Recession Threatens To Slow South Florida’s Booming Office Market
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
