UPDATED, March 16, 1:05 p.m.: Miami’s Wynwood, the artsy neighborhood that has become a hip office, retail and dining destination, is experiencing growing pains, creating a dichotomy in the district.
Office and retail vacancy rates have skyrocketed beyond 50 percent in some cases, as new and planned mixed-use projects compete with older, adaptive reuse properties for tenants that are eager to plant their flags in Miami’s hottest area.
At the same time, asking rents are often soaring. National retail and office tenants are willing to pay a record of more than $70 a square foot for long-term deals at some of Wynwood’s newest developments. On some of the streets with higher foot traffic, new building owners can fetch as much as $100 a square foot, according to landlords and brokers. That shows the neighborhood’s star power can rival other pedestrian-oriented office and retail areas like the Miami Design District and Miami Beach’s Lincoln Road, the leasing experts said.
As a result, property owners say they are carefully targeting retailers and office users that understand paying a premium price makes sense in order to be in the most walkable commercial district in Miami-Dade County.
Still, about 65 percent of office space and 59 percent of retail space in Wynwood is available for lease, according to an analysis of Loopnet data by Metro 1.
Andres Nava, the Metro 1 broker who crunched the Loopnet numbers, told The Real Deal that a closer review shows that landlords for new mixed-use projects such as The Gateway at Wynwood, 545 Wyn and Wynwood 25 are faring better at signing new tenants because they are offering terms of 10 years or more, as well as substantial tenant concession packages.
But some landlords for adaptive reuse properties are finding it more difficult to sign tenants, despite offering lower rents, Nava said.
“We felt the need to do this study because we encounter [potential] tenants who see so many vacancies in Wynwood, and naturally think the rents should be lower,” Nava said. “Tenants will ask us why we are charging these rents when across the street they can get a space for half the rate.”
For instance, tenants can find office spaces starting at $45 a square foot to $50 a square foot, and retail spaces for $55 a square foot in converted single-warehouse-style buildings at 120 Northwest 25th Street and 2501 Northwest Second Avenue. Those properties are owned by David Lombardi, a real estate investor and landlord who began buying properties in Wynwood in the early 2000s.
“If other guys are getting more, God bless them,” Lombardi said. “Five years from now, I will tweak the rents. For now, I want to make sure my tenants survive.”
The Metro 1 analysis shows that the vacancy rate for longer-term leases on office spaces that are “immediately available” is 35 percent and that the vacancy rate for longer-term leases for retail spaces that are “immediately available” is 18 percent.
Longer terms are also commanding higher prices. The price per square foot for longer-term office leases is 9 percent higher than the average asking rent of $48 a square foot in all of Wynwood’s office market, the analysis shows. And the price per square foot for longer-term retail leases is 21 percent higher than the average asking rent of $61 a square foot for all of the neighborhood’s retail market.
Even though Wynwood is still a fairly new commercial district, rents are in line with other South Florida pedestrian neighborhoods like the Miami Design District and Las Olas Boulevard in Fort Lauderdale, according to Tony Arellano with DWNTN Realty Advisors.
“We are not seeing prices that are irrational,” Arellano said. “There is no such thing as sticker shock when it comes to rental rates in Wynwood.”
However, some Wynwood pioneers like Lombardi caution that the neighborhood is still a long way from seeing the type of positive absorption that justifies markups in rents.
“I am not one to believe his own bullshit,” Lombardi said. “As excited as I am, I know we are still in a transitional period. There are still large sections of Wynwood under construction. We are not at critical mass.”
A methodical approach to retail
Wynwood 25, the luxury apartment and retail building co-developed by the Related Group and East End Capital, was completed in 2019. Leasing for 30,000 square feet of storefronts has gone better than expected, with tenants paying an average rent of $75 a square foot, Arellano said.
At Wynwood 25, long-term tenants include pizzeria Joe’s Pizza, Japanese restaurant Uchi Miami, gourmet ice cream shop Salt & Straw, taco eatery Bartaco and brewery Dogfish Head Miami. Only two vacant retail spaces are left, Arellano said. His firm brokered the Joe’s Pizza lease, while Sara Wolfe of Koniver Stern brokered the Uchi Miami, Salt & Straw and Bartaco deals.
