Douglas K. Mandel is associate vice president investments director, National Office and Industrial Properties Group, in Marcus & Millichap’s Fort Lauderdale, Florida office.
What area is your expertise?
• South Florida (Miami, Fort Lauderdale, West Palm Beach) office properties
What trends do you see presently in office development in your area?
• The development pipeline for new office development has slowed dramatically, largely attributed to the lack of debt for new construction. There is demand for LEED-certified office development and some projects are underway or are about to be under construction.
Who are the active office developers in your area?
• Stiles Corporation, Proccaci Development Company and Butters Construction & Development are three active office developers in South Florida.
Please name one or two significant office developments in your area.
• A joint venture between Related Companies and Croker Partners has just completed CityPlace Tower, an 18-story Class A office building in downtown West Palm Beach. The building, which includes 300,000 square feet of office is located at the south entrance to CityPlace, a 72-acre mixed-use complex with retail, restaurants and entertainment venues.
Stiles Corporation has just completed 200 Las Olas Circle, a 17-story Class A office building in downtown Fort Lauderdale. The building includes 17,538 square feet of ground-level retail shops and 186,516 square feet of office space.
Where is the majority of development taking place? Why is this area doing well?
• Development has slowed as a result of the capital markets slowdown.
What area do you expect to be the next big development market? Why?
• Brickell and downtown Miami will continue to see office and commercial development during the coming years. There will be continued growth as the absorption of residential condo units continues.
What areas are doing well in terms of office leasing? Which areas are struggling with office leasing?
• Boca Raton, specifically the Yamato/Commerce corridor, is struggling with leasing because of the abundant amount of available space and lack of tenants.
Please give a measure of office vacancy rates and available sublease space.
• In Miami-Dade County, the office market ended the fourth quarter 2008 with a vacancy rate of 11 percent. The amount of vacant sublease space in Miami-Dade increased to 654,195 square feet at the end of the fourth quarter in 2008, up from 601,033 square feet at the end of the third quarter in 2008.
In Broward County, the office market ended the fourth quarter of 2008 with a vacancy rate of 10.6 percent. The amount of vacant sublease space in Broward County decreased to 413,371 square feet from 421,515 square feet by the end of the fourth quarter 2008.
In Palm Beach County, the office market ended the fourth quarter with a vacancy rate of 15.6 percent. The amount of vacant sublease space in Palm Beach County increased to 533,403 square feet, up from 509,728 square feet.
What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in the next year?
• The availability of debt and of lenders willing to underwrite deals is the larger problem beyond interest rates. The government’s recent announcement of its Toxic Asset Bill, a plan to buy up as much as $1 trillion in non-performing financial assets, will hopefully have a positive effect on the market during the next few years.
What is the status of job growth/(un)employment rates and what bearing will it have on the office market?
• In Miami-Dade County, total employment is projected to fall by 40,000 workers this year, a 3.9 percent decrease following the loss of 27,300 jobs in 2008. Office-using employment is forecast to contract 6.5 percent, or by 15,000 positions, up from the 10,300 jobs cut last year.
In Broward County, total employment is forecast to contract 4.3 percent or by 32,000 jobs in 2009, up from a loss of 26,900 positions last year. In office-using sectors, employment will fall by 13,000 workers, a 6.5 percent decline.
In Palm Beach County, total employment is projected to fall 2.9 percent or by 16,200 workers, following the loss of 14,500 positions last year. Roughly 8,100 office-using jobs are forecast to be eliminated this year, a 4.7 percent decline.
Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected?
• Medical office and medical business in general is experiencing growth in the market. There are a lot of buildings competing for the tenants; however, the tenants typically prefer long-term leases with expensive build-outs, providing security for landlords. Properties located in close proximity to major medical facilities and hospitals will have clear advantages over properties in less desirable locations.