Flat commercial real estate market follows 'waiting' attitude of '02
By Catherine Lackner
Miami's commercial space market remained largely flat in 2002, but some bright spots are on the horizon.
"The Miami-Dade office market ended 2002 in the same fashion as it began: soft market conditions throughout the county with some submarkets faring better than others," says Cushman & Wakefield's fourth quarter report last year.
Miami's industrial market "continues to struggle," at year-end 2002, the Cushman & Wakefield report said.
"It's tough to say there are any hot markets," said Peter Harrison, senior managing director of Cushman & Wakefield South Florida. "I see the markets being flat this year with not much improvement over 2002, and that certainly was a flat year."
The report puts the overall vacancy in the central business district, including Brickell Avenue, at 16%, says that vacancies in Coral Gables stand at 27%, at 21% in Airport West and 6% in Kendall/South Dade.
Rental rates per square foot averaged $32 downtown, $31 in Coral Gables, $25 in Airport West and $26 in Kendall/South Dade, it says.
A report by Jones Lang LaSalle is a little more hopeful. "Although subdued, Miami-Dade County still ended 2002 with more encouraging signs over its year-end 2001 and early 2002 performance," the analysis said. "Improving indicators were largely attributed to some of the strongest economic growth in the state, which loosely translated into enhanced leasing activity for nervous landlords.
"While most of Miami's office market sector followed nationwide trends of declining demand resulting in falling rents and rising concessions, there were a few diamonds in the bucket. Namely, Miami's choice properties in its central business district and this included downtown, as well as its prized Brickell Avenue corridor. The handful of competing Class A trophy towers were distinguished by high occupancy levels, strong rental rate pricing and in particular, record investment sale transactions - both in terms of volume and increasing price values."
"The good news on Brickell is that we are seeing businesses take their head out of the sand and be willing to make some moves," said Eric Siegrist, Jones Lang LaSalle vice president of leasing and management.
He cited the moves of the Baker McKenzie law firm into the Mellon Financial Center and the Knight Foundation from One Biscayne Building to the Wachovia Financial Center as examples.
"Last year, the general attitude of business anywhere was 'wait and see' what was going to happen and, to some extent, we're still doing that with the Iraq situation," Mr. Siegrist said. "But when people are out in the market considering their options, that movement creates a positive dynamic in the marketplace.
"We're seeing people showing confidence in future market conditions; they're spending money, changing their address. These are large transactions - 25,000 to 60,000 square feet - and 10-year commitments. I can't see somebody making those commitments without some level of confidence in the economy."
The addition of the new Four Seasons and Espirito Santo Plaza office towers should create further interest in Brickell.
"It's going to create some excitement in and continue to expand Miami's position as a gateway city," Mr. Siegrist said.
The Jones Lang LaSalle report puts vacancy rates in the central business district at 10%, with class A rental rates hovering around $33 per square foot and rising to $38.50 for prime properties like the Wachovia Financial Center; says that there's a 13% vacancy rate in Coral Gables, where the average rental is $30 per square foot for class A space, and estimates that vacancies hover at about 20% in Airport West, where space can be had for $29-$23 per square foot "with substantial concessions." The picture in Kendall/South Dade is much brighter, with rates, a healthy $24 per square foot and a vacancy rate of just 3%.
"Brickell and Coral Gables continue to be OK, with positive absorption, which is good in this environment," Mr. Harrison said. He agreed that the Kendall/Dadeland area is one of the healthiest.
"There's not much new product; South Dade's vacancy rate is one of the lowest in Miami-Dade County," he said.
"Opportunities exist now for tenants to relocate try to lock in longer-term leases at lower rental rates," said Paul L. White of Paul L. White Associates Inc. "There's clearly a softness in nearly all the major submarkets, where gross rental rates have dropped as much as $3 per square foot from what was quoted just a year ago.
"In addition, they're being offered inducements like free rent and enhanced tenant improvements," he said.
Bargain hunters can choose from "just about all of the major submarkets, including downtown, Airport West, Brickell and Coral Gables," Mr. White said. "All are becoming more competitive. It's an excellent climate" in which to find a better deal, he said.
The industrial side of the picture is also sluggish, observers agreed.
"The Airport West sector, Miami's most sought after [industrial] sector, experienced a 25% decline in leasing activity from the 2001 figure," the Cushman & Wakefield report says.
It estimates that vacancies hover at 13% in Airport West, with rental rates standing at $11 per square foot for industrial space; a 12% vacancy rate for Medley, with space going at $9 per square foot, vacancies at 10% in Hialeah, where space can be had for $5 per square foot and vacancies at 7% in Miami Lakes, where the space is priced $11 per square foot. Overall, the vacancy rate is 9% and rates are about $11 per square foot.
While rental rates lag, "the hot market is on the land side," said Walter
Byrd, Cushman & Wakefield senior director of industrial brokerage. "All available industrial land is generally attracting a lot of attention."
Companies seeking to build industrial space for their own use are in a good position to start construction if they can find available land but, he said, "but I don't know that there's a market for improved space, given where rates are and the cost of construction."
"With the high vacancy rates, it would be hard to find a lender that would cooperate with you," Mr. White agreed. The only exceptions, he said, would be "grocery store-anchored shopping centers. They are still properties that are being pursued by investors. There's a limited supply of product and those shopping center owners are hanging onto them."