Teachers Insurance and Annuity Association (TIAA-CREF) purchased 701 Brickell in Miami’s CBD late last year. The trophy tower is now 97 percent occupied and is anchored by Bank of America and Holland & Knight, according to Jones Lang LaSalle, the leasing and management agent.

Despite slow-moving demand, Miami appears to be in a relatively advantageous spot. In line with one of its core economic bases, Miami has been recognized by AmericaEconomia as “the best city for doing business in Latin America” — for the third year in a row. In addition, corporate executives indicated that they would choose Miami among world cities as the top destination for their Latin American headquarters.

As a dominant player in the state, Miami continues to benefit from Florida’s strong position. Florida is one of two states to lead the nation in personal income growth, and it led the nation in job growth during February 2003. Additionally, Florida has the largest service sector — the prime users of office space — in the entire Southeast, according to the Federal Reserve Bank of Atlanta. Demographic trends point to continued growth in Miami’s population and a strong consumer spending base, noted by the Bal Harbour Shops’ recent ranking as the most productive shopping center in the U.S. — generating sales more than “three times the national average at $1,350 per square foot” (Women’s Wear Daily). Miami’s business resiliency remains impressive, having ranked third in the U.S. for increases in business establishments (2000 to 2001), following California’s Los Angeles and Orange counties, according to the most recent statistics from the U.S. Commerce Department’s Census Bureau.

First Quarter Market Dynamics

As anticipated, flat market conditions characterized much of the first quarter, as the general state of office leasing remained relatively quiet. Reversing last quarter’s small but positive absorption, new occupancy was negative 83,000 square feet while overall vacancy rose to 14 percent. Despite a decline in new construction starts of almost 50 percent between 2001 and 2002, Miami’s current pace of construction will still result in an additional 1 million square feet of Class A inventory by the end of 2003. While construction is forecast to decline again in 2004, vacancy is anticipated to remain at the 2003 level, estimated at 15 percent.

Concessionary pricing by tenants with excess space and by owners of new developments continues to provide fertile ground for value-shopping tenants. As a result, some traditional occupiers of Class B space are taking the opportunity to upgrade to Class A space and other tenants are taking the opportunity to relocate to lock in favorable rental rates on long-term leases, often for less space than they last occupied. While such moves create the perception of activity, these transactions do little to improve the health of the overall market as net absorption is generally unchanged by lateral moves and market prices decline as a reflection of increased competition.

CBD Trophy Towers Stand Tall

Miami Center is 96 percent occupied. The combined overall occupancy rate among competitive downtown trophy buildings dipped one point to 91 percent — still amazingly healthy compared to other major U.S. cities.

Along the prized Brickell Avenue corridor, a 2003 recovery of the financial district is unlikely due to the delivery of new office space and weak demand among financial institutions. Still, most of the competitive Class A trophy towers are stabilized, maintaining high occupancy levels with gross asking rental rates at or above $30 per square foot. These are among the set of properties that fueled interest by institutional investors last year in Miami’s CBD and resulted in record sale transactions — both in terms of volume and increasing price values.

“The top-performing Class A buildings are further distinguished by having nationally based anchor tenants — law firms, insurance agencies and banks, typically the largest office users in the CBD,” notes Eric Siegrist, leasing director and vice president at Jones Lang LaSalle. Bank of America and Holland & Knight has leased space at 701 Brickell, the submarket’s occupancy leader, while Greenberg Traurig has taken space at 1221 Brickell and Aon Risk is leasing at Brickell Bay Office Tower.

Fundamental indicators also remain stable in the downtown competitive Class A segment of the CBD, as key law firm tenants test the market. Law firms are doing their share to maintain healthy occupancy levels in downtown by renewing and expanding leases. In a South Florida Business Journal ranking of the “Largest Law Firms,” downtown boasts 11 of the top 25 and six of the top 10. The overall vacancy rate among the three competitive Class A office towers registered less than 7 percent with quoted prices on direct space popping up to $31.15 per square foot in the first quarter. Siegrist adds that this “reflects the relative ‘tightness’ of the submarket and the added pressure to meet higher pro forma rents as a result of recent and current building sales activity.” The wave of investment sale activity, however, is not quite over as the CBD has two buildings currently on the market: 1200 Brickell on Brickell Avenue and Bank of America Tower at International Place in downtown.

Hotel Scene

Cheeca Lodge & Spa – Islamorada, the Florida Keys: While the Keys have implemented a moratorium on hotel building, Miami’s inhibitions have resulted in relatively unrestrained hotel development.

