Market Snapshot: Miami’s Monumental Market
- Mar 04, 2015
The stalled construction pace registered over the past three years has resulted in skyrocketing office rents and sales prices, and placed a considerable downward pressure on vacancy rates. Developers in Miami-Dade are expected to change gear in 2015 according to Marcus & Millichap’s office forecast – that is, if completing 400,000 square feet against last year’s humble 121,000 square feet can be called a gear change. The somewhat distressing construction figures don’t necessarily mean bad news, however, as the lack of new space, coupled with an encouraging employment outlook, guarantees that the market will continue to strengthen in 2015.
Miami Dade County will jump an impressive 4 places to rank Number 7 in Marcus & Millichap’s National Office Property Index. Commercial developers are significantly busier in the retail, hospitality and housing sectors, looking to meet the market’s aggressively expanding demand. For example, the much-anticipated Miami Worldcenter project that is scheduled to break ground this year does not include office space in its 765,000-square foot initial phase. In fact, analysts predict that this trend is here to stay at least for a while. As a result, vacancy will keep spiraling down this year with an estimated 160 basis points to 13.1 percent.
The last quarter has been the 13th in a row to end with positive net absorption. The demand growth is palpable in the CBD due to a high density of quality properties that many new tenants are after, but this trend is equally developing in the suburbs. Thanks to its competitively priced assets, Coral Gables continues to be a popular alternative. The growing investor interest is expected to bring 35,000 new jobs to the area, swelling the Miami-Dade staffing by 3.2 percent. More than 10,000 of these jobs are expected to stream into the primary office-using employment sectors.
Similar to 2013 and 2014 trends, the rising demand will inevitably push up the average rent, reaching and even slightly surpassing the $30-per-square-foot benchmark, which translates into a 3.9 percent increase from 2014. As foreign capital continues to flow into the county and debt is increasingly available for new acquisitions, investors are expected to seek high-quality stabilized properties. Class A buildings produce initial yields in the low- to mid-6 percent range and Class B properties trade at cap rates ranging up to 8 percent in the Miami-Dade area.
Chart courtesy of Marcus & Millichap