Office vacancy rates are averaging above 10 percent across South Florida, yet landlords keep raising rents, according to a recently released third quarter report.
Owners of new and older trophy Class A buildings, as well as landlords in trendy business districts like Miami’s Wynwood, are finding the greatest success luring new-to-market tenants from across the U.S., commercial brokers say.
Buoyed by positive absorption rates in the second and third quarter, landlords are slowly boosting rents, even in downtown Miami and downtown Fort Lauderdale, where vacancy rates are near and above 20 percent, respectively, according to Colliers International’s report.
The market is anticipating that vacancy rates will go down by the end of the year, Colliers’ Jonathan Kingsley told The Real Deal. “In general, during the last six to nine months, we have seen a higher level of existing tenants renewing or expanding, and significant new activity from firms from the Northeast, particularly New York, [as well as] California and Texas. That is the case across all [South Florida office] markets.”
Kingsley added, “As occupancy increases, a natural reaction is landlords start to slash concessions and increase the rates.”
Brian Gale of Cushman & Wakefield’s Miami office also said the double-digit vacancy rates will trend downward once new tenants that are in the negotiation stages sign leases.
“All the deals that dragged in the first and second quarter are going into effect this third quarter and fourth quarter,” Gale said. “Fourth quarter will be one of the largest quarters for new leases being signed by new-to-market tenants, more than the past five years combined.”
The office vacancy rate in Miami-Dade County hit 10.7 percent in the third quarter, about even with the same period of last year, according to Colliers. But vacancies decreased by one percent compared to the second quarter.
The market had a net absorption of 872,049 square feet compared to a negative absorption of 777,285 square feet in the third quarter of last year. The average asking rent was $44.59 per square foot in the latest quarter, up $1.15 per square foot compared to the second quarter. Brickell had the highest rent at $62.49 per square foot, followed by the Wynwood/Design District submarket at $59.67 per square foot.
Downtown Miami has a vacancy rate of 22.6 percent, and an asking rent of $50.08 per square foot.
Kingsley said Brickell, Wynwood and the Miami Design District are getting the majority of new-to-market tenants that want to lease space in new office developments.
“Brickell Avenue has been incredibly active with existing and new tenants,” Kingsley said. “We are talking about tech, financial services and Latin American marketing firms. Downtown Miami is taking longer because it doesn’t seem to have the same appeal as Brickell and these other micro-markets.”
However, downtown Miami’s newer buildings are starting to gain some resurgence as a lower-cost alternative, Kingsley said.
Among new properties that are performing well at attracting out-of-state companies is 830 Brickell, a 55-story tower under construction. Microsoft recently signed a deal for 50,000 square feet for its new regional headquarters.
Gale, whose Cushman team handles leasing for 830 Brickell, said the 640,000-square-foot tower is 40 percent leased, and another 250,000 square feet is currently being negotiated.
“Every tenant we’ve signed so far is new to the market,” Gale said. “They are heading to the best quality buildings, whether it is new construction or existing trophy buildings.”
In Coconut Grove, the new 85,745-square-foot office building One Cocowalk is 100 percent leased one year after completion, according to the project’s development joint venture of Federal Investment Trust, The Comras Company and Grass River Property.
Broward’s office market experienced an 11.9 percent vacancy rate in the third quarter, about a one percentage point increase compared to the same period of last year, and roughly half-a-percentage point decrease from the second quarter.
The market absorbed 315,213 square feet, compared to a negative absorption of 401,232 square feet in the same period of last year. Third quarter’s average asking rent was $40.28 per square foot, an 85 cent increase from the previous quarter.
Downtown Fort Lauderdale is the second most expensive submarket in the county, with the highest vacancy rate. The average asking rent is $47.43 per square foot, despite a 19.6 percent vacancy rate. Hallandale Beach has the highest average asking rent at $48.58 per square foot.
“Like downtown Miami, downtown Fort Lauderdale is among the slowest to recover,” Kingsley said. “But there is positive absorption. Infill and Class A spaces are getting leased up.”
He noted that leasing for The Main Las Olas by Stiles Corp and Shorenstein Properties is doing very well. Recently, the new 25-story tower at 201 Las Olas Boulevard signed nine new tenants and reached more than 50 percent occupancy.
Palm Beach County
In Palm Beach County, the third quarter vacancy rate hit 9.7 percent, down 0.3 percentage points compared to the third quarter of last year. In the second quarter, vacancies were at 10.6 percent.
The county experienced a net absorption of 797,653 square feet, compared to negative absorption of 256,361 square feet in the third quarter of 2020. The average asking rent was $36.65 per square foot, an increase of 11 cents compared to the second quarter.
West Palm Beach’s commercial business district had the highest vacancy rate at 12 percent, and the second highest average asking rent at $55.50 per square foot. Palm Beach had the highest asking rent at $60.44 per square foot, with a vacancy rate of 8.6 percent.
Cushman’s Gale said West Palm Beach’s office market is now largely in control of The Related Companies’ Stephen Ross, whose company has acquired two office towers, a stake in a third office property and an office development site for nearly $500 million since January.