The South Florida region encompasses three connected, yet very different counties: Miami-Dade, Broward and Palm Beach. Latin American-focused businesses, urban sprawl and corporate relocations contribute to the growth of this region. Although the commercial real estate markets in each of these areas have struggled since the spring of 2001, more so after the tragic events of September and the ensuing war, the overall outlook is bright.

Caution is still an important element, however. As media and economists report on the recovering economy, there is a tremendous amount of pressure on chief executive officers to keep a watchful eye on profits during this questionable time.

Not since the dramatic real estate recession of the late 1980s has the industry been impacted on a national level as in recent months. Transactions that were in the works dried up, corporate funding became unavailable and tenants elected to remain in their existing locations or shopped for the best landlord concessions. Speculative development in the office and industrial sectors of South Florida came to a standstill, and the amount of available sublease space skyrocketed due to bankruptcies and consolidations. In Miami-Dade County alone, the overall office vacancy rate increased from 12.9 percent to 13.4 percent in the first quarter 2002, and the vacant office sublease space increased by nearly 68,000 square feet, according to statistics compiled by Codina Group.

Regional developers, property owners and brokers remain optimistic about the second quarter of 2002 and are already seeing signs of increased activity in South Florida. Despite the slow pace at which transactions are closing, some corporate indecision is easing, and local experts predict that the second and third quarters will be the time when many pending transactions close.

Miami-Dade County

When the U.S. entered the economic recession last year, Miami-Dade County was among the last areas to feel its effects. Buffered by the strength of Latin American businesses expanding to the region, Miami had a productive 2001 with many Latin American companies establishing U.S. headquarters and U.S. multinationals locating Latin American branch offices in Miami. Proximity and ease of access to and from Latin America continue to make Miami an attractive option for multinational and pan-regional companies. Corporations such as Telefonica and Mattel established major operations in the county in late 2001.

Although Miami was spared the immediate effects of the weakened economy, the city did eventually feel the impact. In March, Barclays Financial announced it would consolidate 90 percent of its Latin American headquarters in Miami's Brickell Avenue business district and relocate to New York, leaving 75,000 square feet on the market. AT&T also announced it would consolidate its Latin American headquarters to Washington, D.C., and vacate 20,000 square feet in the Coral Gables central business district (CBD).

Also in the first quarter, the Omni Center -- repositioned from its previous incarnation as a high-technology facility -- added The Art Institute to its tenant roster with a long-term, 100,000-square-foot lease. The move supports claims by city of Miami officials and South Florida developers of a downtown revitalization. There is currently 460,000 square feet of office space under construction in the downtown and CBD, but the market remains soft.

The industrial and build-to-suit niches of west Miami-Dade County continue to be hot spots. Airport West has a 10 percent vacancy rate and is retaining most of its major tenants, including freight forwarding companies such as Forward Air, and adding new tenants, such as FMI International. The sublease market is saturated and increased by nearly 15,000 square feet in first quarter 2002; however, there are strong signs of a quick rebound. With the proliferation of freight forwarding and logistics companies, this submarket may be affected by a 9.6 percent decrease in air-cargo volume among U.S. member airlines, as reported by the Air Transport Association. This decline is a disappointing sign in an otherwise optimistic market.

The Airport West submarket is also ripe for build-to-suit projects, and Codina Development has broken ground on an office project for the U.S. Government's General Services Administration at Beacon Station, one of the largest mixed-use business parks in the Southeast. Both Delta Airlines and Ryder Systems are in the market for large spaces -- Delta for a call center and Ryder for its headquarters relocation.

Because Miami-Dade County's economic dependence on Latin America weighs heavily on the success of many of its industries, developers and brokers alike will watch international trade and business carefully. With industries such as manufacturing, information technology and biotechnology already in a state of economic recovery, Miami-Dade County's real estate sector is expected to follow suit.

Broward County

A high-quality expressway system, positive traffic flow, good school systems and increased rooftop sales continue to make western Broward County -- specifically Weston and Sunrise -- the shining star of the county's commercial real estate market. A total of 26,000 square feet is currently under construction in the Weston and Sunrise submarkets, and vacancy rates are high due to notable bankruptcies and consolidations. However, local experts believe that a rise in activity in the first quarter will soon result in a significant number of transactions in the office and industrial sectors.

Sawgrass Commerce Center, Sawgrass International Corporate Park and Weston Park of Commerce currently have the most vacant space, but they also provide the most amenities. In previous months, these business parks have brought in major corporate tenants.

Conversely, the eastern submarkets of downtown Fort Lauderdale and Cypress Creek are not seeing any true increase in tenant interest or activity and will have to wait until at least the fourth quarter of 2002 to begin overcoming a combined 2.14 million square feet of vacant office space.

While Weston and Sunrise are the highlights of the region, they are also the paradoxes of the industrial market. Both submarkets are experiencing more tenant interest and have strong residential development, which is often the driving force behind commercial real estate development. Rental rates are holding and are expected to remain steady. At the same time, vacancy rates are high and sublease space is running rampant. For example, Circuit City recently closed its 260,000-square-foot distribution center to consolidate its southeastern operations as a response to corporate cutbacks and store closings.

A new headquarters for City Furniture in Tamarac and a distribution center for Rooms To Go at the Corporate Park of Coral Springs are creating a renewed interest in those Broward County submarkets. In Coral Springs alone, there is currently 43,000 square feet of industrial space under construction.

The county overview shows that companies are still waiting for stronger signs of economic improvement before committing to new corporate space. In light of Broward County's centralized location, the market should recover slowly and remain stable through 2002.

Palm Beach County

While in close proximity to Miami-Dade and Broward counties, the Palm Beach County market holds unique differences. 2001 brought some sizeable transactions, including the heralded return of IBM, which left the Boca Raton area 10 years earlier. IBM's 160,000-square-foot build-to-suit project was a boost to the community and area businesses. Overall, there was a record 1.1 million square feet of new office construction delivered in Palm Beach County last year.

Southern Palm Beach County's residential market barely sputtered in 2001, so the area was not as hard hit as others. Today, transactions are in the pipeline, the market is returning to normal and there are many positive signs that this trend will continue. Absorption in the office arena increased to more than 126,000 square feet in the first quarter of 2002 from 75,459 square feet at year-end 2001.

Mizner Park, a long-standing pinnacle of retail and office success in Boca Raton, today has 20 proposals out for new tenants. Inquiries regarding Boca Raton's downtown area are coming in from companies in New York, New Jersey, Boston and Chicago for corporate headquarter relocations.

The dot-com implosion, mergers and acquisitions caused the majority of the area's vacancy. For example, Tyco's purchase of Sensormatic left a large amount of available office space on the market. Certain blocks of space, such as Blue Lake Corporate Center, IBM's former campus, boast low rent, power redundancies and large available tracts that will attract quality tenants.

The industrial market in Palm Beach County is small and changing. In Boca Raton, for example, developers are converting much of the traditional industrial space to flex and office space, and the county's total inventory is 33 million square feet. Residential growth in the area is continuing and local experts predict a quick recovery.

Palm Beach County has been more insulated from the national economic recession than neighboring counties. Deliberately slow development has helped to maintain low vacancy rates and healthy rents of approximately $7.70 in the industrial market and an average $23 to $24 per square foot for office space. Based on the currently sound market, Palm Beach County is expected to rebound quickly and stay tight throughout 2002.

John Geisen is president of real estate services for Codina Group Inc., in Coral Gables, Florida.


©2002 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.