Don’t believe the hype: The true story of South Florida’s office space

Industry spin has focused on the influx of new-to-market companies. Yet, local firms are downsizing and leases are not inked at record rents

(Photo-illustration by Kevin Cifuentes/The Real Deal; images via IStock)
(Photo-illustration by Kevin Cifuentes/The Real Deal; images via IStock)

A pair of sand-colored Weston Corporate Campus office buildings sit vacant, devoid of any employee chatter. That’s because tech firm Ultimate Kronos Group left the two-story complex at the start of the year and consolidated into its other South Florida space.

To the south, tucked between Miami Lakes’ leafy suburban streets, a two-story, 34,000-square-foot light beige building with blue columns is also empty. And in downtown Fort Lauderdale, the 24-story 110 East building is about 40 percent vacant, despite its proximity to booming Las Olas Boulevard. 

These buildings’ vacancies mark a contradiction to the narrative that has labeled South Florida a booming office market. As companies from the Northeast and West Coast expanded or moved to the tri-county region, the hype over leasing activity became near deafening. 

Yet, that’s hardly the reality of South Florida office real estate. 

“The market isn’t as rosy and beautiful as the landlords make it out to be,” said Zachary Talbot, a Miami-based broker with Cresa. 

Over the past two years, longtime locally based firms have consistently shaved off their office space to accommodate the remote and hybrid work shift, according to brokers and tenants. In the first quarter, leasing activity slowed across Miami-Dade, Broward and Palm Beach counties, year-over-year, data show. 

Plus, the deals at never-before-seen rents common last year — think 830 Brickell scoring Ken Griffin’s Citadel for about $90 a square foot and Rothschild & Co. at roughly $120 a foot — have vanished this year, according to an analysis by data provider CompStak. So far this year, South Florida has not scored any leases over $60 per square foot in effective rent, which is the actual rent landlords receive excluding concessions, CompStak’s analysis shows. 

While South Florida is faring better than such cities as New York and San Francisco, sources conceded that the tri-county region’s landlords are feeling stress over downsizing tenants. Companies, too, are experiencing financial pressures from inflation and recession fears, prompting them to further evaluate their real estate needs. 

“I think all landlords are struggling a little bit right now because there’s uncertainty in the economy,” said Greg Martin, a Fort Lauderdale-based broker at Avison Young. “We are all struggling with what we call the return to the office decisions we are seeing in corporate America. I don’t want to give the impression that we are just sitting on our laurels and think life is grand.”

Lagging indicators

Law firm Levine Kellogg Lehman Schneider + Grossman shaved off 46 percent of its office space when it moved to Miami Tower from nearby Citigroup Center in downtown Miami last year. 

It signed a six-year lease, shorter than the 10-year term it had at Citigroup, as a way to keep its options open to reevaluate its office needs sooner rather than later. 

“We just wanted to stay competitive,” said Jeffrey Schneider, founding partner at the firm. He added that new office construction could make it a tenants’ market in the future. It “could lead to rents being more competitive over time.” 

Levine Kellogg’s move mirrors other local firms’ decisions. 

Broker Robert Orban of Cresa said that over the past year, 70 percent of his clients with expiring leases have considered downsizing, with roughly half actually moving to a smaller space. 

“I think that is going to continue,” Orban said. 

Even though local firms have been shedding square footage since 2021, the first signs of a leasing slowdown didn’t manifest until this year. 

In the first quarter, tenants leased 1.3 million square feet of office space across 382 deals in Miami-Dade, marking a 17 percent drop in the amount of square footage and a 29 percent decline in the number of deals, year-over-year, according to Avison Young. In Broward, tenants took 700,000 square feet across 338 deals, or a roughly 47 percent decline in the amount of space, and a 24 percent drop in the number of deals, compared with the first quarter of last year. 

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Tenants signed 208 deals in Palm Beach County for a total of 490,000 square feet — marking a 33 percent drop in the amount of space leased and also the lowest first-quarter volume in more than a decade, Avison’s data shows. 

So why did the leasing slowdown only manifest now? It’s likely that the new-to-market firms’ expansions to South Florida offset the downsizing of local firms, keeping leasing activity strong, brokers speculated. Also, some suburban buildings are empty, but their leases haven’t come up for renewal yet, meaning the vacancies aren’t reflected in market reports. 

And, perhaps it’s a bit of see no evil, hear no evil, speak no evil.

“Remember, these big firms that put up the market reports, you know the majority of what they do is represent these landlords and developers,” said Talbot, though he wasn’t referring to Avison or another brokerage specifically. “They are inherently there to increase the value of these assets. That’s fundamentally their responsibility.”

“Herd mentality” 

Since at least December, Keith Darby’s Rise Realty has been marketing the Miami Lakes campus for sublease. Cryptocurrency exchange leased the building at 14901 Northwest 79th Court two years ago, but never moved in, Darby said. 

With just 18 months left on the sublease term in a Miami Lakes market geared toward small tenants, the sublease has been a tough sell, he said. 

However, he is part of a camp that refused to budge in its belief in the office market. 

“Tenants are still going to keep coming” to South Florida, Darby said. “It’s like the herd mentality.”

Todd Rosenberg, whose Pebb Capital is one of three partners that bought 110 East, is also gushing over the prospects. When they put the property under contract last year, it was less than 30 percent leased. Before closing in May, they leased 57 percent of the space and are in talks with tenants for another 100,000 square feet, meaning the property should be stabilized in a year, Rosenberg said. 

In fact, interest from new-to-market firms has accelerated, said Colliers’ Stephen Rutchik, though he conceded that Brickell is the landing spot, as opposed to the suburbs or Coral Gables. 

And while local firms are cutting down their square footage, that is not “the norm,” Rutchik added. It’s more of a trend, though inconsistent across submarkets. 

Miami grows up? Maybe

Across South Florida, close to 6 million square feet of office space is under construction, according to Colliers. 

This excludes planned projects such as Swire and Related Companies’ One Brickell City Centre supertall. Together with the nearly finished and fully leased 830 Brickell, it will be the financial district’s second standalone office project in more than a decade. 

In the past, office development in the area came as part of mixed-use projects. “Nobody wanted to put up another 800,000-square-foot or 1.2 million-square-foot office building all at once,” broker Orban said. “It was believed in Miami it was going to fail because it was just too much space for the market to absorb.”

The 36-story Brickell Arch office tower, at 1395 Brickell Avenue, was completed in the early 2000s along with a 201-key hotel, now branded by AKA. In 2000, the 30-story Sabadell Financial Center was developed at 1111 Brickell Avenue along with a next-door JW Marriott. 

One Brickell City Centre’s developers “are putting up what? 1.4 million square feet of office space?” Orban said. “Has the market fully changed in order to be able to [absorb] that? We are going to find out.”

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