Class A office market heats up in West Palm Beach
The Class A office property market is strengthening in downtown West Palm Beach, but there is a marked split between the top three trophy properties and the other six Class A buildings.
Overall, the direct vacancy rate fell to 13.8 percent in the first quarter, the lowest since 2007, according to a JLL report. And the average gross asking rent hit a record high of $41.30 per square foot, up 8.9 percent from the first quarter of 2015. Rent for the top three – Phillips Point, Esperante Corporate Center and CityPlace Tower — soared 9.8 percent to $53.74.
“We’ve had an acceleration in economic growth and business relocations” that is boosting the Class A market, Harvey Oyer, a partner specializing in real estate at Shutts & Bowen law firm in West Palm Beach, told The Real Deal. “There are tenants, including money managers and hedge funds, that want waterfront locations and are willing to pay for it.”
But the news isn’t as good for Northbridge Tower, Bank of America Centre, Flagler Center I, Flagler Center II, One Clearlake Centre and Clearlake Plaza. Their average vacancy rate is 22 percent, and the average gross rent is $40.36 per square foot, according to JLL.
“It’s two different markets,” Kevin Probel, vice president of property management for JLL in West Palm Beach, told TRD. “It’s a significant drop from the top three assets to the next subset. There’s prestige always in those three. It’s a flight to quality.” He’s confident that the weaker properties will fill up, as demand for space remains strong. “The decrease in vacancies will continue, as positive things are happening in West Palm Beach,” Probel said.
Two major new Class A projects have been proposed for downtown West Palm. One is billionaire real estate investor Jeff Greene’s One West Palm, a mixed-use development at 550 Quadrille Blvd. that includes 340,000 square feet of Class A office space. The other is 30-floor, 300,000-square-foot Class A office tower that Related Cos. hopes to build at 142 Lakeview Avenue.
Is there enough demand for both? Oyer says yes. “There is a lot of pent up demand,” he said. “The projects are staggered and are at different ends of downtown.” Greene’s project is expected to be completed much sooner than Related’s.
Not everyone is as optimistic as Probel and Oyer. Jonathan Gladstone, a West Palm developer, says much of the activity in the Class A market consists of tenants playing musical chairs. “There are no substantial new tenants,” he told TRD.
Analysts agree that attracting new businesses to West Palm is the key to creating more demand for Class A space. “If the city can attract more high paying jobs, then the office market has a great future,” another West Palm developer, Neil Kozokoff, told TRD. “But that has always been a challenge, despite city officials’ best efforts.”
Education is an important issue, Kozokoff said. Executives at companies considering a move to West Palm want to see better schools for their children. “The city is working hard to bring in new jobs, but more needs to be done.”