SOUTHEAST SNAPSHOT, JANUARY 2009

Miami Office Market

In the current economic climate, it helps to be an international hub. Miami has a close relationship with many international companies, meaning that even during this recession, the city’s office market is doing fine.

“You’ve got a lot of companies that service Latin America,” says Brain Gale of Taylor & Mathis’ Miami office. “They’re just not as affected [by the economy] as some of these more domestic companies that you’ll find around most of the United States.”

During the past decade, Miami experienced a condominium boom. As multifamily dwellings took over the marketplace, not much attention was paid to the office market. When housing started going downhill, developers turned to the office product they had previously shunned.

“All of the great sites that would have been used to build an office building, the highest and best use was the residential condominium,” Gale says. “There haven’t been a lot of office buildings developed over the last few years, and that’s kept the supply down. Good demand and low supply keeps the rents up and keeps it a good, healthy office market.”

As in Orlando to the north, tenants are downsizing their space and signing leases for smaller periods of time. Subleases have now become fashionable. While the vacancy rate in Miami is still low, brokers predict that the number will rise in the next few years.

Due to the scarcity of office product, developers are gearing up for a good year in Miami. Aside from the 586,000-square-foot office tower 1450 Brickell, 2 million square feet is set to enter the Miami office market by 2010. (Brickell  is expected to deliver in January 2010.) In the Airport West submarket, 1.7 million square feet is under construction, and 300,000 square feet will is slated for delivery in Coral Gables. “You’ve got this supply on the horizon, which is definitely going to soften the market,” says Gale, who thinks the strongest submarket in Miami is Coral Gables. The vacancy rate in the area is low and demand is high. Rents are pushing $40 per square foot, which is one of the highest prices for office space in South Florida.

“It’s going to be affected a little bit because you really have too much supply coming online at Brickell,” he says, “but today, the strongest market for development would be Coral Gables.”

In 2008, the Airport West submarket was flooded with transactions. According to Dan Heisler, executive vice president of the Miami-based Adler Group, this has slowed considerably. Trends at Airport West are indicative of the overall health of Miami’s market.

“We see rental rates in the office market remaining stable — not taking huge decreases, but certainly not going up,” Heisler says. “Concessions will increase. Landlords my start offering added improvement dollars to lure tenants away from other developments.”

An idea that’s here to stay, however, is greening Miami office buildings. At the Adler Group, Heisler is working to enroll all his properties in the EnergyStar rating system.

“There seems to be  a trend toward operating buildings more efficiently and trying to reduce the consumption of our natural resources. That’s a focal point that really over the last few years wasn’t as prevalent as it is today,” Heisler says. “I don’t know any building owners that aren’t implementing some sort of strategy to deal with that.”

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