Call it a low-cost flight to quality.
Vacancy rates in Miami’s office market have eclipsed the 15 percent mark for the first time in five years, and many landlords face a dilemma: make concessions or face the possibility that vacancy rates could climb higher. Most are choosing the former, attracting new businesses to the urban core.
“There’s no doubt about it. We’re seeing a flight to quality as companies are in the market to trade up. Tenants, particularly those who have been in their current premises for a long time or are in multiple locations, are looking to do deals,” said Tere Blanca, principal of Blanca Commercial Real Estate in Miami.
The phenomenon takes center stage in the Downtown Miami office market, which will have nearly 2 million square feet of Class A office space freed up or newly completed in 2010. Blanca said market conditions create what could be a once-in-a-lifetime opportunity for businesses to move up in quality at a more affordable rate.
“For companies that have been in their space for a long time, being able to get into a space that is designed to new standards presents a great opportunity to be more efficient,” Blanca said. “Getting into a space that has been built for sustainability and can accommodate flexible work environments at today’s rates is an attractive proposition.”
According to the Environmental Protection Agency, investing $4 per square foot in sustainable construction nets $59 a square foot in benefits and cost savings over a 20-year period. Sustainable design yields tenants practical benefits, including reduced employee absenteeism and enhanced corporate image.
Beyond the new greener buildings coming online, professional service firms that shed offices in the Wall Street meltdown left space with substantial build outs that smaller tenants wouldn’t typically undertake, according to Ed Mermelstein & Associates, a boutique law firm headquartered in Manhattan.
Companies that historically couldn’t afford to lease offices in a quality location in the urban core are also moving into Class B buildings.
“Businesses are coming back to Downtown Miami. Many had moved out of the prime locations because the prices were pushed to an uncomfortable high,” Mermelstein said. “They were forced to change courses quickly. Now, they are coming back.”
Of course, prime locations and Class A buildings don’t necessarily mean brand new buildings. Class A buildings may also be classified as buildings with Class A owners, according to Howard Ecker, principal of Howard Ecker + Company, a commercial tenant representation firm with offices in Chicago, New York, Charleston and Miami.
Ecker points to the Chrysler Building in Rockefeller Center in New York as a prime example. A local example is the Bank of America Tower, which makes continuous improvements, including energy-efficient updates.
“To me, a quality office has to do with how green it is,” Ecker says. “If you ask Greenberg Traurig why they chose to office at Met2 they will tell you the green building practices played a huge factor in the decision. In this generation and going forward, green buildings will rent the fastest. A flight to quality could mean a flight to green.”