Miami office market active, but fragmented

Clockwise from left: Clockwise from left: 1450 Brickell, Wells Fargo Financial Center, Flagler Real Estate Service’s Jack Lowell, analyst Jack McCabe and CB Richard Ellis’ Ken Krasnow

From the ashes of the real estate downturn, two large office towers have
emerged in downtown Miami.

Predictably, 1450
Brickell and the Wells Fargo Financial Center have received much of
the attention — and many of the new tenants — in the city’s Central
Business District. In the shadow of those two towers, however, is an
increasingly fragmented office market.

“It’s very hard to paint the
market in broad brushes,” said Kenneth
Krasnow, a managing director at CB Richard Ellis in Miami. “I think
it’s always been difficult to do that, but increasingly it’s gotten
more difficult. It’s really become submarket-to-submarket, almost
building-by-building.”

Vacancy in downtown Miami’s CBD, which stretches from the beginning of Brickell Avenue to NW 36th Street, is hovering around 20 percent, according to Jack Lowell, senior managing director at Miami-based Flagler Real Estate Services.

“There’s activity,” he said. “And there’s frustration [that] it’s taking longer to get deals done. We do see, I think, that there are some new entrants to the market. But in general, office [leasing] is slow.”

According to CBRE’s mid-year report, the office vacancy rate in Miami stood at 18.3 percent at the end of June, with rents hovering at just above $30 per square foot.

This slowdown follows the initial lease surge of 1450 Brickell and Wells Fargo, both of which came online in 2010, and which took in a wave of tenants in their first months on the market, according to Jack McCabe, owner of McCabe Research and Consulting in Deerfield Beach.

Despite the early rush, however, renewed unemployment concerns are leading to a more reluctant market.

Many of those deals involved tenants moving around within the market in so-called “musical chairs,” he said.

“I’d make the case that for every space that was filled in those two new buildings, an equivalent amount of space was left vacant in the others,” McCabe said. “There’s been an increase in the total amount of square footage in the marketplace, but there hasn’t been an increase in the total square footage of absorption — it’s just kind of shifted somewhat.”

On the tenant side, several trends are developing, however. One, Krasnow said, is continued downsizing by larger tenants, but the other is increased growth for smaller tenants, the kind who have been taking space in Miami Beach of late.

What’s also starting to emerge, he said, is more willingness on the part of tenants to sign longer-term deals.

“We’re definitely seeing more confidence in people looking to extend out the terms longer,” Krasnow said.

One thing that hasn’t changed, Krasnow said, is the flight to quality, or higher-end, higher-grade properties, which has been one of the biggest drivers of the growth of 1450 Brickell and Wells Fargo. Indeed, many of those buildings’ initial tenants, like Bilzin Sumberg and Greenberg Traurig, were tenants in older buildings looking for newer space.

A wild card for the market is a 40-story, 600,000-square-foot tower at 600 Brickell, which is set to open this fall and is being marketed by CBRE. 

 “They have a couple of things they can do that the other buildings cannot, at this point, in terms of signage and positioning within the building’s blocks of space,” Flagler’s Lowell said. “So they have a couple of arrows in their quiver, which I think will give them the ability to do some deals.”

Indeed, the executive team at 600 Brickell team told The Real Deal earlier this year that signage was definitely on the table for interested tenants.

But it’s difficult to predict the impact of the project in today’s uncertain market.

“You could have one building that’s a home run, and right next to it, another building that has 40 to 50 percent vacancy,” McCabe said. “It’s times like this that the really good buildings are successful, and the others that may have done well in the real estate boom are [not.]”