Office space for sublease may cool rates as tenants discover options
By Mindy Hagen
Office space available for sublease in Miami-Dade County sharply increased over the past quarter, brokers report, allowing tenants more options in what was considered a tight market as recently as last year.
The sublease space on the market grew by 22% last quarter, from about 528,800 to about 675,000 square feet, said Cushman & Wakefield of Florida Inc. In Brickell, the company's report said, subleased space has increased by about 83,000 square feet since last quarter while downtown's total has grown by about 26,000.
Jack Lowell, vice chairman of Codina Realty Services, said Brickell's sublease increases can be attributed to the opening of the Barclays Financial Center and Telefoncia's decision to vacate Miami, leaving 60,000 square feet of class A office space. Mr. Lowell said these factors also contribute to increase in sublease space by 50.3% in Miami-Dade County since Dec. 31 of last year.
"There was virtually no space a year ago and there is a fair amount this year," said Mr. Lowell, who also serves as the leasing agent for Barclays. "But the market is still in equilibrium and the statistics are still healthy."
Principals at CRESA Partners Ltd., a firm that specializes on the tenant side of commercial real estate, said the supply of sublease space is greater than demand because of a slowing economy. Principal David Preve said if the market continues on its current path, space will double again in the next two months.
But an average-size tenant looking for 6,000 to 8,000 square feet of a higher class B or class A facility has a multitude of options, he said.
"The tenant with the most flexibility will benefit from the economic situation," Mr. Preve said. "Older buildings will have to lower rates to keep the tenants they have and compete."
While tenants last year were less inclined to move because there were only two or three feasible options, CRESA Principal Barbara Liberatore Black said firms now have eight to 10 choices because of the available subleasing space.
Although tenants have vacated class B space first, Ms. Black said class A landlords are "sweating it, too." Class B buildings should be charging about $23 to $25 a square foot to have a chance at retaining tenants while older A buildings should have rates in the upper 20s and lower 30s, she said.
"Landlords need to realize that tenants now have options," Ms. Black said. "In the coming months, we will see a major sharpening of pencils when landlords realize how long it is taking tenants to make decisions. Tenants coming up for renewal within the year should take advantage of pressure on the landlords and look for lower rates."
With the opening of Barclays and with Millennium Tower and Espirito Santo Plaza both set for 2003, some tenants have a choice to upgrade to newer buildings. Mr. Lowell said demand for Barclays has been better than anticipated, with 84% of its 520,000 square feet leased at about $33 a square foot.
Brian Gale, managing director of brokerage services for Taylor & Mathis, said his firm's buildings at 701 and 777 Brickell remain 100% leased despite competition from new buildings and any economic slowdown.
"There is definitely a ton more sublease space than eight months ago," Mr. Gale said. "But we haven't seen any slowdown in activity. In the next year we have no spaces becoming available. I think we will continue to do well in the short term. In the long term, you never know."
In order to keep tenants, Mr. Gale said, Taylor & Mathis constantly renovates to ensure its properties remain "true class A buildings." He also said Taylor & Mathis tries to offer the same service to tenants in spite of a changing market.
"Even when the market is tight and healthy for landlords," Mr. Gale said, "we try to do the little things to hopefully make tenants feel comfortable with us and enjoy being a tenant in our building."