South Florida Office Market Heats Up

MIAMI-The office market is firing on all four cylinders, with vacancies down and rental rates up in Miami-Dade, Broward and Palm Beach counties, according to market reports.

“We have seen and will continue to see a tightening of the market,” Studley managing director Tom Capocefalo tells GlobeSt.com. “Tenants will have limited opportunities to relocate or get concessions until new product comes on the market.”

According to CB Richard Ellis Q2 market reports, the vacancy rate in Miami-Dade County at the end of the quarter was 8.72%, the lowest vacancy rate since the Q2 2001. Average asking rents have increased 1.3 percentage points from last quarter for an average rate of $25.88 per sf. In Broward County, the vacancy rate was 8.33% during Q2, down 4.4 percentage points from a year ago. Average asking rates rose 10.7 percentage points from $13.75 per sf a year ago to $15.06 per sf this year. In Palm Beach County, the office vacancy rate dipped to 8.4% during Q2, down from 9.4% a year. As a result, average asking rates have risen 9.4% over the year to $18.31 per sf, according to reports.

According to a Studley office market report, sales of buildings have also been strong with 45 buildings totaling 3.3 million sf changing hands in South Florida during the second quarter. The total sales price was $743 million, or $242 per sf. In terms of square footage, West Palm Beach led the way with a total of 1.4 million sf in 21 properties. Miami was the leader in terms of aggregate value. A total of 14 properties comprising 1.1 million sf was sold for $340 million, or $303 per sf.

The only downside to the market may be in leasing activity. According to the Studley report, overall South Florida leasing activity totaled 1.4 million sf, a drop of 12.1% on a quarterly comparison and a decline of 35.5% for the year.

Capocefalo attributes the strength to several factors. The number of sites available to build new official space has dwindled due to the prevalence of new residential construction. At the same time, existing businesses are expanding and new businesses are moving into South Florida. For tenants, that means fewer options. “Tenants must pay attention to their options much sooner than they would have in past years,” Capocefalo says. “In the past, they may have looked 12 months in advance, now they need to look 18 months in advance.”