The mood is basically doom and gloom when it comes to a market revival for South Florida commercial real estate.
“We have listened to our counterparts in the development world who claim the worst is over and good times are ahead,” said John Breistol, president of Miami-based Foram Group, developer of the Brickell Financial Centre. “We can¹t blame them for this attempt at trying to project their hopes onto others.”
Breistol doesn¹t blame South Florida developers for talking up their optimism because he understands they need to lease buildings quickly, service debts promptly and pay inescapable property taxes. But the quest for occupancy comes at a price. Concessions are the status quo, he said, even before tenants ask for them. Getting a little rent is better than getting nothing at all, he said of most developers’ approach.
Breistol said the company is debt-free and therefore not forced to make unilateral decisions on concessions.
“The problem is that there is no immediate silver lining and any thought of a turnaround in the next year is coming from a cracked crystal ball,” Breistol said. “Our hope is 2011 will be a bellwether year and many will be able to exhale — just a little.”
Breistol noted two major areas that need to change before the needle moves significantly in South Florida’s commercial market: First, debt needs to be available at reasonable prices and terms. Second, tenants need to prove creditworthiness or provide financial guarantees to win developers’ confidence.
Walter Byrd, managing director with Transwestern’s South Florida office, said the pattern set up in 2009 should teach the overly optimistic a lesson: Large tenants pursued opportunities to take advantage of down market conditions to secure long-term leases at pennies on the dollar. It didn¹t lead to positive absorption.
In fact, CB Richard Ellis reported that the Miami office market continued its slowdown in the third quarter, with asking rates declining and vacancy rates increasing. Total vacancy increased by 200 basis points across Miami-Dade County from the second quarter of 2009.
To date, the Miami office market shows 342,773 square feet of negative absorption this year. The average asking lease rate declined for the fourth straight quarter to $29.92 per square foot.
By Byrd’s count, very few of the large tenants that inked better deals occupied more square footage at their new office locations.
“Large corporate users of either office or warehouse space have not been nearly as active, which is typical in a down cycle,” he said. “Until corporate users see some stability in the general economy, they will be slow to make any long-term commitments or incur the expense of moving.”
Debra Spadafora, commercial division manager for Esslinger-Wooten-Maxwell in Coral Gables, isn’t sugarcoating her 2010 predictions.
“Unless the financing situation improves for commercial property, I don’t see much improvement for 2010. In fact, I believe we will see more distressed commercial properties.”