REPORT: Renewals Dominate List Of Top 100 Office Leases

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Existing office leases are being renewed at high rates and new leases are mostly going to Class A or Class A+ space, according to a new report from CBRE that analyzes the top 100 lease signings in 2023.

CBRE’s report showed that 58% of those leases – by number and by square footage – were renewals of expiring leases for the same space.

As for the flight to quality, 84% of new leases sought those accommodations.

The average lease size is down 12% from a year ago and government buildings had the most presence on the list with 19, topping last year’s highest category, finance & insurance, which accounted for 13 of the top leases. Technology had 11 and legal had 10.

Mike Watts, CBRE President of Americas Investor Leasing, said in prepared remarks that companies “are striving for the most efficient use of their space as they adapt to hybrid work, and they’re often choosing to do so in the best-quality space.”

He said another dominant trend was “containing costs amid an uncertain economic outlook.”

The report also inferred that companies are wanting higher quality space in better locations to provide “additional motivation for employees to work from the office more often.”

The Northeast and Pacific regions accounted for most of the top 100 leases by total square footage, according to CBRE. Manhattan, Silicon Valley, and New Jersey had a combined share of 41%.

The six largest shares of the top 100 by square footage were claimed by coastal markets, including Manhattan.

 

Source:  GlobeSt.

Boca Attracting Some Of The Highest Office Leasing Activity

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Boca Raton’s office leasing activity led the way in South Florida in 2022 and 2023, surpassing some more populous cities in the tricounty area, according to a recent analysis. It’s yet another indicator of the city’s growth — as well as the demand for office space across the region in a remote-working era.

Boca Raton’s total significant leasing activity last year was higher than any other city in Palm Beach County, according to recent data compiled by the city’s Office of Economic Development and originating from Colliers 2023 Quarterly Office Reports.

“We have led the county in 2022 and 2023 for significant leasing activity,” said Jessica Del Vecchio, Boca Raton’s economic development manager. “What that means is we’ve leased more square footage from the commercial office side of the business than any other city in Palm Beach County.”

Del Vecchio believes the surge of leasing activity began as the world began to emerge out of COVID-19 constraints. The pandemic triggered heightened interest in South Florida in general, she said, which has especially flourished in Boca Raton.

Boca Raton has a “built-in workforce,” Del Vecchio said, a product of the universities dotting the area, namely Florida Atlantic University, Lynn University and Palm Beach State College.

“We have a lot of smart, well-educated, talented people here, and I think that’s what the draw is that sets us a part in South Florida as a whole,” she said. “It’s so important to be by where the workforce is when you’re bringing a company into an area.”

The COVID-19 pandemic also proved the feasibility and success of a hybrid working model, making opportunities like physically working in Florida for a New York-based company possible.

“We don’t have to work on Wall Street,” she said. “We can keep a presence on Wall Street, but we can relocate to an area that we want to be in, that’s low taxes.”

The leasing activity momentum continues into 2024 with the announcement of six lease agreements at the Boca Raton Innovation Campus, or BRiC.

On Jan. 18, the CP Group, the developers behind the revitalization efforts to BRiC, announced in a statement four new tenants and two lease renewals with one expansion.

Those six tenants are: Engineering Express, a structural engineering firm; Hollywood.com, an entertainment company; LandAirSea (LAS), a GPS tracking system manufacturer; MODE Architects, a full-service architecture and design firm; EdgeMed, a revenue cycle management platform for medical organizations, and Orchid Bay Financial Holdings, an investment firm, which is also renewing its lease.

This is one part of a $100 million project to transform the former IBM facility into an illustrious campus full of contemporary amenities along with residential units, a hotel, restaurants, retail and more.

“We are continuing to see an influx of cutting-edge companies flocking to South Florida in search of flexible, yet turnkey, workspaces to meet the needs of their employees,” said Michael Perrette, general manager for BRiC, in the statement.

BRiC is yet another component of Boca Raton’s growth, which is only projected to progress as other projects such as the Center for Arts and Innovation continue to advance, and people keep taking advantage of recent additions to the city, such as the Brightline service.

“We are poised on making ourselves attractive to new investment and we engage our community stakeholders in conversations,” Mayor Singer said. “I think employers want to see a city like ours poised on what’s ahead for the next century.”

 

 

Source:  SunSentinel

South Florida’s Office Sector May Be Cooling Off, But the Forecast Remains Sunny

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By Eric Messer

South Florida’s commercial real estate market for the first time demonstrated signs that it may be starting to feel the impacts of the Fed’s interest rate hikes to restrict inflation that began in March 2022.

The region’s office supply barely outpaced demand in South Florida as a whole, but results differed across asset type, location and in urban versus suburban areas, with Class A office in Miami’s central business district outperforming most of the region’s benchmarks.

