South Florida’s Growing Tri-County Office Market
- Dec 15, 2017
South Florida’s diverse economic profile and favorable tax environment have always appealed to investors. As a relatively inexpensive market, South Florida’s tri-county area has experienced major capital markets activity in the office sector in the past three years.
Palm Beach County stood out in 2017, according to JLL Executive Vice President Ryan Nunes, who recently joined the company’ South Florida commercial brokerage team. Nunes spoke to Commercial Property Executive about the county’s unique office demand drivers, as well as the way Palm Beach has recovered, following the 2008 economic downturn.
What are some of Palm Beach County’s unique office demand drivers?
Nunes: Palm Beach and the whole of South Florida has seen tremendous population growth and demand from businesses as the economy has rebounded. A favorable tax environment, combined with strong macroeconomic growth has garnered renewed investor interest in South Florida. Given the lack of new construction across the tri-county area since the economic downturn of 2008, increased demand across the region has driven strong valuation increases across all asset classes.
How does the area’s diverse economic profile motivate investors?
Nunes: South Florida is as much a melting pot of industries as it is of cultures. The region has started to gain recognition as a tech incubator with successful start-ups and capital infusions into the tech sector, with companies like Chewy.com and Magic Leap leading the way.
Why is Palm Beach leading all three counties in capital market office activity?
Nunes: Broward and Miami-Dade County both saw strong capital markets activity in 2015 and 2016, which opened the door for Palm Beach to be more active in 2017. If you look at all three counties holistically over the last three years, this is in line with the South Florida narrative. All of South Florida has seen tremendous capital markets activity, since capital has remained relatively inexpensive.
What are the big-picture trends shaping the Fort Lauderdale and Palm Beach office sector?
Nunes: After a multi-year hiatus, there has been a renewed focus in speculative development with Stiles’ new project in downtown Fort Lauderdale and the Edison in Pembroke Pines, coupled with the redevelopment of the former Plantation Fashion Mall and mixed-use projects such as Dania Pointe and Metropica harboring prospective office components.
In Boca Raton, South Palm Beach County, Crocker Partners’ acquisition of the majority of the Class A assets in the submarket has driven rates upward at a strong pace. The office sector in Fort Lauderdale and Palm Beach counties will continue to remain strong for the foreseeable future.
How is the growth of Las Olas and Downtown Fort Lauderdale impacting office leasing activity?
Nunes: A combination of organic growth, a flight to quality following the economic downturn of 2008 and the sale of almost every Class A asset in downtown Fort Lauderdale has resulted in decreased vacancy and significantly increased rental rates, which have driven up asset valuations.
That said, interest and leasing activity in downtown Fort Lauderdale remains strong and the addition of a repositioned 110 East Broward Office Building will bring a new, large block of competitive class A space to the submarket.
What are the types of tenants driving demand for new office space in Fort Lauderdale and Palm Beach?
Nunes: Tech companies are certainly a major component of the growth in both counties, followed by health-care and pharmaceutical companies. Tourism will of course always be a major industry for South Florida and major cruise lines such as Royal Caribbean and Royal Caribbean play a significant role in the region’s office market and its sustained growth.
How did the market’s construction activity present itself in 2017 and what’s in store going forward?
Nunes: Construction starts are beginning to look up, with renewed interest in speculative development. Continued population growth and investment in South Florida’s growing tech, health-care, tourism and pharmaceutical industries will continue to drive demand for new development.
Image courtesy of JLL