FEATURE ARTICLE, DECEMBER 2004

2005 Outlook

MIAMI

Industrial

Brian Smith Director, Industrial Brokerage Cushman & Wakefield

Brian Smith, director of industrial brokerage with Cushman & Wakefield, and Wayne Ramoski work on industrial properties throughout Dade County. “We specialize in transactions above 50,000 square feet, and we have seen a definite increase in transactions of this size,” Smith says.

The team recently has completed four large leases in the Gratigny Central market:

“We see leasing activity as very strong in all size categories,” says Smith. “We have transacted more than 700,000 square feet of leases so far this year.”

Smith says that Miami’s industrial leasing activity will continue to grow if the economy continues to grow. “More and more companies will need to expand and will take advantage of the tail end of a tenant’s market,” he explains. “Furthermore, if interest continue to rise, it will further increase the desire to lease as opposed to purchase, which has been the main focus of companies over the past few years due to the record low interest rates and favorable financing.”

Cushman & Wakefield represented AMB Property Corporation in a lease to Transcor at 3301 N.W. 107th St. in Miami. Transcor expanded by 142,000 square feet in a 5.5-year lease.

In 2005, more and more industrial properties will continue to be purchased for alternative uses such as retail and residential projects. “We have all but run out of land, and infill development is the next wave,” Smith adds. “It is already in the works. A residential developer just purchased more than 400 acres from Flagler, which originally had been slated for industrial development. These projects require schools, retail, etc. The end result is a warehouse will be purchased and knocked down or modified to accommodate the impact of these developments.”

Office

The same macro factors that have been fueling the improving market conditions that we have experienced in the last couple quarters of 2004 need to continue in order for us to sustain this trend into 2005, according to Alan Kleber, director of commercial brokerage, and Rashid Siahpoosh, associate commercial brokerage, with Cushman & Wakefield.

“As we saw the end of unchecked spending and growth with the bust of the ‘Internet bubble’ in 2001, 2004 is the year where we have seen increasing numbers of corporations come to a realization that they can not ‘shrink to greatness,’” Kleber and Siahpoosh add. “Where a year ago the average company was hesitant to expand or commit to a long term lease, today we are seeing the same companies much more inclined to take such steps. Barring any unforeseen global factors, as the economy continues to strengthen, so will corporate confidence, combining to translate into a successful 2005 for Miami’s office markets.”

Tom Capocefalo Managing Director Studley

In order for the market to improve in 2005, Tom Capocefalo, managing director with Studley, notes the importance of positive political and financial stability that provides business decision-maker’s comfort in executing expansions. “Reinforcement of these factors results directly in new development and increased occupancies,” Capocefalo says.

In general, the leasing activity within the Miami office market has been strong, according to Kleber and Siahpoosh. “This can be seen through a decrease of the vacancy rate in both direct (14.4 percent) and sublease (1.3 percent) spaces within the county,” they continue. “Specifically, when looking at Miami’s CBD, the combined Brickell Avenue and Downtown submarkets have shown improvements since 2003 in most statistical categories, including vacancy rate (17.6 percent), leasing activity (578,590 square feet) and overall absorption (positive 281,382 square feet). Individually, Brickell has outperformed the CBD as some tenants (such as HSBC, PWC and Tew Cardenas) have chosen to vacate from the latter submarket in favor of the former. However, the future for Miami’s CBD remains bright with recent leases of such credit tenants as Citicorp and Bank Sudermis; further, the current and projected construction within the CBD clearly marks the submarket as the epicenter of the city’s imminent renaissance.”

“From an office leasing perspective, the submarkets that have been growing in 2004 are Brickell Avenue, Coral Gables and, to a lesser extent, Airport West,” adds Capocefalo. “Looking towards 2005, we see continued growth and overall absorption in these markets. Miami’s vitality as a regional U.S. business center and its proximity to all Latin American markets will continue to fuel business, residential and retail growth.”

One of the concerns of the Class A office market was the proposed development of the Metropolitan Financial Center in Downtown Miami. This project would deliver close to 500,000 square feet in 2007, having an impact on the Brickell Avenue and Coral Gables markets. Firms making relocation decisions in 2005 now have an alternative choice potentially resulting in a softening of other markets. However, as of November 2, 2004, MDM Development was putting those plans on hold and may develop the project for residential use.

Over the past few years, as the cost of money remained low, office users considered the concept of purchasing “office condominiums” rather than leasing. “Depending on the interest rates moving into 2005, some of those ‘prospective purchasers’ will reconsider their position,” Capocefalo says. “Another consideration is the lack of development space. Many land sites slated for office development have a more attractive economic return for owners as residential development continues to increase.”

“The most interesting trend that we see going into 2005 is the imminent lack of large blocks of contiguous space in Miami’s Downtown and Brickell submarkets,” say Kleber and Siahpoosh. “Further, much of the land that was potentially available for Class A office buildings has rather been projected for residential, retail or other non-office uses (Columbus Bazaar and 901 Brickell being two prominent examples). Thus, there are not many current projects that can alleviate this trend. Understanding that market forces may force an adjustment of this trend in the future, we see the next 2 years as ones in which demand increasingly exceeds supply in Downtown and Brickell.”

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