Overall, the South Florida office market recorded 57,000 square feet of negative absorption in the first quarter of 2023. This was noticeably down from the nearly 383,000 square feet absorbed during the same period one year ago.

Vacancy also ticked upward 10 basis points from the previous quarter, but was down from the 15.3 percent reported at the close of the first quarter last year. New lease deals declined, totaling 1 million square feet of activity, down from the 1.6 million square feet transacted in the previous quarter and well below the 2.2 million square feet leased through the first three months of 2022. Broken out by county, Miami-Dade and Palm Beach counties both saw a similar drop with leasing activity falling just under the 50 percent mark from one year ago to 566,000 square feet and 249,000 square feet, respectively. Broward County had the sharpest drop as new deals were down 64 percent from one year ago to 204,000 square feet for the first quarter of 2023.

It’s no surprise that Miami-Dade County continued to make headlines and lead office demand throughout the tri-county area with nearly 125,000 square feet of positive absorption as vacancy fell 30 basis points year-over-year. This marked one of the strongest performances in the country — Miami recorded greater quarterly occupancy gains than any market in the South or West.

Broward County on the other hand experienced a more balanced performance, returning a minuscule 27,000 square feet of increased office space back to the market during the first quarter with vacancy only rising 10 basis points from the previous quarter. During 2022, Broward recorded a more substantial rise in vacancy when construction completed on the state’s largest project of the year, the 277,000-square-foot Optima Onyx Tower which remained almost 90 percent vacant in the first quarter of 2023.

Palm Beach was the county that took the biggest hit, with 144,000 square feet of net occupancy losses, the majority of which came from the exit of Newell, which vacated 100,000 square feet at in a Boca Raton submarket. The county’s vacancy stood at 11 percent, up 30 basis points from the previous quarter’s record-low rate, but still down 130 basis points year-over-year.

Top of the class

Two trends that have held throughout South Florida’s office sector overall included the flight-to-quality and desire for proximity to a downtown location. Class A space dominated in new leasing activity in the first quarter of 2023 with over 700,000 square feet of deals signed for high-end space, making up over 70 percent of South Florida’s office leasing transactions. Demand for these spaces continued to outpace supply within the region’s central business districts by a modest 20,000 square feet during this year’s first quarter.

Notably, Miami-Dade County’s central business district led in demand performance with nearly 79,000 square feet of absorbed space. Broward County’s central business district followed suit with 26,691 square feet of positive net absorption, while Palm Beach’s downtown submarket was, again, the only central business district to see a return of 17,735 square feet in supply. At first glance, it appears as if the downtown submarkets are seeing a slowdown in demand growth, but these modest numbers are more indicative of the lack of available space within key trophy buildings in the region’s central business districts. Downtown Miami led all submarkets in Class A leasing activity with over 168,000 square feet of deals signed during the first quarter. Downtown Fort Lauderdale also led in Broward County and followed closely behind Miami’s downtown area with 69,000 square feet.

Like leasing activity in the region’s key central business districts, office vacancy rates in the first quarter of 2023 also fluctuated by submarket and asset type. West Palm Beach’s downtown vacancy rate of 11.3 percent was the lowest throughout the region, while Class A space vacancy stood at 9.1 percent and is projected to hold until new construction is completed, which will be in 2024 at the earliest.

Miami’s overall vacancy rate of 13.3 percent in the central business district’s Class A office sector includes secondary older buildings that may not be considered “trophy.” When removing the A-minus buildings out of the inventory set, vacancy falls to around the 10 percent mark, and if isolating that figure to depict only the Brickell submarket, it falls even further to 9.1 percent. Broward County held the highest vacancy rate for any of the central business districts in the region with 18 percent at the close of the first quarter, but vacant space in the Las Olas Corridor fell to the 14 percent mark. Demand for high-end inventory pushed first-quarter asking rents past the $100-per-square-foot mark for both Miami-Dade and Palm Beach Counties while downtown Fort Lauderdale asking rents peaked over the $70-per-square-foot mark for the first time in recorded history.

Suburbia

Suburban submarkets told a slightly different story for office and continued to see a stronger return of supply with 77,000 square feet of negative absorption throughout the region at the close of the first quarter. Broward County’s suburban submarkets totaled over 54,000 square feet of negative absorption in the form of smaller tenants downsizing or moving out. Miami’s suburban sector was the only one to record positive net absorption in the first quarter, combining for more than 113,000 square feet, with the Airport West submarket making up over 60 percent of that total. This aided in allowing the 15.7 percent vacancy rate throughout the South Florida region’s suburban areas to hold level from the previous quarter and year-over-year. First-quarter leasing activity totaled over 772,000 square feet in South Florida’s suburban submarkets, a noticeable decrease from the nearly 1.6 million square feet leased during the same period one year ago.

