Boca Raton has seen other office market downturns, but none like this one. So, in a major shift, the city is adopting economic incentives to court new or expanding businesses.
The lushly landscaped, sprawling corporate parks scattered throughout the city’s western edge are full of empty office space. In the fourth quarter of 2009, Boca Raton’s office vacancy rate stood at 28 percent, according to CB Richard Ellis.
Up until recently, the city didn’t really bother with economic incentives, said Michael Woika, assistant city manager. “For a lot of years, we really didn’t have to,” he said.
But now that’s changed. Boca Raton recently agreed to match state grants for two companies that promised to bring jobs and fill office space. One of them, Quest Diagnostics, could get up to $120,000 of city money over three years. In addition, it’s created an expedited permitting process so a business can have just one city representative help it navigate the bureaucracy.
Boca Raton has 11.5 million square feet of office space. That’s second in all of South Florida’s major office markets only to Miami’s central business district’s 12.9 million square feet of space, which has a 13 percent vacancy rate, the data show.
To be sure, other cities and office markets are struggling as well. CBRE’s reports show West Palm Beach, with about 5.7 million square feet of office space, has a 21 percent vacancy rate. Fort Lauderdale has 1.9 million square feet with an 18 percent vacancy rate. Miami’s Airport West market has 10 million square feet and a 17 percent vacancy rate; and Downtown Miami, with 6.9 million square feet of office space, stands at a 13 percent vacancy rate.
Boca Raton’s office market took deep hits during the savings-and-loan crisis of the late 1980s and early 1990s. It happened again with the dot.com bust of the late 1990s. But back then, the low South Florida cost of living, the city’s infrastructure, its high level of services and the beaches helped Boca Raton attract major corporations, such as Tyco, W.R. Grace and Sunbeam.
Now, other cities have caught up to Boca Raton’s standards and the cost of living is, well, not cheap. So Boca Raton and the Palm Beach County Business Development Board are chasing potential tenants like never before.
“We know companies are being wooed by Charlotte, Atlanta and Houston,” Woika said. “It’s much more competitive than it was even 10 years ago.”
The city is talking about other moves, such as changing planning and zoning policies to help attract business, he said.
A dozen other Palm Beach County cities have set up a similar permitting process to break through the logjam that can occur for tenants looking to build out a new space, said Kelly Smallridge, president and CEO of the Business Development Board.
The board has also created a global corporate headquarters strategy to go after big tenants to fill a minimum of 50,000 square feet. It’s also going after companies with regional offices focused on Latin America and targeting those looking for 20,000 to 30,000 square feet of office space.
Smallridge said there are many prospects that may have looked at the market several years ago but couldn’t afford it then.
“If they’re interested in getting into this market, now is the time,” she said.
There are deals to be had, such as six months free rent for a long-term tenant. And that’s attracted a lot of prospects. The board has about 30 Class A- and B-space prospects and a list of about 20 to 30 leads, Smallridge said. About a year ago, there were only 20 prospects looking for space, she said.
While the board works to attract out-of-towners, local brokers aren’t waiting for them to arrive.
“We’re still very busy,” said Jeffrey Kelly, senior vice president for brokerage services at CBRE in Palm Beach County. “We’re doing deals.”
Most of those are lateral moves, such as a company moving from a 10,000-square-foot space to another space the same size for a better price. Or another one moving from 2,500 square feet up to 5,000, he said.
Kelly and others said larger deals will probably reappear once job growth restarts. Smallridge doesn’t expect that for at least another year.