With employment and job growth on the rise — albeit slowly — in Palm Beach County, the office market is steadily cutting down its vacancy rate.
According to CBRE, the county saw 219,000 square feet of office absorption during the third quarter, driving down vacancies by 2.6 percentage points year-over-year to 16.7 percent.
That trend of shrinking vacancies is partly due to the county’s strengthening employment rate, which is growing by 2.3 percent annually, according to the report.
Developers and commercial brokers have also jockeyed to bring in high-stakes financial firms like hedge funds to the county in recent years, hoping to buoy both the luxury housing and office markets. By some measures, it’s been working: between 60 to 70 private equity companies and hedge funds have sunk their roots into the county over the last three years, as The Real Deal previously reported.
And though Palm Beach County’s vacancy rate is still falling somewhat gradually, its asking rents shot upward in the third quarter. The report shows office rents rose by 11 percent year-over-year to $19.97 per square foot, with Class B properties experiencing the largest growth in prices.
But that attractive growth in rent doesn’t necessarily mean developers are rushing to build on spec. The high cost of office-zoned land is pushing developers toward more profitable mixed-use projects instead of outright office complexes, according to the report.
For instance, billionaire Jeff Greene has pared back his planned One West Palm’s office component from 340,000 square feet to 200,000 square feet, telling the Palm Beach Post that absorption was too slow to absorb the project’s original scope.
Investors, on the other hand, don’t appear to be as cautious. Six office properties traded in the third quarter for a total of $223 million, with the largest deal RedSky Capital’s $126 million purchase of the Esparante Corporate Center in West Palm Beach.