What’s coming

The construction pipeline for office product is also beginning to dissipate across much of the country, but more than 2.3 million square feet of construction remained underway across South Florida at the close of 2023’s first quarter. Nearly two-thirds of this product was in Miami-Dade County — almost 40 percent of which came from 830 Brickell — and the remainder in Palm Beach County. The limited amount of new supply should keep vacancy well below the 20 percent threshold, signifying a more friendly tenant market during lease negotiations.

Ask and you shall receive

Finally, asking rents continued their record climbs, with all counties experiencing new peaks. South Florida’s overall average asking rate increased 3.4 percent year-over-year to $44.32 per square foot full service at the close of the first quarter in 2023. Palm Beach County led the region in growth, escalating 6.4 percent to $44.40 per square foot full service, while Broward County followed suit with a 4.8 percent year-over-year hike to $38.04 per square foot full service. Miami-Dade County’s growth noticeably slowed in comparison to the past three years, with a 3.3 percent increase year-over-year to $48.89 per square foot full service and can be attributed to the limited amount of available space in higher-tier Class A buildings. This allowed asking rents from lower-tier Class A and Class B office buildings to have more of an impact on average rates than previous quarters.

While many of the region’s office market fundamentals saw a slight shift this quarter, the numbers along with the region’s continued popularity as a spot to live, play and work all contribute to a favorable outlook for South Florida’s performance throughout the second half of 2023.

 

 

Source:  Commercial Observer

Some South Florida Suburban Offices Will Be Redeveloped

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South Florida’s office market will continue outperform most parts of the nation, but some buildings will fail or be redeveloped, a commercial real estate advisor said.

David Duckworth, a principal of Avison Young‘s Fort Lauderdale office, said while there are predictions of nationwide commercial mortgage backed security defaults in the office sector, quality office buildings in South Florida continue to attract companies. At least for now.

“The news is worse than the reality at the moment,” Duckworth said. “People are … anticipating that things will get pretty bad, but down here it is not that bad yet. Vacancies are in the mid-teens in the tri-county area. That’s not great. But it’s not run-for-your life terrible either.”

Duckworth said new-to-market and local businesses are still seeking office space with amenities that will encourage employees to return to work. This “flight to quality,” Duckworth said, will create a two-pronged office market.

On one side are the Class A office buildings, particularly in urban centers and downtown areas, which “will be just fine.”

On the other are suburban Class B and Class C offices that were often used as operation call centers. “Those places will be in a lot of trouble,” Duckworth said.

Lenders, though, are reluctant to back any sort of office product of any class or of any locations. “They’re lumping all office into one bad bucket,” he said.

“There are still buyers of office product, but debt is very expensive and challenging,” Duckworth said. “People who have purchased or refinanced … are having a hard time when debt comes due, and their debt will be 100 or 200 basis points higher than when they received the debt. They might have to add additional capital to refinance.”

Nationally, office transactions plummeted 58.6% in the first quarter of 2023. According to recent market reports from Avison Young, investors are buying less office product in Broward and Palm Beach counties.

In Broward, office sales volume fell 56.6% year-over-year to $107.8 million. The price per square foot also fell 6.63% from last year to $205.05 per square foot.

In Palm Beach County, office transactions totaled $100 million in the first quarter, a decline of 25.7% from the last quarter and a drop of 78.5% from last year. Price per square foot for office product fell 17.55% from last year to $230.88 per square foot.

But in Miami-Dade County, the $147.2 million in office transactions in Q1 2023 was 10.5% higher than the end of last year, Avison Young stated. Office product also sold at an average of $365.03 per square foot, a 16.34% increase from last year. However, in the second and third quarters of 2022, office product traded at rates above $270 per square foot, according to graphs from Avison Young. In short, Miami-Dade saw the first drop in price since the Federal Reserve started raising interest rates.

Still, many of the office products acquired will be repurposed for other uses, Duckworth said.

In other cases, developers will add residential and retail to an office product to make it more valuable. For example, WRC Properties plan to add up to 800 apartment units to the 250-acre Waterford Business Park in western Miami-Dade. And Pebb Enterprises and BH Group want to add residential to the 29-acre Office Depot (Nasdaq: ODP) they recently acquired for $104 million.

“It is a trend we will see more and more of, office buildings excess parking areas for other uses,” Duckworth said.

Suburban areas, such as Cypress Creek in Fort Lauderdale, also will see office product demolished and replaced with residential uses, he added.

As time goes on, Duckworth said there will be “some foreclosures” of office buildings by landlords unable to finance or sell their products. But it won’t be anywhere near as rough as it was in the economic downturn of 2008 and 2009.

