Palm Beach County’s office market has traditionally focused on professional and financial services, sectors that took a hit just like the rest of South Florida in the last several years. But brokers say the county has two advantages: it didn’t over-build like Miami-Dade, and has emerging industries that could be future market drivers.
According to a first-quarter report by Grubb & Ellis, new office construction in Palm Beach County actually increased, despite a rise in office vacancy to a 10-year high of around 24 percent. The new building activity is tied to pre-leasing, including a 32,000-square-foot speculative, or spec, building in Boca Raton, a 73,000-square-foot property for Nova Southeastern University and a 63,000-square-foot property in Jupiter.
“Palm Beach is an interesting market because a lot of the office market is sort of related to what’s going on in the local population,” said Elizabeth Berthelette, an economist at Property and Portfolio Research, a CoStar affiliate. “Once personal wealth begins to improve, you’ll probably see those industries improve.”
In recent years, Palm Beach County’s office market has been driven to some degree by wealth management, which, because of the stock market crash and the Madoff scandal, has suffered.
Jason Sundook, principal and vice president at Merin Hunter Codman, a commercial real estate services firm and brokerage, said any recovery in the county — specifically the vacancy rate — is still a few years away. But the fact that the county did not fall victim to the kind of vast overexpansion seen in Miami-Dade might mean a quicker recovery, he said.
One sector that could contribute in the longer term is biotech, with several large projects having been approved recently, centered around the Scripps Research Institute, including a plan in Jupiter’s Abacoa neighborhood. Palm Beach Gardens also gave the go-ahead to a 20-year-plan to develop a one-square-mile tract for the institute.
But brokers say the Scripps plan will be slow and steady, and won’t be a panacea.
“Anything having to do with Scripps is going to be a slow, steady process,” he said. “It helps to put us on the map as a viable biotech location, but I don’t think any expansion of Scripps is going to give any immediate relief to the real estate market.”
Regardless of the long-term effect of the Scripps projects, brokers say Palm Beach County’s office market is ready to grow.
“We don’t have so much product,” he said. “The product that was built was infinitely smaller compared to a big city like Miami. We had our boom, we filled up nicely, then the construction for the most part stopped. … The only really significant multi-tenant building was the CityPlace tower in West Palm Beach.”
For Anthony Librizzi, a vice president with CB Richard Ellis, the leader in listed office space market share in Palm Beach County, according to a recent survey conducted for The Real Deal, it all comes down to jobs
“Office properties are affected most by an area or state or county’s unemployment level, and at 12.5 percent, Palm Beach County’s is among the worst of Florida, arguably off the charts. I’ve been preaching this for 18 months now: jobs, jobs, jobs. If we can absorb some of this unemployment, and absorb some of the unemployed into jobs, in those service industries, the market will start coming back.”
Librizzi said he has seen signs of an uptick in recent months. He said incentives, like free rent concessions, along with the sentiment that the worst is probably over, were driving the market improvement. He specifically mentioned the retention of law firm Gunster Yoakley in West Palm Beach, with A 50,000-square-foot renewal. “It’s still a great time to be a tenant,” Librizzi said.