Miami office market beginning to stabilize, but sector still hinges on job numbers

Jan.January 25, 2012 06:30 PM

The last two years saw more than 2 million square feet of new office space hit a market that was merely trying to scrape its way out of the downturn.

But, buoyed by a tenant’s market, that new space is rapidly being absorbed, with a rippling effect on the rest of the city and the region.

“We’ve seen the same trend that we saw toward the second half of last year, which is a positive trend, with new tenants coming to town,” said Christian Driussi, vice president and general manager at Brickell Bay Office Tower. “My feeling is that the market already kind of bottomed out, and is in a slow process of recovery.”

In the fourth quarter of 2011, Miami’s office market had a positive net absorption of 44,744 square feet, according to a MarketView report from CB Richard Ellis provided to The Real Deal today.

Year-over-year, vacancy also decreased by 70 percent, with a reasonable antiquation of positive absorption in the first of half of this year, according to CBRE.

Through the end of last year, office vacancy in Miami-Dade County as a whole was at 19.1 percent, with another 360,000 square feet of space under construction.

The positive absorption is something of a pleasant surprise for Miami’s new office towers which, at the time of their entry to the market, presented a daunting challenge.

According to Blanca Commercial Real Estate’s Danet Linares, 1450 Brickell, which received its Temporary Certificate of Occupancy in January 2010 and officially opened in April of that year, has now reached 77 percent occupancy, and has deals in negotiation that could raise that number to 81 percent.

The tower attracted a number of law firms as tenants, highlighted by Bilzin Sumberg, which was one of the first tenants at the property and took an 80,000-square-foot lease.

It’s all part of a far more active sector.

“We’ve been quite busy to start the year,” said Steven Hurwitz, senior vice president at Coral Gables-based Continental Real Estate Companies. “Interestingly, you’re seeing some of the larger, new production properties approaching stabilization this year.”

If the office market is rebounding, however, it has come in part from one of the major factors driving the residential market: Latin America.

“We’ve seen a lot of smaller clients coming in, mostly from South America, because of the benefit of the economy,” Driussi said. “So they’re trying to look for new ways of investment.”

That’s caused in part by the vibrant residential market. The same foreign buyers who are looking to buy or rent in Miami have also been starting to relocate their businesses as well.

“With everything that happened, we see an incredible demand in the rental [housing] market, and that also helps with office, where people work,” Linares said.

But optimism on the market remains cautious for brokers, particularly as the new stabilization may come at the expense of other, older “feeder” properties in the area, and with a still-cloudy employment picture.

“We have sort of a ‘rob Peter to pay Paul’ market in South Florida, where we don’t have a ton of new entrants, so that has caused large gaps in some of the different products,” Hurwitz said. “I think you’re seeing some of the existing buildings go through some renovations and some upgrading to keep up with the brand new product.”

According to William Holly, Executive Director at Cushman & Wakefield, the Miami market will likely bottom out this year, barring a double-dip recession, though he cautioned that there would not be substantial improvement.

According to the Florida Department of Economic Opportunity, seasonally-adjusted unemployment in the state was at 9.9 percent, the lowest rate since April 2009, when it was at 9.7 percent. Miami-Dade County, however, had a 10.3 percent rate.

“Optimism rules the day on office lease expansions,” he said. “And it’s just not there. Just like the election, for office space it is employment that will matter the most. It will be a bumpy ride.”

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