CITY HIGHLIGHT, FEBRUARY 2006

FORT LAUDERDALE/BROWARD COUNTY CITY HIGHLIGHTS
Edgar C. Jones Jr., Marc deBaptiste, Tom Capocefalo, Gregory J. Rumpel

Office Market

The strong residential market in Broward County and neighboring Miami-Dade and Palm Beach counties has taken the steam out of the office sector in South Florida lately. Hot residential development combined with a hyper-active hurricane season have driven up the cost of land, labor and building materials, curbing developers' appetite for new office development. Quite simply, office rental rates in Broward, which approached an average of $28 per square foot gross at year end, are not rising fast enough to justify a great deal of new construction.

Nevertheless, a limited number of new office projects are sprouting up in the more vibrant submarkets of West Broward, which includes Sunrise, Plantation and Weston, and Southwest Broward, which includes Miramar. Also, downtown Fort Lauderdale is attracting renewed interest from developers. These improving office market trends have even triggered a limited amount of speculative office development in Broward.

The Hogan Group is developing the Royal Palm II at Southpointe in Plantation, a companion to the developer's original office building on the same site.

The Southwest Broward market also is healthy, with a minimal direct vacancy of   3 percent at the close of the fourth quarter last year. The tightest submarket is Miramar, with a direct vacancy level (excluding available subleases) of 2.2 percent. A 100,000-square-foot office building called Miramar Centre III is under construction in that submarket, with a mid-2006 target completion date. Miramar's reign as Broward's healthiest submarket is likely to continue in 2006 because of its attractive location. Companies find Miramar's access to Interstate 75 and the Turnpike extension appealing because it is easy to reach Miami-Dade, northern Broward and Palm Beach County. In addition, Miramar has encouraged a good mix of residential and commercial development.

Fort Lauderdale's central business district has lagged behind West Broward and Southwest Broward in attracting the interest of office developers and tenants. The downtown area had an overall vacancy rate of nearly 15 percent at the close of the fourth quarter last year. However, things are improving there, too. The vacant 11-story Museum Plaza office building, complete with ground-floor retail, in downtown Fort Lauderdale was under contract to be sold early this month to North Miami Beach-based NRI Plaza LLC. The developer plans to convert the space to office and retail condominiums in what would be the first large-scale office conversion project planned for the downtown area.

— Edgar C. Jones Jr. is vice president – Florida operations with Rockefeller Group Development Corporation's Miami office.

Multifamily Market

It's no surprise that the condominium conversion craze during the past 2 years is having some residual effects on the multifamily industry moving into this year. Like most of South Florida, Broward County is not immune.

As investors gobbled up multifamily product and converted the assets into for-sale condos, the rental market supply was quickly depleted. Investors of all kinds were taking advantage of this opportunity. Now, with rental rates on the rise and the South Florida multifamily vacancy rates dropping below 5 percent, private investors are also getting in the game, picking up small properties to either benefit from the upside of rental rates or join the condominium conversion trend.

In 2004 and 2005 alone, nearly 21,000 rental units were taken off the market through condominium conversion. In return, the market only received 4,700 new rental units during this same 2-year period.

With conversions happening so rapidly, new development cannot keep up. In fact, the scheduled delivery of new multifamily product for this year is substantially down from prior years. Approximately 500 units are anticipated to be completed this year, compared to nearly 2,600 units in 2005. The lack of new product is compounded by the fact that nearly two-thirds of the product that entered Broward County in 2005 was mid- and high-rise properties as compared to a majority of garden apartment in previous years. Moreover, garden apartment sites are now nearly extinct.

Of course, condominium conversions are not the only reason new multifamily development in Broward County has slowed. The finger can also be pointed at land availability. Land is a prime commodity in this area, yet except for some spotty areas of infill potential, land in Fort Lauderdale is exhausted.

The development that is occurring, which primarily consists of mixed-use, high density projects, is predominantly taking place in the urban core of Fort Lauderdale and Miramar. Much of this new development is situated on infill, reuse sites, which once housed lower density buildings. Many development groups behind these projects were previously commercial developers with limited residential experience or garden apartment developers with a minimal portfolio of mixed-use and high density projects.

Traditional Neighborhood Development-style projects, which are mid-rise and high-rise developments that create an urban mixed-use setting in an otherwise suburban market, are notable projects to watch this year. Minto Communities' 1400-unit Artesia in Sunrise and Tao Condominium's 396-unit Tao in Miramar border the western fringe of Broward County.

Market rate multifamily properties generally cater to high-income residents due to the cost of creating and operating high density product. The range for newer Class A product is $1 to $1.35 per square foot for garden apartments and closer to $2 per square foot for new high-rises. As a result, affordable housing will be of greater concern this year since there are no tax credit deliveries slated to occur, unlike 1,000 units that entered the market last year.

— Marc deBaptiste is principal of Apartment Realty Advisors (ARA) in Boca Raton.

Industrial Market

Last year was another defining time period for the Broward County industrial market and the activity should continue into this year. With the residential populations exploding, Broward continues to experience a demand for distribution and industrial projects that help feed the bustling economy. Broward is the crossroads of the South Florida market area. Companies distributing goods to this increasing population are finding space alternatives more limited and costly to occupy. While the challenge for developers has been to accommodate industrial space users through conventional leasing, the market is also experiencing a growing interest and trend towards purchasing industrial condominiums.

