New buildings raise Miami office vacancy

Monday, May 24th, 2010
By:
CB Richard Ellis

The Miami office market, in short, remains in a state of flux as the local economy continues to struggle alongside the housing downturn. Last year, companies were reluctant to make real estate decisions, echoing the uncertainty being realized in the financial markets. As of first quarter, real estate professionals in Miami are noticing companies are now taking action by renewing their current leases or offering space to the sublease market.

Vacancy rate increases have been reported across the entire Miami-Dade market, most noticeably Biscayne Boulevard Corridor, North Miami, Airport West and Brickell. These submarkets have had large increases due to vacant space in new buildings.
In total, there was 2.3 msf of new inventory added to the market in 2009 and first quarter 2010. These buildings have a total vacancy rate of 56.5%, well above the county average of 16.5%.

Two buildings completed construction in first quarter of 2010 that contributed to the increase in total vacancy. Causeway Square, a 160,000sf mixed-use project in the North Miami submarket completed construction with 50% of the project pre-leased. 1450 Brickell Ave. completed construction in the Brickell submarket bringing 570,000sf of new inventory to the market. The project is 70% vacant with only one major tenant committed to the building. This is the first of three major buildings to come to market in the Central Business District. Met II is anticipated to deliver later this year and is currently 71% available. Brickell Financial Centre is currently planning on delivering sometime in 2011 and is 100% available.

The three new buildings in the CBD are all pre-certified with LEED ratings. This is also a new trend with existing buildings well as they try to keep pace with new product. Wachovia Financial Center and 355 Alhambra Circle recently announced they received LEED Gold Certification for Existing Buildings. The increase in market vacancy is causing landlords to look at ways to allow their property to stand out from the inventory. Renovations, energy efficiencies, and LEED certifications are attractive to tenants who are looking for lower operating costs and higher image and sustainability profiles.

Rates
The overall average asking direct lease rate declined by $0.55 psf from first quarter 2009 to $30.19 psf. The decline was most significant in Class C products, which experienced an average decline of $2.41 psf from the previous year. The Biscayne Boulevard Corridor, Airport West, and Brickell submarkets saw the largest declines in Class C average rental rates. The Class B average saw a decline of $1.17 psf from the previous year. Submarkets such as Downtown Miami, Brickell and Airport West have seen asking rates decline between $1.25 to $2.50 in the Class B rates.
Biscayne Boulevard Corridor saw an increase in asking rates in the past year with the addition of Class B space at the Omni coming to the market when the building completed construction. Class A rates remain unchanged from first quarter of last year due to new high end space coming to the market in recently delivered product asking higher asking rates.

Absorption
During first quarter the Miami office market has experienced 25,161sf of negative absorption. Smaller businesses, which primarily occupy Class B and C product types, have been hit hard by the economic downturn and are giving back space.
A handful of submarkets did experience positive absorption this quarter. Kendall saw 29,404sf of positive absorption due to the sale of Town and Country Corporate Center to Baptist Health South, a tenant in the building, who plans to occupy the remainder of the 34,465sf. The North Miami submarket had 79,540sf of positive absorption as a result of the delivery of Causeway Square, which had 80,000sf preleased. Brickell saw 150,778sf of positive absorption due to the completion of 1450 Brickell Ave.
The Downtown Miami submarket experienced 109,580sf of negative absorption in large part to large blocks of space becoming vacant as Bank of America consolidates their operations into their current location in the Brickell submarket.