“While the Miami lodging industry continues to come to terms with a prolonged funk, the Conch Republic to the south is enjoying an enviable run more typically associated with bull markets and increasing disposable incomes,” notes Gregory Rumpel, a senior vice president with Jones Lang LaSalle Hotels. The backdrop to the Florida Keys’ success has been a combination of geography, lifestyle and a moratorium on hotel construction. In contrast, Miami continues to deliver a superb tourist experience but has also had an unbridled supply of hotel development provided by enthusiastic developers.

The results have everyone concerned, particularly lenders who have seen continued erosion in profitability without any quick fixes being offered by seasoned and experienced hotel managers. Rumpel further indicates that the mantra has been, “Control costs, focus on the guest and wait for the market to recover… and, of course, we don’t need any more new hotels, thank you!”

The experience in the Florida Keys once again provides compelling evidence that the long-term health of the lodging industry is a delicate balance of “supply and demand.” Markets with limited development opportunities or high barriers to entry are much better equipped to shrug-off a sluggish economy, geopolitical risks and their associated neuroses. These same markets are the quickest to recover as they generally have less ground to make up.

The double jeopardy currently being played out in Miami’s lodging market is the weakness in demand running headlong into the ballooning supply of luxury hotels. The result — a disappointing performance posted by many outstanding hotels and their experienced management teams. The good news is that Miami is still the same sun, sand and sea sensation that it always has been. With Miami’s latest round of high quality hotel development nearing completion, it now boasts a greatly improved infrastructure and significant capacity. Rumpel adds that “the short-term prognosis may be painful, but if we take a slightly longer-term view of the market, fundamentals are well established for a continued vibrant lodging sector in South Florida.”

Scott Strickland is a leasing director with Jones Lang LaSalle.

Scarcity of Land in South Florida Presents New Retail Opportunities Tom Meredith During 2002, 1.2 million square feet of new retail space was built in the Miami area, and in 2003 an additional 700,000 square feet of space will come online. The majority of this space is being developed as neighborhood shopping centers to meet the needs created by South Florida’s steady population growth. South Florida’s above-average population growth, almost twice the national average, coupled with diminishing land will be key drivers in the retail and residential development slated for 2003. Due to the scarcity of land in South Florida, there is a trend toward remodeling or rebuilding older retail centers throughout eastern Miami-Dade County. In addition, the bankruptcies of Kmart, Jacobson’s and Mars Music in 2002 created some vacancies while providing redevelopment opportunities for big-box tenants or multiple local tenants divvying up the larger spaces. Some current redevelopment projects include the newly opened Plaza Alegre, an 88,111-square-foot neighborhood shopping center located at the southeast corner of Coral Way and S.W. 147th Avenue in Miami anchored by a Publix supermarket and Goodwill Industries. Another result of the scarcity of land is that developers are moving south for expansion opportunities. Homestead has become the market to watch. The area is experiencing significant growth in retail, commercial and residential building. Lennar Homes, a Miami-based homebuilder, Caribe Homes, Miami-Dade County’s largest private homebuilder and Landstar Homes, a family-based private builder all are actively involved in building communities in the southern Miami-Dade County area. Grocery-anchored shopping centers throughout the region continue to do well due to the basic consumer goods need they provide. There is an overall occupancy rate of about 97 percent in the sector. Some of the new retailers coming into the Miami market are Moe’s Southwest Grill, an Atlanta-based company with 22 restaurants currently in operation and 110 units scheduled to open in Georgia, North Carolina, South Carolina, Florida, Alabama, Mississippi, Texas, Tennessee and Virginia; and Curves, a Texas-based fitness center for women which is the largest fitness franchise in the world with over 5,000 locations in the United States, Canada, Europe and Mexico. Some of the current Florida retailers that are rapidly expanding include Petco, a leading retailer for pet supplies and CVS/pharmacy, which rapidly expanding with 14 stores in the tri-county area. Tom Meredith is vice president and director of leasing for Equity One Inc. in North Miami Beach, Florida.