“The concession packages are a little different for each tenant, and the rent structure depends on the space type,” Arellano said. “We are six months in, and the building is close to being stabilized. It usually takes about a year.”
While people may get the impression that Wynwood’s retail vacancy rate is high, demand far exceeds available spaces, Arellano said. “We turn away people every day because they are not the right operators or don’t present the right concept,” he said. “There is a lot of noise in the market, but a lot of the people calling [about space availability] are either not qualified, not the right operators or don’t have the right concept.”
About a block south of Wynwood 25, the co-landlord of a mixed-use project that is under construction is also implementing a methodical approach to signing tenants. Jennifer Houston, who heads retail leasing for Tricera Capital, told TRD the firm is currently negotiating a long-term deal with a high-street fashion retailer as an anchor tenant at Society Wynwood, a proposed eight-story mixed-use building with 326 apartments and 34,581 square feet of retail.
Miami-based Tricera, which is co-developing three mixed-use projects in Wynwood, teamed up with New York and Miami–based Property Markets Group and Toronto-based Greybrook Realty Partners to build Society Wynwood, at 2441 Northwest Second Avenue. Formerly called Wynwood Crossings, the project is scheduled to be delivered in the third quarter of next year.
The fashion retailer, which Houston declined to name, would be leasing 4,000 square feet, representing one of the largest stores in Wynwood, she said. Once the lease is signed, she expects Society Wynwood’s first retail tenant to create the type of buzz that attracts other fashion name brands to the neighborhood, she added.
“Our goal for the spaces on Second Avenue is fashion retail,” she said. “The retailer we are negotiating with also looked at the Design District and Midtown Miami. They really liked the hip and edgy vibe Wynwood has. They feel this is the epicenter of Miami that is going to blow up in the next 24 to 36 months.”
An office destination
On the office side, new projects like The Gateway at Wynwood at 2916 North Miami Avenue and 545 Wyn at 545 Northwest 26th Street are moving quickly to sign national corporate tenants to long-term leases, according to brokers for both buildings.
545 Wyn, a 10-story, 325-square-foot office building with ground-floor retail, developed by Chicago-based Sterling Bay, is close to filling half of the available office space, Randy Carballo with Blanca Commercial Real Estate told TRD. Signed tenants include Gensler, the architecture firm that designed 545 Wyn, which took 12,000 square feet. Milo Credit, a lending company that recently launched a cryptocurrency mortgage platform, signed a lease for 10,000 square feet; and global consulting firm Slalom has a lease for 8,000 square feet, Carballo said.
“I feel confident, given the demand we are seeing, the building will be fully stabilized by the end of the year,” Carballo said. “Our typical lease term is 10 years, and we are currently between $50 to $52 a square foot. We are providing tenant allowances.”
At The Gateway at Wynwood, a mixed-use project with 195,000 square feet of Class A space and 25,900 square feet of retail, built by R&B Realty, tenants are starting to move in.
Tech startup OpenStore signed an eight-year lease for 14,914 square feet and opened its doors about the same time the building received its temporary certificate of occupancy, Stephen Rutchik with Colliers, the property’s office leasing brokerage, told TRD. The building’s second tenant, Miami-based biotech company Veru, signed an eight-year lease and recently moved into a 12,155-square-foot spec suite, Rutchik added.
“Between the executed leases and pending leases, we will be north of 50 percent leased in the very near future,” Rutchik said. “The activity level is exceeding our other office buildings in other Miami submarkets. We are seeing more demand than the building has rentable square feet.”
As a result, potential tenants are not scared off by asking rents starting at $70 a square foot at Gateway, Rutchik said. “There is also some abated rent associated with our leases,” he said. “It varies on the length of the lease term. We have not experienced any reservations or hesitation on pricing.”
The problem with larger projects like 545 Wyn and The Gateway at Wynwood is that the landlords have to pursue large corporate tenants that can take half a floor or an entire floor, said Lombardi, Wynwood’s longtime investor.
“Six months ago, I had a bunch of vacancies,” he said. “Today, I have zero because my spaces tend to be small, turn-key spaces. I have seen an insatiable demand for those. There are a helluva lot more prospective tenants wanting 2,000-, 2,500-, 3,000-square-foot spaces that [new mixed-use projects] can’t accommodate.”
Correction: An earlier version of this story incorrectly credited one brokerage for all retail leases at Wynwood 25.