Fundamentals remained strong in South Florida’s key office markets as 2017 drew to a close, with vacancies continuing to trend downwards and average rental rates climbing. While the entire market can expect continued growth throughout 2018, it is the suburban office markets that are really picking up steam.
JLL’s Q4 2017 Office Insight report offers an overview of the key trends driving the Miami-Dade, Broward and Palm Beach office markets.
Brickell and Coral Gables flourish
In 2017, a growing preference for suburban offices was evident in Miami-Dade County. In Coral Gables, office tenants absorbed more than 138,000 square feet, representing 2.3 percent of total inventory. At year’s end, absorption in Class A buildings soared to 4.2 percent, leaving vacancy at a post-recession low and pushing the average asking rate to $41.27 per square foot.
The Miami Airport submarket saw 3.2 percent of its Class B stock taken off the market in 2017, a figure somewhat inflated by the short-term lease of 93,000 square feet to FEMA to house staff providing relief after Hurricane Irma.
Vacancy in Downtown Miami rose to 22.3 percent. This was partially due to the fourth-quarter departure of Wells Fargo from Southeast Financial Center, leaving a 132,000-square-foot hole. Continuing tenant flight to the suburbs suggests the ability of this submarket to absorb the 318,000 square feet of office space now under construction in the urban core is uncertain.
Just across the bridge, however, Brickell’s office market is thriving. Direct vacancy in Class A buildings –– accounting for 68.7 percent of total inventory –– stands at 8.6 percent. With no new product on the horizon, Class A asking rates have rocketed to $52.70 per square foot.
New investment in existing and proposed properties poised to rejuvenate the market
After a volatile 2016, when average asking rates rose 6.3 percent and vacancy dropped 2.4 percent, the Broward office market stabilized during 2017 to more sustainable growth. Average asking rates rose 2.1 percent year-over-year to $20.63 per square foot, while vacancy fell to 11.7 percent. New ownership at 110 East Broward announced plans for a multi-million dollar renovation that could make this 342,000-square-foot office tower –– now more than half empty –– a strong contender in the downtown Class A market.
Plantation recorded its best year since 2013 as 6.2 percent of Class A inventory was absorbed, reducing vacancy in this class to 4.7 percent. Plantation’s Class B availability stood at more than 20 percent at the end of 2017 but Envision Healthcare’s recent lease of 88,700 square feet will cut that figure in half.
Currently, 27,288 square feet of office space under construction in Downtown Fort Lauderdale is the only new product in the pipeline. Countywide, however, proposals are on the table for roughly 2.5 million square feet of new office space within large mixed-used projects as well as 1.7 million square feet in stand-alone buildings. This testifies to the depth of investor interest in the area.
Low vacancy and unchecked rate escalation may change market dynamics
The 37,500-square-foot Gardens Innovation Center in North Palm Beach was the only new product delivered in the county in 2017. With no new construction in sight and existing space continuing to be absorbed, Palm Beach County saw vacancies fill and rents rise steadily. At the close of last year, large users had only seven spaces larger than 50,000 square feet to choose from, and rates continued to rise, with Class A space averaging $46.13 per square foot. Availability in Palm Beach’s handful of trophy properties is even tighter; the largest is 20,000 square feet in City Place Tower.