Why Now Might Be The Best Time To Sell Your South Florida Office

By Mark Rubin

Conventional wisdom says “don’t sell an office building during a pandemic, unless you’re desperate”, but I’d like to offer a contrarian view to owners who are strategically evaluating how best to capitalize on current investment market conditions.

Do you own an office building that is located in a desirable South Florida submarket?

Is your building well-leased to strong, rent paying tenants, with limited near-term lease expirations?

Does the tenant mix include medical, life science or other essential or mission critical users?

If you answered yes to any of the above questions, you may need to consider selling, and here’s why:

Pent-Up Investor Demand.  While the stock market continues to whipsaw to record highs, billions of dollars have been raised by institutional and private real estate investment vehicles in 2020 as an investment alternative.  This abundance of capital needs to be deployed in order for sponsors to achieve their investment objectives. And large multi-asset class owners will soon be over allocated to the equity markets (because of the run up), necessitating a rotation into other investments, including real estate.

Limited Acquisition Opportunities.  Since many owners are sitting on the sidelines waiting for post pandemic price discovery, despite strong buyer interest, there are very few acquisition opportunities for investors to buy.

Favorable Market Conditions, Demographics.  There has certainly been a significant recent increase in space availabilities – both direct and sublease.  Space users have been reluctant to make medium or long term commitments and there will definitely be changes in the way occupiers utilize office space in the future.  In the short term, vacancy rates will increase, absorption will be negative and rent growth will be flat or decline.  Having said that, the SALT effect (lack of state and local taxes), an educated workforce, business friendly state policies, and a high quality of lifestyle will continue to fuel corporate relocations and growth in South Florida.

This Too Shall Pass…Soon.  With at least three effective vaccines about to be deployed, political uncertainty resolved and the federal government standing by to buoy the economy as necessary, a new normal will quickly return.  Pent-up demand for South Florida office space should fast track absorption of excess space and with limited new supply, rental rate rents will start to spike as early as 2022.

Premium Pricing Attainable.  ”Smart money” market making owners with favored assets are taking advantage of the supply/demand imbalance, historically low interest rates, enhanced by favorable long-term market characteristics, to create competitive bidding for these coveted South Florida assets and are achieving premium pricing.

Mark M. Rubin is executive managing director of Investment Sales for Colliers International based in South Florida.

Source:  GlobeSt.