Like most cities, Miami’s class A office market suffered during the depth of the recession: vacancy rates doubled, tenants gave back space, and many landlords offered significant incentives to close leases. Interestingly, the market bounced back sooner than many projected with leasing activity accelerating. New to market tenants began filling and backfilling space, foreign investment dollars began pouring in, and the market has benefitted from a flight to quality.
There has been a real gravitation toward urban submarkets. Business hubs with residential and retail amenities such as Coral Gables, Doral and the Brickell Financial District have fared well despite the arrival of new product. We’re seeing an overall shift from suburban markets back to urban ones, which is consistent with what’s happening in cities across the U.S. The downtown Miami/Brickell market in particular is seeing high demand as the area comes to life as a 24/7 urban district with lively retail, available housing product at all points of the price spectrum, and many of Miami’s cultural and entertainment amenities. Planned upgrades to the nearby Port of Miami will stimulate further activity.
1450 Brickell office tower is now 80 percent leased just 18 months after delivery. The building has attracted many of the market’s top tier tenants, such as American Express, BNY/Mellon, City National Bank/Caja Madrid, JP Morgan Chase, HFF, Korn/Ferry International, Willis, and the law firms of Bilzin Sumberg, Berger Singerman, and Ratzan Rubio, to name a few. The location and quality of the asset, its ownership and its tenant roster are serving as a magnet for other firms.
396 Alhambra in Coral Gables, a mixed-use office and retail complex in the Coral Gables business district, will complete its North Tower in early 2012, is widely considered a top quality asset in the market. The project includes 273,000 square feet of class A office space as well as 30,000 square feet of prime ground floor retail. It is seeing steady tenant interest.
One Park Square at Doral has an office occupancy rate over 70 percent less than 2 years after delivering to market. These three examples demonstrate that the market’s premier assets and strongest owners continue to attract tenant demand.
Occupancy rates are rising in well-managed, well-located, quality buildings. As supply diminishes at premium class A properties, tenants are looking to the next tier of the market. We’re seeing positive absorption return following 2009’s historic loss of 1 million square feet of overall absorption. In fact, the Miami market has seen net-positive leasing activity every quarter since 2010. Lastly, and perhaps most telling, landlords are conceding less ground at the negotiating table.
Some landlords who over-leveraged their assets in the past are now in the position of having to overcome a loss of asset value when it comes time to refinance. This underscores the importance of strength of ownership from a tenant’s perspective. Some pockets of the development sector, such as multifamily, are seeing a return of activity, but we will not see large-scale office product deliver in the next 24 to 36 months.
There has been a silver lining in the development arena as higher barriers to financing are requiring developers to have stronger equity positions. The crisis brought discipline to the Miami market and we are emerging stronger because of it.
— Tere Blanca is the president & CEO of Miami-based Blanca Commercial Real Estate