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Front Page » Top Stories » Dotcom Demise Offset In Office Space By Proliferation Of New Firms

Dotcom Demise Offset In Office Space By Proliferation Of New Firms

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Written by on January 4, 2001

By Marilyn Bowden
The demise or downsizing of dot-coms, which have been leasing large blocks of office space in several areas of the county for the past year, could put a lot of space back on the block, either as subleases or direct leases.

But commercial brokers say demand is so high that it’s not likely to sour the market.

“The effect has not been felt yet because downsizings such as Yupi.coms are just occurring,” said Randy Olen, senior managing director at Insignia-ESG.

“Obviously it will put space on the market. But they are primarily in major markets that are very well leased right now. So the effect will be negligible.”

In fact, Mr. Olen said, markets such as Coral Gables and Brickell are so tight that they could use more available space.

While cities such as Atlanta are seeing blocks of 100,000-200,000 square feet hit the market as a result of dot-com depletion, he said, in Miami vacated space is more likely to be in the 5,000- to 10,000-square-foot range.

“A healthy market will continue to absorb space,” Mr. Olen said. “Interestingly, some landlords will profit if — when the dot-coms came in and took sizable blocks — the market they’re in was not as good as it is now.”

There are various reasons why a tenant will want to dispose of space through subleasing or buying out a lease, said Douglas Campbell, senior director at Cushman & Wakefield, including space banking, downsizing and ceasing business operations.

Space banking — the leasing of more space than the tenant currently needs in anticipation of future expansion — allows a firm to sublease extra space until it’s needed, he said.

“If this company’s real estate consultant has done his job correctly,” Mr. Campbell said, “the overall transaction should provide a rental rate that is below market, allowing the tenant to recognize a profit.”

Another reason for subleasing is a tenant “right-sizing” his premises to fit present business needs, he said.

“By subleasing,” Mr. Campbell said, “the tenant still controls the space and has the opportunity to recapture it upon expiration of the sublease, in contrast to buying out the remaining portion of the leasehold obligation and having the landlord recapture the space.”

Subleased space of that nature is available throughout the county, Mr. Campbell said.

“Last but by far not least,” he said, “some companies find that for one reason or another they must discontinue business operations or not even commence as planned.

“We have all seen the dot-com, dot-gone phenomenon here in South Florida. Landlords who have not required large deposits from dot-coms or a securitization device such as a non-revocable letter of credit or surety bond are finding themselves in a very difficult position.”

Edgar Jones, vice president of the office services group at Grubb & Ellis, said he hasn’t seen a lot of space coming back on the market yet and doubts the effect will be dramatic.

“It depends on how deep these things go,” he said, “but at this point it doesn’t look like too much will come back.”

A couple of years ago, Airport West had a significant amount of subleased space due to economic problems in Latin America but absorbed it easily, he said, evenÿthough there was more new construction of office space there than anywhere else in the county.

The same should hold true now for the area, he said.

“Companies need to go where spaces and prices are good,” he said, “Clearly, Airport West is a location that meets those criteria.”

Miami Beach has a disproportionate share of dot-coms, said Jack Lowell, vice chairman of Codina Realty Services Oncor International, and “rental rates there are already high for the quality of what you get in that area.

“New buildings are asking $35 a square foot for low-rise space with no views.”

However, he said, demand still outweighs supply. As a result, Mr. Lowell said, the only repercussion from the loss of dot-com tenants is likely to be that rates on Miami Beach will stop rising.

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