The Real Deal Miami

Mortgage meltdown causes consolidation in financial office market

By Jennifer LeClaire | July 16, 2008 12:03PM

The mortgage meltdown, the credit crunch and the economic uncertainties
that have come along with them are causing thousands of financial services industry job losses across the state of Florida.

According to the latest data from Florida’s Agency for Workforce Innovation, the state’s financial sector had 6,100 fewer jobs in May than it did during that month last year. That’s a 1.12 percent decline, and marks the largest employment hit in decades for the industry.

In South Florida, the financial services office market is spotty, with some companies downsizing and others relocating, but few expanding. Most financial services industry players in Miami-Dade, Broward and Palm Beach counties are staying put.

“Banks are licking their wounds. They are not growing, but they are renewing their leases where they are,” said Jack Lowell, managing director with Flagler Development Group, a developer of Class A and industrial workspaces in Coral Gables.

Status quo, though, is not good in a market with new buildings coming online. Major banks like UBS, Bank of America and Citicorp were candidates to anchor some of the new office buildings rising from the ground but might instead stay put until the market recovers, Lowell said.

The exception is Spanish banks that are acquiring local banks, such as City National Bank and Total Bank, along with some smaller banks. These European behemoths are growing and expanding in Miami-Dade County. Banco Santander is paying more than $60 a foot at 1401 Brickell, Lowell said, a price well over market comparables.

According to the the most recent market report from CB Richard Ellis, the average asking rent for office space in the Miami-Dade market increased 22 cents to $31.10 per square foot in the second quarter from the first quarter. The market’s vacancy rate increased 1.2 percent to 9.2 percent over the same period.

On the stock brokerage side of the equation, Flagler just helped Merrill Lynch complete a small expansion in Coral Gables. Lowell reports some expansion among brokerages, healthy expansion among commercial real estate operations and significant scale back of residential real estate operations.

Mark Pateman, an associate at Cushman & Wakefield, predicts consolidation and a slow out migration of jobs and office space usage from downtowns to suburban areas that are less expensive, specifically in western Miami-Dade or western Broward counties. The Miami International Airport area is also seeing some traction.

“Companies that were in Brickell and Coral Gables are looking to move to the airport area because their leases are going up to as much as $40 per square foot,” Pateman said. “They can go to the airport area and get something at $30 a square foot and not have to pay for parking.”

Lowell reports more subletting because of the economic contraction. “Companies are trying to offload space because they are retrenching,” he said. “So there are some real bargain opportunities for sublet spaces, but they are usually short-term opportunities.”