“I don’t see that much doom and gloom, but six months from now that may look different, but that doesn’t feel that way right now,” he said.

 

Source:  SFBJ

 

Recession Threatens To Slow South Florida’s Booming Office Market

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Office deals in South Florida appear to have slowed as companies reassess their growth strategies, a Colliers broker told the Business Journal.

Mark Rubin, executive managing director of Colliers’ Boca Raton office, said some companies are rethinking their expansions due to inflation and a looming recession.

“New office requests have been tempered a little bit,” Rubin said.

It’s a national trend that seems to have just arrived in South Florida, where quality office space is in limited supply. Nevertheless, there has been “a little bit of a pause” locally, he said.

“This started right before the summer with interest rates,” Rubin said. “The cost of capital went up. I don’t think there’s a significant slowdown. I think there has been a lot more reflection and readjustment.”

He’s optimistic that there will be a “little more action” after Labor Day.

“We are anticipating a strong fourth quarter in the form of sales and leasing,” Rubin said.

South Florida’s commercial market has benefitted from the migration of wealthy individuals to the region from other states. This trend accelerated during the height of the pandemic due to the regions decent weather, absence of Covid-19 regulations, and lack of a state income tax. In the office sector, rents have increased in all three counties as more out-of-state companies seek to open satellite branches in the region.

Kevin Gonzalez, senior managing director of Miami’s Colliers office, said that the Miami-Dade office market is benefitting most as out-of-state companies expand to Miami.

“The Citadel news will continue to feed the momentum that we have already been seeing,” Gonzalez said, referring to the news that billionaire Ken Griffin will move the headquarters of his Citadel companies from Chicago to the Magic City.

That’s clear in the rents office landlords are asking from tenants.

In Broward County, average asking rents were $37.06 a square foot in the second quarter, a 7.5% increase from the previous year, and a 21.5% hike from 2019. Broward’s vacancy fell by one percentage point in the span of a year to 11.7%, but it was still higher than the pre-pandemic vacancy rate of 9.4%.

Jonathan Kingsley, executive VP of Colliers’ Fort Lauderdale office, said there was robust leasing activity in the second quarter for most of Broward.

However, several call centers in the Southwest Broward and Sawgrass Park area shrank their offices or closed down entirely as they either moved employees overseas or had them work remotely, Kingsley said. In those areas, vacancy rates climbed as high as 18.3%, according to Colliers’ figures.

in Palm Beach County, the second quarter vacancy rate of 9.1% was actually lower than before the pandemic. In the second quarter of 2019, 9.6% of Palm Beach County’s office space stood empty. The average asking rents of $39.24 in the second quarter were 9.1% higher than last year, and 22% higher than rents requested in 2019.

Rubin said that vacancies in Palm Beach County are limited to older buildings. The newer buildings, mainly in downtown West Palm Beach, are targeting companies from New York and California that “are used to paying $75 to almost $100 triple net rates.”

That’s caused other office tenants to explore suburban markets outside of downtown West Palm Beach, where rents are comparatively cheaper. But those rents are generally going up as well, Rubin said.

“We got strong demand. We got limited new supply and that’s obviously pushing rental rates significantly across the board,” Rubin said.

 

Source:  SFBJ

 

Broward Vice Mayor Addresses SFOBA on June 10, 2021 – 5 Key Takeaways

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In only our second live event since the onset of the pandemic. Prisma Cypress Creek, Levy Realty Advisors and Ken Silberling were honored to present Broward County Vice Mayor Michael Udine. The Vice Mayor emphasized that Miami has the sizzle as an international tech hub. But Broward has been “getting ours.”

Many firms touting their moves to Miami for the PR recognition are actually settling in Broward County. Udine says it makes sense not to fight what is happening in Miami, because the whole region benefits. Udine has championed the cause of bringing tech and venture capital firms to greater Fort Lauderdale with the help of the Greater Fort Lauderdale Alliance. Alliance Senior Vice President David Coddington also added to the conversation supporting Udine’s position that there is “insane demand” throughout South Florida.

A two minute “highlight reel” and Udine’s full 9-minute presentation can be found at kenstrends.com

Prisma – featuring our renovated lobby and common areas

For more information on our sponsor, Prisma Cypress Creek, you can find virtual tours, brochures, floorplans and an interactive map at www.prismacypress.com . Prisma is a newly renovated boutique office building just off Cypress Creek and Powerline Roads in Fort Lauderdale’s uptown market. Spaces are available from 1,327 to 5,678 square feet.

Also thanks to Gus Martinez, Steve Einhorn, and Peter Palmer for helping us to remember our great friend Richard Gerber, a fixture in the local real estate community, family man and master networker. We will all miss him.