Miami’s International Status Helps Sustain Office Development, Fundamentals
The surge of momentum happening in Miami’s office market is undeniable with the metro emerging as a new international hub for startups and regional companies alike.
Fueled by a multilingual workforce and easy access to Latin America and the Caribbean, Miami’s status as an international gateway is drawing the attention of office landlords and investors from around the country, as well as a wide variety of office users.
Investors like Starwood Capital, Appaloosa Management and Icahn Enterprises are leaving their traditional New York and New Jersey locations to come to Florida, one of just seven states that do not impose state income tax. Paired with favorable weather and a high quality of life, Miami is a desirable destination for businesses and its workforce.
Entrepreneurial activity in the region is also helping to fuel the office market, as the number of foreign business owners who choose to relocate to Miami and set up shop continues to grow.
Miami’s Wynwood neighborhood has quickly earned the reputation as one of the city’s up-and-coming places to be. The district is poised to become the next 24/7 hotspot thanks to a healthy pipeline of residential development underway that will support office growth in the decade ahead.
Several Class A office buildings in Wynwood will debut over the next year, including 545 Wyn, a 298,000-square-foot creative office building under construction adjacent to Interstate 95 that promises to be one of the most impactful deliveries of 2020. 545 Wyn has already landed a preleasing agreement with architectural giant Gensler and is the largest office property developed in Miami over the last few cycles. Developed by Sterling Bay, the building started going vertical this past summer and is anticipated to welcome first tenants in the third quarter.
Demand in the Wynwood submarket remains red hot, and with no new office completions since 2000, developers will be able to capitalize on the current supply shortage. Advertising and marketing companies and tech and boutique firms are all helping to drive growth in Wynwood and Miami’s other emerging submarkets.
There’s an upswing in new development in both the downtown and Biscayne Corridor submarkets as well. Both areas have experienced regentrification and new condo development, helping to drive demand for Class A office properties.
The massive Miami WorldCenter mixed-use development is a game-changer and will have a huge impact on the downtown submarket once it finalizes.
In nearby Brickell, Brickell City Centre continues to serve as a catalyst for new office development as landlords factor in close proximity to premier amenities that are attractive to potential office users. WeWork recently leased 167,810 square feet at the 57-story 830 Brickell project (set for a 2021 delivery), representing Miami’s first new office tower in nearly a decade.
Other projects to watch in the Miami metro area include The Plaza Coral Gables, which will encompass 242 hotel rooms, 164 apartments and lofts, 160,000 square feet of retail, 445,000 square feet of office space (North & South Tower) and 2,000 parking spaces. The development is the largest project in Coral Gables’ history.
In North Coral Gables, the 100,000-square-foot 850 LeJeune office development will help expand the submarket into new territory not previously seen.
Rents dip slightly
Asking rents held close to record-high levels despite the quoted average rate recording its first year-over-year decline in six years — $36.46 per square foot from $36.47 per square at the close of third-quarter 2018. The average rate for higher-end space also saw its first dip, as the Class A average decreased to $42.48 per square foot from $43.64.
In some areas, asking rents have appeared to level off as lower-tier, Class A rental rates are having a greater impact on the overall average as compared to landlords that are decreasing rental rates in response to shifting market conditions. But the market averages don’t necessarily apply to all areas, with several Class A and B properties in Brickell recently executing leases well above their historical average.
In many parts of Miami, if a company wants to relocate it will ante up the extra $5 to $7 per square foot to be where they want to be. Building sale prices per square foot are at an all-time high as well, causing cap rates to compress over the years.
Brickell, which has limited blocks of space available, has shifted from a tenant’s market to a landlord’s market as ownership groups remain bullish on their ability to push rental rates.
The new construction pipeline for Miami’s office market is heavy, but a region that boasts one of the nation’s highest population and job growth rates, particularly in financial and business services, mitigates the risk of overheating.
There is still significant untapped potential in Miami’s emerging and secondary submarkets that will foster additional growth in 2020 and beyond. Office landlords that can offer upper-tier amenity packages in and around their properties are poised to be in prime position for the next wave of growth.
— By Patrick Duffy, vice chairman at Newmark Knight Frank. This article originally appeared in the January 2020 issue of Southeast Real Estate Business.