Since the mid-1930s, the city of Boca Raton, Florida, has been synonymous with an affluence and a strong economy that has bucked many national trends.

That situation is certainly true today. While not immune to the current economic downturn, Boca Raton is somewhat insulated from the forces that impact other areas of the country. The local real estate market has remained remarkably resilient in most sectors, reflecting the city’s strong economic reputation.

Boca Raton came alive from a business standpoint in the 1960s, when IBM established a presence for developing the personal computer. “Big Blue” pulled out in the late 1980s, but by then Boca Raton was strongly entrenched as a diverse business environment for corporations, start-ups and tourist-related businesses.

Supporting the current business community is a population of approximately 195,000 in the greater Boca Raton area. This growing population is a healthy mix of families, retirees and tourists. In addition, out-of-state professional services firms, growing manufacturing operations, high-tech companies and others continue to establish footholds in the area, resulting in demand for a wide range of commercial real estate — flex, Class A and B office and warehouse.

The city is also an example of “new urbanism,” characterized by the dynamic redevelopment of the downtown area. The transition from suburban living in the western areas of Boca Raton to the more urban setting downtown is gradual, spanning roughly 10 miles as one heads east toward the ocean.
To understand the Boca Raton market, one must place it in a national context. The area’s reliance on tourism, retirees and “clean” industry makes this a very healthy economy. Likewise, the high-tech sector is rebounding and the strength of other sectors, most notably tourism, has kept unemployment at a rather low 4.2 percent.

Boca Raton is part of the economically strong Sun Belt, with Florida offering one of the region’s strongest real estate markets. Narrowing the scope, it is apparent that South Florida is one of the most economically sound regions within the state. And on a more micro level, Boca Raton represents one of the nation’s strongest local real estate markets.

The Greater Boca Raton Chamber of Commerce, the Boca Raton Downtown Development Authority and the Business Development Board of Palm Beach County have helped create a receptive environment for both large and small businesses.

Office

The Boca Raton office market is extremely diverse. For example, in the west part of town there is a growing number of small two- and three-story Class B and C buildings housing neighborhood-oriented businesses that include physicians, dentists, small law firms and accountants, among others. Because of the strong residential base, leasing rates remain stable and vacancy rates are low.

Moving east, there is a rapid transition to more sophisticated Class B and Class A space. Buildings tend to have large atriums, restaurants and other services that cater to businesses hoping to make a statement through location.

Downtown a Gem

Downtown Boca Raton has undergone a major redevelopment that has made it a model of new rubanism, a term coined by Time Magazine for a concept recognizing the value of revitalizing urban areas by integrating retail, social and workplace components.

This area of Boca Raton, encompassing approximately 344 acres, is an example of how these components support each other. The centerpiece is Mizner Park, a mixed-use area featuring fine restaurants, upscale stores, offices and luxury rental apartments. The opening in 1991 was the catalyst for additional office development and the creation of a growing downtown financial district.

Today, Boca Raton has approximately 11 million square feet of office space. As of mid-2002, the overall vacancy rate was 17.1 percent. This may seem high, but projections indicate that by the end of this year that number will significantly diminish, due to a lack of new construction.

Among the few new construction projects in Boca Raton is Bryason Corporation’s Class A office complex, 595 Financial Center. This project involves renovating an existing building and constructing a new one on an adjacent site. Located at 555 and 595 South Federal Highway in downtown Boca Raton, the complex will have approximately 116,000 square feet of office space.

The first step in this project was the renovation of the 33,000-square-foot Coldwell Banker Building, formerly the Arvida Building. This building received complete interior and exterior upgrades, including a new exterior façade, redesigned lobby, elevators and other common areas, and enhanced mechanical systems.

Construction of the adjacent 595 Financial Center is scheduled to begin in the fall of 2002. This six-story, 83,000-square-foot building will feature covered parking, valet services, a bank drive-thru facility and state-of-the-art telecommunications. This financial center will have street-side landscaping, a large central courtyard, barrel tile roofs, brick highlighted driveways and expansive windows that maximize views of the downtown area and the Boca Raton Resort and Golf Course. Bryason is in final stages of negotiations with the anchor tenant, a major financial institution.

Bryason is also set to break ground in early fall in the Military Trail corridor of East Boca Raton on a 24,000-square-foot Class A office building that will serve a single tenant. As with 595 Financial Center, the tenant will be a major financial institution.

Pre-leasing of anchor tenants for both the 595 Financial Center and Military Trail projects indicate a strong outlook for leasing activity in the coming months.