Data supporting this current supply and demand comes from all sectors. The state of Florida reports total employment growth of more than 2 percent during the past year. Unemployment is currently at 4.5 percent, roughly a half percentage point less than the national average. Individual submarket vacancy rates are being reported at 4 percent to 5 percent of total inventory resulting in a net rental rate of approximately $7 per square foot. The bulk of activity is from growing business owners in the 1,500-square-foot to 12,000-square-foot range. As interest rates remain relatively low, the appetite for purchase rather than leasing gains popularity. Several investor and developers continue to pursue condominium warehouse conversions in an effort to provide product to this market segment.

A significant deal last year was Weston Sunrise LLC Investor's purchase of the Broward Lakes Business Park in Sunrise. This 258,000-square-foot multi-building complex was purchased for $12 million and is slated for conversion to condominium warehouse space.

New space also is being added in Broward. Suddath Relocation Systems built a 120,000-square-foot warehouse, located at 19000 SW 43rd Terrace in Deerfield Beach, to shore up the company's availability of logistics business space. IDI's Pompano Business Center has added an additional 220,000 square feet of space to suggesting further demand for warehouse space in this submarket. The company also delivered additional buildings in the Miramar Center Business Park to support the western Broward area of growth.   

This year, developers will continue to look for opportunities to supply market demands. As the housing continues to expand in the northern and western submarkets, so do the industrial and distribution projects, making Miramar and Pompano areas of legitimate interest.   As the increased cost of land in the eastern section of the county continues to escalate, developers are forced to find sites capable of delivering good access to interstates highways while paying attention to land and construction costs. Developers like IDI, Stiles Butters Construction, and Seagis Corporation will sustain competition as long as there is a waiting list for tenants considering Broward County as a potential alternative to other South Florida locations.

— Tom Capocefalo is managing director with Studley's Fort Lauderdale office.

Hospitality Market

Fort Lauderdale is establishing itself as one of the pre-eminent tourism destinations in Florida. This is a result of a combination of several influential factors: one of the fastest-growing airports, a major cruise port, the world's yachting capital and significant hotel investment — all of which are driving the once “spring-break capital” into becoming a dominant South Florida destination.

This market is now referred to as the “Venice of America” due to its water-oriented lifestyle and an expansive Intracoastal Waterway that ribbons through multi-million dollar homes along with a dynamic and expanding Las Olas Riverwalk district in the heart of the central business district.

Access to any tourism market is critical for sustained growth, and the Fort Lauderdale/Hollywood International Airport has responded to the challenge. The continued investment in — and promotion of — the airport has created one of the fastst-growing airports in the nation, achieving an 11 percent growth rate in October during the previous year. The continued support of niche carriers like Jet Blue, Southwest, Ted, West Jet, Midwest and Spirit, has resulted in an affordable and competitive visitor destination offering some of the best flexible travel providers in the business.

The airport continues to prepare for growth with plans for a second runway to come on line circa 2010 and a revolutionary intra-modal hub to handle cruise passengers directly from the airport itself.

The second leg of the transformation is the Port Everglades Cruise Port, which is now officially the “busiest cruise port in the world.” Achieving an unprecedented growth of 12 percent annually over the past decade, the Port Everglades Cruise Port is now host to more than 4 million cruise passengers annually. Projected growth in the cruise industry is expected to remain strong with volumes to exceed 7 million cruise passengers annually by 2020.

With a visionary plan for Port Everglades called 2020 Master Plan, the future for the cruise port is strongly supported by the city commissioners. 2020 Master Plan calls for the expansion of the cruise facility to accommodate up to nine mega-cruise ships simultaneously in addition to an airport/seaport transport link.

The most significant change happening is the A-list of hotel brands entering the market, carving out a position to capitalize on the anticipated future growth in Fort Lauderdale.

Recent entries include The Atlantic, part of The Luxury Collection by Starwood, and Hard Rock Hotels. Anticipated openings in 2006 include the St. Regis Hotel, Q-Club by Hilton, W-Hotel & Residences. Trump International and Trump International Beach Club will open in 2007.

In addition to the strong line up of new entries, significant investment is being poured into the old guard of Fort Lauderdale hotels. Hyatt Pier 66, Yankee Clipper, Yankee Trader and Fort Lauderdale Marriott Marina will all emerge this year with bold new looks and energy fitting a city that is embracing its new position as a market leader in South Florida.

Hotel investment in 2005 reached a feverish pace in Fort Lauderdale with significant investments being made by Starwood Capital, Blackstone, Columbia Sussex, Ashford Hospitality, Pyramid Hotel Advisors and HEI. Strong underlying fundamentals underpin this continued investment, with Revenue Per Available Room (RevPAR) growth in of 9 percent being achieved this past year — coming off a strong 8.3 percent growth in 2004. New luxury product entering the market and the major renovation of existing hotels will continue to drive higher yielding business into the market and improve overall profitability.

So the question remains, how good will it get? Fort Lauderdale has positioned itself to take advantage the expanding economy, readily available debt at historically low interest rates, baby boomers looking for waterfront real estate, recreation and increased luxury travel.

— Gregory J. Rumpel is executive vice president in Jones Lang LaSalle's Miami office.


©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.