Miami-Dade County’s Office Market Fueled by Solid Local Economic Fundamentals
Driven by population and job growth, Miami-Dade County is one of the strongest and most sought-after commercial real estate markets in the Southeast. As of February 2018, the county’s unemployment rate stood at 4.7 percent, which, while only a 10-basis point decline from the rate in February 2017, represents continued positive movement. The metro’s economic stability and growing employment base are significant factors when analyzing the tightening office market.
Miami-Dade County ended the first quarter with an overall office vacancy rate of 9.67 percent, a 106-basis point decline from the previous year. Also, net absorption was positive with suburban areas such as Airport/Doral, Coral Gables and South Gables/South Miami remaining primary contributors to the county’s growing office sector. The trend continued from 2017, as the year ended strong with nearly 1.5 million square feet of total net absorption countywide.
As overall vacancy declines and rental rates rise, development in Miami-Dade remains active with 717,000 square feet under construction, 657,000 square feet of which is being developed within the top five most in-demand submarkets for corporate growth. Projects such as Two MiamiCentral, Giralda Place and Mary Street are redefining South Florida’s office landscape as mixed-use environments become more ubiquitous.
More factors than ever are influencing the strength of the Miami-Dade County office market all at once, including, but not limited to, a growing millennial workforce determining the type of space companies will occupy, buildings ramping up on amenities as a major competitive edge and the lack of prime developable land. With the overall countywide vacancy at a record low of 9.67 percent, and some submarkets posting rates as low as 4 percent, industry players are challenged to forecast opportunities to accommodate persistent corporate growth, which is required to maintain the economic strength of the market.
The tight supply of office space has impacted the increase of Miami rental rates by 11.3 percent in the past three years. Although active, current construction is limited, as total square footage under development represents only half of 2017’s net absorption. Demand outpacing supply, the scarcity of large blocks of space in prime Miami submarkets and the steady increase in rental rates could potentially cause office users to look north to Broward or Palm Beach counties.
While demand for expansion is apparent, efficient floorplans, telecommuting and co-working spaces have become more prevalent as tenants maintain the need for roots in Miami. Mitigating the tight market and creatively determining office space solutions is necessary for the employment of residents and invested capital in Miami-Dade.
Institutional, Private Capital
Given the limited supply of Class A office, many investors remain bullish in the Miami-Dade office market despite the concern of rising interest rates potentially impacting 2018 transaction volume. The largest sale transaction in 2018 to-date was East End Capital and GreekOak Capital’s acquisition of 555 Washington Avenue for $38 million in Miami Beach, equating to $590 per square foot for the 64,365-square-foot building.
Investment sales in Miami-Dade during 2017 principally comprised private investors accounting for 49 percent of the capital flow, followed by institutional investors accounting for 42 percent and cross-border capital for 9 percent. In 2017, over $816 million in total volume traded for an average of $272 per square foot. While this represented a decrease of 58 percent in total volume and a slight 1 percent increase in the average price per square foot when compared to the prior year, it is important to consider that an unprecedented amount of large office sales took place in 2016.
The most significant office investment transaction of 2017 was Rockpoint Group’s acquisition of 1221 Brickell for $155 million, or $380 per square foot. The 408,000-square-foot office property previously sold in 2006 for $107.3 million, resulting in a 45 percent gain over an 11-year period. Park Square at Doral also traded hands — TA Realty purchased the 281,623-square-foot building for $96.1 million, or $341 per square foot.
Transaction activity over the past year highlight the investment strength of Miami-Dade as a whole, as well as robust interest from institutional and private investors alike. Additionally, middle market investment across all product types remain healthy.
In addition to continued job growth, the per capita income in Miami has grown significantly, registering a 12.9 percent increase over the past five years with a projection to continue its ascent through 2022, according to data from Moody’s Analytics. These economic fundamentals combined with newly delivered assets and an improved transportation system will further project Miami-Dade as an attractive home to local, national and international corporations.
— Michael Fay, Principal and Managing Director, and Donna Abood, Principal and Managing Director of Avison Young. This article was originally published in the May 2018 issue of Southeast Real Estate Business.