Rising office vacancy rates. Sluggish industrial sectors. That’s the
summary of South Florida’s real estate market in the wake of a
residential meltdown.
From Miami-Dade to Palm Beach County — and right through the middle of Broward — the commercial and industrial markets are feeling the ripple
effects of the residential real estate crisis and subsequent banking
crisis.
The doom and gloom radiates from Miami, where the ailing economy is impacting the office market. According to CB Richard Ellis’ fourth-quarter 2008 report, supply exceeded demand, resulting in
negative absorption for the calendar year.
The 2007 gains of Miami’s office market began to erode in 2008 as
office vacancy rates climbed 2.9 percent in the fourth quarter compared
to the year-ago period, CBRE reported. What’s more, asking rates that
had increased since the fourth quarter of 2007 decreased in the fourth
quarter of 2008.
The Miami office market will likely get worse before it gets better.
Three new office buildings completed construction in the suburban
market during the fourth quarter and are flooding the market with more
unwelcome space. Meanwhile, projects slated to break ground in the
fourth quarter and early 2009 are on hold until the economy stabilizes.
Miami’s industrial market fared even worse than its office counterpart. Vacancy rates rose to 7.9 percent, their highest levels in three years, according to CBRE. The firm blamed limited demand, adversity
to development, and tightened lending practices led to a drop-off in construction activity.
Although cap rate increases led to depreciating asset values, there is
a silver lining for Miami’s industrial market. CBRE said the local
market maintains strong fundamentals through international trade, port
and airport proximity.
Further north in Broward County, the outlook was mixed, CBRE said. The good news is rental rates remained stable during 2008. But vacancy rates
have doubled from their lowest levels, set in 2006.
While construction on new offices has stalled in Miami, construction in Broward held steady. About 245,000 square feet of office space is under
construction.
Whether there will be any buyers or renters after the grand opening celebration remains to be seen. In addition to high vacancy rates, sales activity
of office product also declined, dipping 1.2 million square feet from
the end of 2007.
Broward’s industrial market also showed strains. The downturn in the residential market continued to impact the industrial sector, while some residential service companies have been forced to downsize, consolidate
or leave the market due to current economic conditions, according to
CBRE.
Indeed, Broward’s industrial market felt the impact of the national
economic downturn throughout 2008. The overall direct vacancy rate was
7.3 percent in fourth quarter.
Landlords decreased asking rates and deals for larger spaces were
leased at lower rent levels. According to CBRE, there is currently
538,043 square feet of industrial inventory under construction in
Broward County.
At the north end of the Tri-County area, Palm Beach’s office vacancy
rates continued climbing. Palm Beach saw a 3.2 percent increase in
vacancy from the third quarter of 2008, according to CBRE. That’s a 7.5
percent increase since the fourth quarter of 2007.
Noteworthy is the fact that some buildings have delivered large blocks
of space back to the market, while others are entirely vacant.
Year-to-date sales activity included two sales in fourth quarter 2008,
one of which was an all cash sale.
Office buildings may now be sold at less than their value, which allows
for lower rents to tenants. Overall average asking rental rates
declined $.20 during the fourth quarter of 2008, from fourth quarter
2007, CBRE reported.
Like its neighboring counties, Palm Beach’s industrial market also
suffered the impacts of the residential real estate meltdown. The
industrial market in Palm Beach witnessed vacancy rates increase by 1.9
percent even as asking rates dropped 9.4 percent as a result of the
economic downturn over the past year.