South Florida CBD’s to Feel Pinch: CresaPartners’ Barton

A flood of new office product in Miami and a slowing local economy will combine to start driving down rents in South Florida’s central business districts, predicts CresaPartners principal Charles Barton. ‘This one is an easy call,” Barton told CPN. Central business district office markets in Miami, West Palm Beach and Fort Lauderdale are feeling the pinch of the housing market crisis, as the mortgage industry and related businesses industries cut personnel and space. That trend compounds one that has already been unfolding for several years; commercial banks’ decisions to reduce space and move some back-office operations to South Florida suburbs have already taken a bite out of the CBD office market, Barton explained. One bright spot for the area’s office market continues to be the legal sector. Unlike other large office users, law firms are not shedding or subleasing space. “They need to be proactive before their leases expires,” Barton said. “The average large user can’t afford to make large commitments based on a short term-downturn.” Law firms have accounted for several of South Florida’s biggest leases of the year. As reported last month by CPN, Greenberg Traurig plans a fall 2010 move to 150,000 square feet at Met 2, a 750,000-square-foot office tower under construction in Miami. The project will be part of Metropolitan Miami, a $1 billion mixed-use project being developed by MDM Development Group and MetLife. But given the state of the economy, even such large leases as Greenberg Traurig’s are unlikely to offset the massive amount of new office space that three spec projects will bring to Miami. Also adding to the region’s inventory in the next couple of years will be Foram Group’s 1.5 million-square-foot Brickell Financial Centre and Rilea Group’s 585,000-square-foot 1450 Brickell. As a result of these trends, rents will stay stable into 2009 and start to dip as the new space comes on line. Average Class A rents in the central business district ticked up to $40.20 per square foot during the second quarter from $39.66 in the first quarter, according to CresaPartners. Average Class B rents remained virtually unchanged: $27.93 per square foot in the first quarter and $29.89 per square foot in the second. South Florida’s suburban office submarkets have reason to fare somewhat better in 2009 and 2010, Barton argues. Bolstered by the strong and growing presence of international banks and other firms based outside the United States, the suburbs enjoy somewhat more diverse economies than the central business districts. Class A suburban office rates in Miami-Dade, Broward and West Palm Beach counties increased nearly $1 per square foot during the first half of the year, rising from $31.79 in the first quarter to $32.74 per square foot in the second quarter.