suburbs where they live in 300-unit, two-story, garden style properties, and even away from the Art Deco buildings that dot South Beach.

“The mature markets where most of these renters have had to live are starting to suffer,” Zalewski says. “The rental market in greater downtown Miami is extremely strong because it’s poaching from the antiquated mature markets in the suburbs.”

The driver is, as it is in most cases in this kind of an economy, a search for value. “The renters that are moving into greater downtown Miami are getting into newer product,” Zalewski says. “In return, they’re getting parking and gym service. Increasingly you’re seeing singles, getting roommates, moving into this stuff, and living like rock stars.”

But they’re not paying like rock stars. “A lot of people that closed in the heydey and can’t sell are willing to cut their throats to get some kind of rent for a brand new two-bed, two-bath [condos],” says Jack McCabe, CEO of Deerfield Beach-based McCabe Research & Consulting.

National Perspective
For the national market watchers, REITs, and bigger institutional owners, Miami has crafted an impressive story in 2010—that of the unlikely comeback.

“An impressive comeback is underway,” says Greg Willett, Dallas-based MPF Research's vice president of research. “Occupancy as of mid-year has rebounded to 96.5 percent, up from the bottom point of 93.6 percent seen in early 2009. The metro’s big pricing pop occurred in 2nd quarter, with effective rents going up 2.8 percent between March and June. That quarterly rise in rents was enough to bring annual change into positive territory, with pricing up 0.3 percent year-over-year. Miami is certainly emerging among the star performers as the national market moves through the recovery process.”

In a report earlier this year, Encino, Calif.-based Marcus & Millichap Real Estate Investment Services says that while Class A properties near unoccupied condos continued to struggle, the “vacancy rate in Hialeah, North Dade and North Miami/Bayshore submarkets is around 5 percent, a low level for any period, recessionary or otherwise.”

Bigger REITs have also seen changes. “In my portfolio, we’ve certainly seen an improvement over last year in terms of occupancy and net market rents,” says Vanessa Arevalo, district manager for South Florida for Houston-based Camden, which has occupancy of around 94 percent in the area.

Premature Recovery?
The McCabes and Zalewskis of the world see one Miami—the one where a lot of landlords are still struggling. Yes, the big gleaming high-rises are seeing upticks in rents and even occupancies, but the smaller, private guys on the outskirts of town are struggling to keep heads in beds.

McCabe and Zalewski still think the talk of recovery in Miami is a little premature. “I’m surprised that they’re saying that it’s picking up,” McCabe says. “By our tabulations, we are not seeing meaningful increases in occupancy. Over the past year, we saw vacancies rise and there still a large number of communities offering discounted rent or other concessionary renter incentives.”

Instead all these market watchers see is the reshuffling with no real job growth. “People are deciding to live in new product and they’re foregoing the antiquated mature product,” Zalewski says. “It’s simply musical chairs. People are shifting from one product to another product. There’s no real net gain because unemployment is bad.”

In fact, Marcus & Millichap said in its report that an additional 3,000 jobs will be eliminated in Miami-Dade County this year after losing 43,000 positions in 2009. Projected cuts represent a 0.3 percent decline in total employment. “We don’t have any near-term signs of job growth or of companies relocating to South Florida,” McCabe says. “I just think that this market will be very tough.”