Miami’s Retail Market Benefits from High Level of Activity Lynn Leonard Miami-Dade is the second largest county on the East Coast, with growth fueled primarily by immigration. Population is expected to reach 2.3 million by 2005, not including approximately 10 million visitors annually. Regionally, the area encompasses approximately 4.5 million residents and $110 billion of total personal income. With more than 50 foreign consulates, 23 international trade offices and 32 bi-national Chambers of Commerce, greater Miami is an international city. Emerging Trends in Real Estate named Miami as one of the top 10 markets for commercial real estate investment and development. Total retail sales in 2000 were $27 billion, which ranks 32 in a national ranking of metropolitan areas. A team of New York- and Boca Raton, Florida-based developers is developing the Buena Vista rail yard, the largest vacant development parcel left near downtown Miami. Diversified Realty Corporation has purchased almost half of the 56-acre tract, which will give the commercial developer its first sizeable presence in Miami. In a unique venture, two veteran real estate developers plan to convert a former EPA Superfund site owned by the city of Miami into a master-planned mixed-use community called Biscayne Landing, which will include residential units, a hotel, a park and a town center with restaurants and retail. Biscayne Landing, located on one of the largest remaining parcels of undeveloped land in Miami-Dade east of Interstate 95, could be worth up to $2.5 million to the developers and the city. The Swerdlow Group and Boca Developers have formed a joint venture, Preserve Partners LLC, to develop Biscayne Landing, which is expected to trigger a North Miami revival. The 190-acre property overlooks Biscayne Bay and the Atlantic Ocean and is located north of a nature reserve and Florida International University’s North Campus. The city plans to provide $20 million to the developers for remediation of the site. Gulfside Development is ready to begin construction on Downtown Dadeland, an urban retail and residential village with 115,000 square feet of retailspace, anchored by Pier 1 Imports, Cargo, Chili’s and Macaroni Grill. The residential component will consist of 416 condominium units ranging from $140,000 to $400,000. The development is across the street from Dadeland Mall, a 1.4 million-square-foot mall anchored by Burdines, Burdines Home Gallery, JC Penney, Lord & Taylor and Saks Fifth Avenue. The area is located on Kendall Drive between U.S. 1 and State Road 826, 20 minutes from downtown Miami. Miramar, located just north of North Miami Beach, is gaining several new shopping centers, including a 175,000-square-foot SuperTarget, a Winn-Dixie Marketplace and the Shoppes at SilverIsles. Despite the protests of local homeowners, the SuperTarget will be built just east of 172nd Avenue on Miramar Parkway. The Winn-Dixie Marketplace, located on the northeast corner of 172nd Avenue and Miramar Parkway, is scheduled to open in December. The Shoppes at SilverIsles, a 27,000-square-foot Eckerd-anchored center, will be built on 10 acres at the northeast corner of Dykes Road and Miramar Parkway. New York loft developers Michael and Gil Dezer plan to transform a neglected 2-mile strip of low-end commercial development in Sunny Isles Beach into high-end condominium towers. Retail development in the area is expected to benefit from the condo development. A subsidiary of Courtelis Company is developing a shopping center in International Corporate Park in Miami-Dade County. The project, located at Northwest 19th Street and 107th Avenue, will include a Pier 1 Imports and Bed Bath & Beyond. South of Miami, in Redmond, Zamora Corporation is developing a Publix-anchored shopping center on 13 acres near Southwest 200th Street and 125th Avenue. The development was denied by residents twice in the past 5 years, but was approved recently after developers agreed to downsize the project. Significant acquisitions include Woolbright Development Group’s purchase of The Fountains Shoppes in Plantation, north of Miami, for $44 million. The seller was The Frank Company of St. Louis. The Fountains is a 415,000-square-foot community shopping center anchored by a Marshall’s Mega Store, Circuit City, Chili’s, Olive Garden and Red Lobster, and is located on University Drive adjacent to the Broward Regional Mall. A private Pennsylvania investor bought Weston Town Center from Arvida for $34.4 million. The 157,898-square-foot lifestyle center sold for $34.4 million, a $217 per square foot deal with few national credit tenants. Inland bought the Publix-anchored Paraiso Plaza in Hialeah from U.S. Retail Income Fund III for $9.65 million. Wharton Realty acquired Miami Gardens, a 112,141-square-foot Winn Dixie-anchored center from FIRC Group. Causeway Plaza in North Miami and Biscayne 162 Plaza in North Miami Beach recently sold for $17.85 million. Plans are underway to upgrade and reposition Causeway Plaza, which has a vacant 35,000-square-foot anchor space once occupied by Mars Music. In April, an offshore investment trust purchased The Shoppes at Parkland, a 145,652-square-foot neighborhood center in Parkland, Florida, from The Goodman Company for $20 million. BJ’s Wholesale Club anchors the center, situated on 20.7 acres of land and completed in 2002. Lynn Leonard is vice president of marketing with NewBridge Retail Advisors.

©2003 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.