South Florida is the bright spot in the office market – The Trade Observer

The South Florida regional office market continued to improve from the impacts that occurred as a result of the global pandemic COVID-19. In fact, all three counties recorded more than 100,000 square feet of positive net absorption during the third quarter of 2022, bringing overall net absorption to date to over one million square feet (msf). Total vacancies decreased as leasing activity remained strong, combining more than 1.8 million cubic feet of new deals signed in the third quarter. The momentum has allowed landlords to push rents to record heights, spurred by increased tenant demand for first-class office space.

Miami-Dade County retained the top spot with more than 191,000 square feet of net positive uptake recorded during the third quarter, with over 603,000 square feet of uptake combined so far in 2022. Leasing activity improved from the previous quarter by approximately 977,000 square feet . of new deals signed during the quarter, bringing annual activity to date to 2.8 mm3 signed. The Class A segment contributed to 68 percent of new deals and helped raise the overall vacancy rate to 16 percent. Asking prices increased to $48.69 per square foot (psf) as owners trust continued demand from office users for quality space in key sub-markets, including downtown and Brickell in the Central Business District. In the urban heartland, rents for Class A space in high-end buildings, such as the 830 Brickell, have topped $150 per square foot.

The Broward County office market also saw a positive improvement in fundamentals with a net absorption of 125,000 sec during the third quarter of 2022, which was attributed to the transfer of Chewy.com to Plantation Pointe from the DCOTA Office Center. Otherwise, the office segment was more balanced between supply and demand for the quarter. Vacancies increased overall due to the completion of Onyx Tower, a 277,000 sq. Class A office building with multiple tenants in Hallandale, which is now available online with more than 93 percent still available. Total leasing activity reached 1.7 million cubic feet year-to-date, with 418,000 sf of new deals signed during the third quarter. This was a 40 percent drop from the previous quarter, which may indicate a trend of lower office rental demand in Broward County.

Palm Beach County had another strong performance in the quarter in rental demand with 113,000 sixths of net positive absorption reported in the quarter, bringing overall uptake to 245,000 sixths. Overall vacancies fell below 12 percent for the first time since 2007. At that time, vacancies soared in the county as the economic downturn caused by the Great Recession drained demand, along with adding a massive amount of new Class A office towers in a span of time Intensive over the next 18 months. The Palm Beach County office segment was the tightest office market in South Florida this quarter, and the Class A overall vacancy rate was 11.5 percent. Total leasing activity reached 474,000 sf of new deals signed in the past three months for a total of 1.5 mmcf of activity in 2022. As a result, average aggregate demand pushed over $44 per square foot, and the Class A average rose Over the $52 per square foot mark.

The fundamentals of the office market are heading in the right direction with consistent improvements. Many commercial real estate professionals are reluctant to announce the recovery of the entire office sector with the uncertainty that the “work from home” and “mixed office” component will impact the market as companies continue to assess their office needs as they start their employees back to the office. Another factor includes recent interest rate increases by the Federal Reserve to control inflation, which may affect the economic downturn and what the overall effects are on the commercial real estate industry and for how long they will last. The “Great Migration” trend to South Florida has also stimulated more new tenants to the market, including Citadel’s 95,000 sfdeal at 830 Brickell, Goldman Sachs’ 35,000 sf contract in the southeastern financial center, and Mindspace’s 30,000 sfdeal at the Gateway. @Winwood. Another new deal on the market worth over 100,000 SF was about to sign at the Brickell sub-market. In South Florida, Miami-Dade has been the main beneficiary of businesses opening offices and/or relocating to South Florida, which has led to growth in demand and rental activity, while Palm Beach County’s vacancy rate is the lowest in the region.

One thing is for sure: South Florida’s office sector is well-positioned to withstand the mild effects of the economic downturn. The current trajectory of the office market and the strong pre-release of a new A-series product should offer a softer landing compared to other major markets across the country.

Eric Messer is Senior Research Director at Cushman & Wakefield.

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