Growth in Miami’s Urban Office Market is Spilling Into Suburban Markets

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Downtown Miami is on fire by any measure. The neighborhood is home to more construction cranes than any other place in the U.S., businesses are moving in and expanding on an almost daily basis, hotel room rates and occupancy levels are at all-time highs, and new residents are relocating here from all over the world.

A recent study by the Miami Downtown Development Authority found that greater downtown Miami’s residential population has literally doubled in size — from 40,000 people to 80,000 people — since 2000. Another 200,000 people commute to the area each day for business.

The area’s commercial real estate market has closely followed this trajectory of growth, with Downtown Miami and the Brickell Financial District welcoming more than 2 million square feet of new Class A office product in the last five years.

Strong demand among domestic and multinational companies, along with an improving economy, has resulted in positive absorption and record-setting lease rates in excess of $50 per square foot for premium space. Land values in downtown are also reaching new heights as developers spend as much as $125 million for one acre on the water.
All of this is creating a steep barrier to entry for ground-up development and leading many investors to focus on acquiring and renovating existing properties. For example, in 2013 PREI purchased the Class A Sabadell Financial Center at 1111 Brickell Ave. in the Brickell Financial District and has since undertaken capital improvements that have helped drive rent values and occupancy.

Nearby, an investor group led by Banyan Street Capital purchased and rebranded Brickell City Tower in 2013 and has since launched a major renovation that is repositioning the property to take full advantage of its proximity to mass transit and the mixed-use Mary Brickell Village and Brickell City Centre projects.

Construction of another mixed-use development, All Aboard Florida’s MiamiCentral in downtown’s Central Business District, has begun. Once completed in the first quarter of 2017, the project will bring high-speed rail to the South Florida region for the first time.

MiamiCentral will combine transportation, dining, entertainment and commerce in the heart of downtown. It will fuse office, residential and retail uses within a single complex with daily train connections to Fort Lauderdale, West Palm Beach and ultimately Orlando.

Other submarkets in Miami are also experiencing an urban revitalization. While these neighborhoods are diverse and located across the region, they are all creating a high density of commercial, residential and retail product.

Office submarkets like Coral Gables, Doral, Coconut Grove, Aventura and South Miami are experiencing strong demand, rising occupancy and increasing leasing rates, with little by way of new inventory expected to deliver over the next 24 months.

The trend toward infill development and the renovation of existing properties is also underway in places like Coral Gables, which has long been one of Miami’s most desirable submarkets. The developers of Coral Gables’ first master-planned, mixed-use development, Mediterranean Village, have won initial approval for the construction of a high-end hotel, 300,000 square feet of office space, restaurant and retail space, and more than 200 residential units.

A few blocks north, renovations are about to begin at the Class-A BAC Colonnade Office Tower, which has been one of the neighborhood’s most iconic properties for decades. Recognizing that the Coral Gables submarket is space-constrained and that demand remains high, ownership is upgrading the building’s common areas, installing a fitness center, and adding a concierge service for tenants. Another iconic Coral Gables property, Douglas Entrance Office Park, is also undergoing large-scale renovations.

A few miles west, in the city of Doral, developments underway will deliver close to 2 million square feet of retail space and more than 5,500 luxury residential units over the coming years. The largest projects in development are City Place and Downtown Doral.

Just as commercial growth takes place in downtown Miami and hundreds of young professionals move into the area each day, we are seeing a significant spillover effect into submarkets outside the city’s core. This is a positive sign for our region’s commercial base and real estate economy — and a clear indication that the urbanization of Miami is well underway.

— By Danet Linares, Vice Chairman, Blanca Commercial Real Estate. This article originally appeared in the May 2015 issue of Southeast Real Estate Business.