As Florida’s commercial real estate market enters the second half of the year, a lot of excitement and caution abounds in the marketplace. JLL took a look at what’s trending in the office space landscape from down in Palm Beach up to Jacksonville, covering the key markets the firm serves across Florida.
#5 Large Blocks Lacking
Combining an improving economy with tightening office markets and limited new construction underway adds up to fewer options for office tenants seeking large blocks of space. While we are starting to see some construction statewide, in very active business districts the options are dwindling for users.
As an example, according to JLL’s second quarter Office Insight report for Orlando, large blocks of quality space are shrinking. particularly those 70,000 square feet and greater. A large new-to-market deal was just inked in the second quarter with Synchrony Financial, General Electric’s credit card division, taking 102,000 square feet in Maitland. Currently, Orlando has about 11 blocks of spaces with over 70,000 square feet of space available and about 13 tenants touring the market for such spaces, translating to a level of demand that is outpacing supply.
#4 Returning to the Suburbs
As the Central Business Districts of most major cities in Florida are experiencing a tightening in their office markets, tenants outgrowing their current spaces are looking at the suburbs to meet their space needs.
Take the Tampa Central Business District, which is running out of larger office spaces, driving tenants to expand or move their operations to suburban markets. JLL’s second quarter Tampa Office Insight cites an office vacancy that is currently at its lowest mark across the market since 2006.
#3 CBDs Seeing Investment
Investors continue to strike deals in strengthening office markets across Florida. Both national and international money is chasing office assets with a strong rent roll that are situated in business districts and neighborhoods with plenty of commercial and residential activity.
Take the property 800 Brickell, located just steps from the rising mega mixed-used project Brickell City Centre, which sold for nearly $534 per square foot. That’s the highest price achieved among competitive Trophy, Class A and Class B institutional office buildings in this market since 2010, points out JLL’s Miami Office Insight report. Moving North to West Palm Beach, the Phillips Point office towers in downtown sold for $550 per square foot, reaching a price tag 33% higher than when it last sold, the West Palm Beach Office Insight cites. With other office buildings up for sale across the state, the months ahead will tell at what record prices towers continue to trade.
#2 Class B Making Room
With little new supply of office space in recent years, tenants have been absorbing more existing Class A space, while driving up rents as a result of the heightened demand. This has been creating an opportunity for Class B office buildings, as tenants seeking more favorable rates are making a move to Class B towers.
This trend is benefiting the overall office market – with some submarkets like Fort Lauderdale approaching record high occupancy – as both Class A and B properties are experiencing more leasing activity, the Fort Lauderdale Office Insight report notes. In Jacksonville, 1.2% of the total Class B inventory was absorbed during the second quarter, JLL’s second quarter Office Insight for Jacksonville report shows, bringing vacancy to 19% and marking the lowest vacancy rate in Jacksonville’s Class B space since 2005.
#1 New Office Construction, Please
The top spot belongs to the trend that is impacting everything from the office space options tenants can access, to the amount of space available and most importantly – the rates. Across all the key Florida markets a common denominator seems to be the dwindling supply of quality space.
This certainly points to construction of new office space, whether as a traditional, stand-alone office building or as part of a larger mixed-use development. In areas like Miami, Orlando and Tampa, new office construction has been announced or is in progress, but in some cases portions of the buildings are getting pre-leased quickly. In Orlando, Tavistock Group is planning an 80,000-square-foot project in Lake Nona and the second building in Kirkman Point Office Park is set to start construction. Expect to see more new office construction announced in the near future.
We expect the trends that shaped the first half of 2015 to continue through the remainder of the year.
For more information on how we can help you with your real estate challenges in Florida, please contact:
Doug Irmscher, Market Director: Doug.Irmscher@am.jll.com