When it comes to Downtown Miami office space, the pickings are getting slim in an increasingly tight market.
Surging demand for Class A office space has ignited a boom in new construction. Three office towers — the first new high-rise office buildings in more than six years — are about add their imprint to the Downtown skyline, feeding nearly 2 million square feet of prime for-lease office space to a hungry commercial market.
The move to traditional for-lease office development follows in the wake of a spate of for-sale office condominium projects (see Developers embrace the office condo in South Florida in the February issue). With rents in the mid-$40s per square foot, large-scale rental office buildings at long last pencil out as eminently profitable long-term investments.
“It’s a landlord’s market,” says Maggie Kurtz, director of office brokerage at Cushman & Wakefield. “Miami is doing well, vacancies are around 8 percent, and leasing rates have hit over $40 a square foot — a huge jump, especially for Brickell [Miami’s financial district].”
But is the market hungry enough for three new towers?
“I believe the market can hold two buildings,” says Kurtz. “I’m not sure if the market can handle three buildings. Whoever is up and running first wins.”
There has been some speculation that one of the developers would pull out, but in talks with The Real Deal, the builders and their marketing people all insist they’re going full steam ahead.
Southern star
Kurtz is placing her bet on 1450 Brickell Avenue, a 35-story angular glass tower to be developed by the Rilea Group, which is expected to be completed by the fall of 2009. But, then again, she is the leasing agent for the project.
“When I decided on this site,” recalls 1450 Brickell developer Alan Ojeda, principal of the Rilea Group, “I had the authorization to build 400 residential condos.”
Concerned with an over-saturation in the residential market, says Ojeda, “I switched to offices in 2005 and went through the re-permitting process.”
The office tower will soar above a public plaza, which it will share with One Broadway, a 36-story, 371-unit high-end rental building recently completed by Rilea. The first 12 floors of the building will contain a double-height atrium lobby entrance, parking for 1,200 cars and five levels of double-height, loft-style office spaces with 19-foot windows wrapped around parking levels 3 to 11.
Aside from the building’s unobstructed bay and ocean views, Ojeda touts its location at the southern end of Brickell Avenue as a chief advantage. “For a lot of the corporations that rented space five or 10 years ago in the northern part of Brickell,” he says, “especially north of the Miami River, traffic is a total nightmare.”
The building also benefits from its close proximity to the five-star Four Seasons Hotel, the Conrad Hotel, a 24-hour LA Fitness club and several popular restaurants within walking distance.
While no leases have been signed, Kurtz says, “four or five people we’re talking to right now are over 100,000 square feet, and we have a lot of proposals out to 25,000- to 40,000-square-footers.” All three of towers about to be built Downtown, she adds, “are concentrating on who their anchors will be. We’re moving forward with or without an anchor, but it would be nice to have one.”
Hotel hottie
All the new Class A office towers will be vying for the same sorts of clients. “In order,” says Jack Lowell of Flagler Real Estate Services, which is the leasing representative for one of the towers, “renters are: financial services, wealth management and domestic banking, attorneys, stock brokers, insurance companies and real estate companies.”
Lowell, Flagler’s vice chairman, is working with Met 2, a 47-story office tower to be constructed by MDM Development Group. The building is part of their $1 billion mixed-use Metropolitan Miami project, located just north of the Miami River.
The project will include two high-rise condominium towers, a Marriott Marquis hotel and 240,000 square feet of retail, entertainment and lifestyle venues, including a multiplex cinema and Whole Foods Market.
Offering 700,000 square feet of Class A office space, the office tower will adjoin the 42-story hotel tower, sharing a 14-story podium containing elaborate lobbies, 20,000 square feet of ballroom and meeting spaces, ground-level retail shops, a rooftop fitness center and spa, restaurant and lounge, and a 1,400-space parking garage.
Met 2 will benefit, says Lowell, “from the synergy between the hotel and the office tower. A lot of the tenants will have clients and senior staff coming in from other parts of the world. We’ll give preferential rates and special treatment for office building tenants.
“With [financial services giant] Metropolitan Life as a joint venture partner in Met 2,” says Lowell, “we’re able to go ahead and complete the project whether we have tenants or not.” The building broke ground in January and is aiming for completion by the second quarter of 2009.
Lowell claims there has been keen interest in the tower, but no commitments as yet. “Most people in growing markets like Miami,” he explains, “are skeptical, particularly when they’ve seen promises not come to fruition. Since we’re under construction, that’s been answered: we’re actually going to build the thing.”
Much of the area surrounding Metropolitan Miami is undergoing renovation. “A number of the roads have to be changed from one-way to two-way and the on-ramp to I-95 has to be modified,” notes Lowell. “Until they see that, there’s a healthy dose of skepticism. In the meantime, the best thing we can do is build it.”
Green goddess
With groundbreaking set for April, Brickell Financial Center, a 40-story glass tower to be developed just below the Miami River by Foram Group, will probably be the last of the big three office buildings to open for occupancy.
While being the latecomer might seem to be a handicap for the building, Brickell Financial comes with a singular reputation: It will be the largest green office building in Florida.
Last August, the U.S. Green Building Council pre-approved the energy conservation systems of the tower’s shell andécore at the “certified” level, the minimum level of LEED designation.
LEED, or Leadership in Energy and Environmental Design, is a voluntary “green” rating and certification system developed five years ago by the building council.
The office tower is the first phase of a complex that will also include a 68-story tower with a 300-room hotel, retail and additional office space, and a 30,000-square-foot landscaped public plaza with at least three restaurants. The plaza is being designed by Sasaki Associates, designer of Disneyland Paris and the 2008 Beijing Olympic campus.
The building will not be ready until at least the last quarter of 2009, but the developers are hoping its green moniker will help it make up for lost time. “We’re getting a lot of free public relations,” says Randy Olen, a broker with CB Richard Ellis, the agent for the building. “The companies that are coming in from all over the world always talk about the environment and how concerned they are about their employees. They want to be in a LEED-certified building.”
Olen insists that Brickell Financial’s timing is just right. “If you look back at 1998, 1999 and 2000, those were the years buildings were being built,” and leases were signed, he says. “Ten years later, in 2009, 2010 and 2011, there will be the largest rollover of leases in the history of office buildings in Miami.”
The building’s developer, Loretta Cockrum, chairman and CEO of Foram Group, says she held New York City’s Rockefeller Center as a conceptual model for the mixed-use complex. Although the scale is large, Foram doesn’t answer to financial partners. “We haven’t sought financing to this date,” says Cockrum. “We haven’t needed to.”