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

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.”