Office leasing on upswing, but vacancies dampen need for new construction

May.May 01, 2013 07:00 AM

South Florida’s office market isn’t as robust as its residential one — just like much of the rest of the country — but the slower pace of leasing comes with an upside: The surplus of inventory is keeping prices in check for tenants.

Less than a fifth of the commercial space in Miami-Dade and Broward counties — 18.1 percent and 18.7 percent, respectively — is available, about the same amount percentagewise as what’s available statewide, according to CBRE, the real estate service firm. Palm Beach County has roughly a quarter of its office space open.

For Miami-Dade and Broward, the first three months of the year built on a strong fourth quarter. Though lagging behind, Palm Beach is seeing improvement, too. The county, the smallest of the state’s office markets, with roughly a tenth of the inventory, has dropped its vacancy rate just about 3 percent in the past year — to 24.8 percent.

“The majority of deals came from tenants already in the market … but the pendulum appears to have swung with demand outpacing supply,” Jon Bourbeau, vice chairman of Newmark Grubb Knight Frank’s Miami office, said at the company’s 2013 State of the Market conference in early April.

Jubeen Vaghefi of Jones Lang LaSalle’s Capital Markets Group agrees with Bourbeau.

“Barring any unforeseen event, we can anticipate continued improvement and vacancies will continue to go down,” said Vaghefi, the group’s international director.

“Generally the climate in Florida is positive. If you look at the four major markets in the state — South Florida, Tampa, Orlando and Jacksonville — there is job growth and population growth. Those factors generally lead the finding of office space and overall improvement in the business climate.”

Despite the falling vacancy rates, Vaghefi doesn’t see much need for new construction in South Florida — or anywhere else in the state.

“Nowhere in the state do the rents today justify the cost to build a new office building unless the tenants have a very specific need and request one,” he said. “There is still lots of available space on the market.”

CBRE’s numbers support Vaghefi’s assertion. Monthly rents have been holding steady over the last few years in South Florida and even dropping in suburban markets in the northern part of the state, according to CBRE.

Miami-Dade’s average of $31.01 per square foot and Palm Beach’s $29.08 are only slightly higher than the national figure of $28.66, as reported by the commercial real estate data firm Reis. Broward’s average is well below both its South Florida counterparts and the nation: $24.95.

The reasonable rates and the healthy inventory make the market a good one for renters, said Bob Muller, commercial division director of Select Real Estate in Estero.

“It’s still a market that is going to be to the advantage of someone trying to lease space because there is still a lot of inventory,” he said. “It’s definitely a market where renters are going to get good deals.”

Muller is upbeat about the market but thinks even better times are ahead.

“In general terms, people say the commercial market is always a step or two behind the residential market,” he said. “We are beginning to see increases in the residential market, but I think we’re still a step or two behind in commercial. We’re starting to see some new construction but there’s still some inventory to fill up.”

Related Articles

(Image by Wolfgang & Hite via Dezeen)

Hudson Yards megadevelopment inspires a new line of sex toys

Cammeby's International Group founder Rubin Schron and, from top: 194-05 67th Avenue, 189-15 73rd Avenue and 64-05 186th Lane (Credit: Google Maps)

Ruby Schron lands $500M refi for sprawling Queens apartment portfolio

Wendy Silverstein (Credit: Getty Images)

Wendy Silverstein, co-head of WeWork’s real-estate fund, is out

These were the top 10 outer borough loans in June

These were the top 10 outer borough loans in June

These are the top resi brokerages and agent teams in Brooklyn

These are the top resi brokerages and agent teams in Brooklyn

From left: Blackstone’s Jon Gray, the Spiral at Hudson Yards, Landesbank’s Rainer Neske and 5 Manhattan West

These were the 10 largest Manhattan real estate loans in April

The top 10 NYC retail leases in April

The top 10 NYC retail leases in April

These developers have the most projects in the works in Brooklyn

These developers have the most projects in the works in Brooklyn