When you think of an iconic skyline, New York, Seattle and London most likely come to mind. From the Empire State building to Big Ben, those memorable horizons are defined by a collection of staple office buildings, commonly referred to as trophy assets. By taking a deeper look into each city’s office market trends, we can predict if or how their skylines may change in the future.
JLL’s Office Skyline report focuses on the top tier of the office market and looks at some of the most iconic and highest-rent properties within downtowns. These “trophy towers” provide insights into the economic trends and in some cases are predictors of future growth and decline.
Here is a breakdown of Florida’s Skylines and the most important trends impacting the urban cores:
Miami Skyline: Record highs
The Miami Skyline and trophy market subsets have broken through the long-standing record-high asking rates set in 2007, as have many competitive Class B properties. CBD landlords are justifying pricing based on current product quality, value and demand generators garnered by improving economics and Miami’s elevated and increasingly attractive position within the global market.
“Miami has seen strong investment activity over the previous 18 months, much of which occurred in the Class B segment of the market,” said Marc Miller, Florida Research Manager. “However, in 2016 investors have turned their attention to the high-quality Skyline Trophy properties that JLL watches regularly, as the Miami market continues performing strongly. Since late December, three trophy assets have traded totaling $360 million, and there is more Skyline product likely to trade before the year ends.”
Fort Lauderdale Skyline: Nearing peak
Downtown Fort Lauderdale’s skyline has experienced robust growth over the past 24 months. The city’s trophy towers have maintained the highest office rents in Broward County with average rates of $36.34 per square foot, full-service – 29 percent higher than the county’s average rate.
As large blocks of space fill up in the downtown Fort Lauderdale area, many tenants are facing the fact that rates have increased and tenant’s negotiating power has diminished amidst the tightening market. Skyline rent growth is expected to continue in 2016 with a void of new inventory driving increased competition for office space.
West Palm Beach: Strong performance
Each building in JLL’s Skyline report for West Palm Beachhas traded hands since the start of 2013. Nearly a quarter of this activity occurred last year. This comes on the heels of strong performance among all of West Palm Beach trophy assets. Moreover, since 2009, the trophy properties in Downtown West Palm Beach have maintained the lowest vacancy in the submarket and have seen steeper declines in recent years compared with other asset classes, causing the vacancy spread to grow.
“The trophy assets that make up the West Palm Beach skyline are performing strong in an otherwise still recovering market,” said Ilyssa Shacter, JLL research analyst. “While owners of trophy assets now maintain landlord favorable conditions, negotiation power within the rest of the skyline is largely in the hands of the tenants.”
Orlando Skyline: Continued market growth
Orlando’s Downtown assets show continued activity given strong market growth and development with trophy assets leading activity. Following this trend, Class A, large-block vacancies have dropped by 14.3 percent year-over-year, as tenant demand for quality space continues to increase. Growing demand for Skyline assets will continue given various development projects in the Downtown pipeline geared to enhance a live-work-play model.
“Orlando’s Skyline remains dynamic, outperforming the total market with strong tenant demand in engineering, law, and financial services tenants,” said Valerie Mnayarji, JLL research analyst. “Local employment conditions are outpacing those of both the wider state and the country, directly contributing to the performance of Skyline properties.”
Tampa Skyline: A tight fit
Experiencing its highest occupancy in the past 15 years, market conditions in Tampa are currently favoring landlords. Rental rates for Skyline properties continue to rise, recently breaking the $30 per-square-foot ceiling for trophy assets. With limited large availabilities in Class A product, rental rates are expected to climb in the coming year. Currently, there are no new office projects under construction. In fact, there has not been a new delivery to the Tampa office Skyline since 1998.
As a whole, the Florida cities in JLL’s Skyline are showing strength for asset owners and limitations for corporations. “Among the trends we are seeing across the state are a steady rise in rents, with some markets experiencing rates at an all-time high, vacancy rates on the decline, and demand for office space in downtown trophy assets that only continues to grow,” said JLL Florida Market Director Doug Irmscher. “As long as supply can keep up with increasing demand, the Florida office market should be set for a healthy second half of the year and entrance into 2017.” In order to remain competitive, new development will be necessary to accommodate the state’s strong growth projections.
Click here to view the entire 2016 JLL Skyline report featuring the core office buildings across 52 markets in the U.S. and Canada, navigate and access market insights regarding supply, demand, rents, leverage and investment with the ability to compare individual markets.