This overall optimism for the area is reflected in commercial renovation, residential construction and cultural improvements. These components are mutually supportive, making this an attractive location for those seeking Class A office space, retail locations and restaurant sites. The following are highlights of some of the recent activity:

w Renovation of Royal Palm Plaza, a 250,000-square-foot retail center;
w Construction of Boca Grande, a 164-unit apartment complex with 20,000 square feet of retail space;
w Construction of the Centre for the Arts amphitheater at the north end of Mizner Park;
w Construction of Palmetto Place, a 225-unit luxury condominium project on Mizner Boulevard;
w Construction of Townsend Place with 195 condominium units in two nine-story buildings on Mizner Boulevard.

Industrial

Boca Raton’s industrial market is relatively small with approximately 8.4 million square feet of space. While the city is feeling the effects of the economy with slow industrial leasing activity as compared to 2 or 3 years ago, vacancy rates are only in the single-digit range. The industrial market has not been hit as hard as the office market. There hasn’t been significant vacating activity since IBM pulled out in the late 1980s, which resulted in a temporary 40 percent vacancy rate.

Most of the main office parks are out of land and there is limited land available elsewhere in the area, curtailing development of additional industrial space. As a result, when leasing activity picks up again, the area should see an increase in rental rates.

Today, small distributors, private companies and high-tech firms lease most of the industrial space in Boca Raton.

Retail

Boca Raton’s retail market is still very strong with a vacancy rate of about 5 percent. Although we can see some softening, Boca is somewhat insulated as compared to the national economy. Retailers had a banner year in 1999 but haven’t fared as well since then. Nevertheless, Boca Raton has a healthy retail market.

Retail rental rates are higher in Boca Raton than anywhere else in Palm Beach County, with the exception of Worth Avenue on Palm Beach. Rates range from $22 to $26 per square foot. In general, Palm Beach County is one of the highest upscale retail-intensive locales in the nation. The retail space ratio is 25 square feet per person, compared to the Florida and national averages of 19 square feet per person.

In downtown Boca Raton the landmark Royal Palm Plaza is undergoing a major redevelopment and expansion to convert it to a mixed-used complex. The Town Center Mall has completed its expansion and is 100 percent occupied with mostly high-end national tenants seeking a presence in Boca Raton.

Investment Sales

Boca Raton is statistically seeing the greatest amount of institutional and private investor appeal in all of Palm Beach County. Retail property, which is experiencing from 90 to 95 percent occupancy rates, is in the highest demand, creating a classic sellers’ market.

Bryason has seen signs that institutional investors are looking to real estate rather than the volatile stock market. With that in mind, it is clear that Boca Raton is on their radar screens. For example, Atlanta-based developer Songy Partners Ltd. and Boston-based real estate and private equity firm Charlesbank Capital Partners recently purchased the 150,000-square-foot Sensormatic headquarters for $9.5 million. This indicates that while leasing activity is soft for the short term, sales activity is hot. Capital continues to stream in regardless of economic uncertainty in other areas of the country.

Boca Raton’s true value lies in the fact that the area has historically performed well during periods of economic downturn. Additionally, its demographics, strong labor pool, quality of life and proximity to Fort Lauderdale, Miami and West Palm Beach are favorable factors among corporations and small businesses looking to relocate.

Buffered by strong population growth, Boca Raton’s retail market is performing better than expected despite the sluggish economy. Retail investment is well-regarded since rental rates have increased 2.4 percent in the last year.

Investment interest in retail is strong, but investors have to hunt for the limited opportunities. There is frequent turnover of properties, and the average life cycle of assets lasts only 3 to 5 years. Typically, investors are eager to make a quick return to meet their overall investment goals and then reinvest in new opportunities. Some are taking greater risks by selling their retail holdings and buying into the office market at the lower prices in hopes of future growth.

Hospitality

With 4,800 hotel rooms, Boca Raton is relatively limited in hotel space (by comparison, the MGM Grand alone in Las Vegas has 5,005 rooms). Still, Boca Raton boasts a 71 percent occupancy rate, well above the national rate of 63.3 percent.

Convention business is very strong, led by The Boca Raton Resort and Club, the largest hotel in the county. It boasts a $40 million, 128,000-square-foot meeting and conference facility accommodating up to 1,800 people. This facility enables the hotel to keep occupancy rates strong, even during the off-season.

The events of September 11, 2001, had a strong impact on Boca’s hotel industry, causing occupancy rates to plummet. Rates are currently on the rebound, but companies are taking a wait-and-see attitude before committing to new development.

Dining is healthy due to the relatively affluent year-round population. In the west, the sports bar concept is very strong, with pricier, more upscale restaurants in the eastern part of the city — in Mizner Park, Royal Palm Plaza and along Palmetto Park Road and Federal Highway.

Charles Shane is president of Bryason Realty Corporation in Boca Raton, Florida.


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