While South Florida’s office market is faring better than the rest of the nation, landlords are feeling the pinch from tenants with expiring leases looking to downsize space or leave, according to Colliers’ Jonathan Kingsley.
“On a macro level in general, the office markets in the tri-county region are a bit challenged compared to prior quarters,” Kingsley told The Real Deal. “We have seen less large lease transactions and a lot of smaller, short-term lease transactions than in previous years.”
Tenants that were unable to modify or terminate their agreements in the past four years, as a result of the pandemic’s upheaval of the national office market, are now coming to the end of their leases, Kingsley said.
“They are now letting their leases expire without renegotiating,” Kingsley said. “As every day passes and leases expire, companies have the opportunity to downsize or eliminate office space.”
Leasing prospects have also diminished across South Florida’s office market.
“During the pandemic, you had an average of three tenants lined up for vacancies,” Kingsley said. “Now it is an average of 1.5 tenants looking to lease new space or renew.”
Miami-Dade County
When it comes to office asking rents in the tri-county region, landlords in Miami-Dade County are faring better than their counterparts in Broward and Palm Beach counties, a recent Colliers report shows.
In Miami-Dade, the average asking rent rose to $53.91 per square foot in the first quarter, up 5 percent compared to $51.14 a square foot during the same period of last year. The vacancy rate dipped slightly to 8.6 percent in the first quarter, compared to 8.9 percent during the same period of last year, the report shows.
“Out-of-state companies say they want to be in Miami,” Kingsley said. “As a result, demand has been pretty strong for Greater Miami.”
During the first quarter, Vast Coworking Group leased 20,300 square feet at the Security Building in downtown Miami that was previously leased to WeWork. Vast signed a 10-year lease for the seventh, eighth and ninth floors of the building at 117 Northeast First Avenue.
Broward County
Like a middle child, Broward is largely ignored by new tenants seeking office space in South Florida.
“Broward has been less desirable because of the dynamics that serve Miami-Dade and Palm Beach counties well,” Kingsley said. “Those two counties have higher-end residential and the availability of schools, churches and synagogues pulls tenants to those markets.”
In Broward, the average asking rent dropped to $36.60 a square foot in the first quarter from $37.15 a square foot in the first quarter of last year. Total vacancies in Broward remained relatively unchanged at 10.1 percent during the first quarter, compared to 10.3 percent during the same period last year.
Palm Beach County
For prospective tenants from out-of-state, Palm Beach County is the second stop when they can’t find a suitable space in Miami-Dade, Kingsley said.
“It’s still a smaller market than Miami-Dade,” he said. “There is a lot less new construction except for what [Stephen Ross’] Related Companies is building in downtown West Palm Beach.”
The few new office completions did result in Palm Beach County’s vacancy rate rising, the Colliers report shows. Total vacancies hit 8.8 percent in the first quarter, compared with 7.7 percent during the same period last year. However, the average asking rent remained relatively unchanged, dropping a bit to $39.43 a square foot in the first quarter, compared to $39.74 a square foot during the same period last year.
New leases in Palm Beach County include DigitalBridge signing for 79,000 square feet at Sundy Village, a mixed-use project in Delray Beach. The firm is moving its headquarters from Boca Raton. Also in the first quarter, Miami-based development firm Atlantic Pacific Companies signed a lease for a new 5,500-square-foot office at the Office depot campus in Boca Raton.