As Brickell office rates climb, firms give more thought to moving
By Marilyn Bowden
With asking rates in Brickell Avenue's premier office buildings rising rapidly to unprecedented highs, brokers say some smaller tenants may begin to look at other options.
At the beginning of the year, Jones Lang LaSalle reported nearly all class-A buildings on Brickell had broken the $40-per-square-foot barrier. As the first quarter draws to a close, brokers report continuing escalation, with 701 Brickell leading the pack at up to $50.
"Brickell tenants who have lease expirations between now and 2010 are in a serious quandary," said David Prevé, Cresa Partners president. "There are a couple of barriers to just picking up and moving to another submarket. The cost of moving is substantial, and some other areas are also experiencing significant rate increases."
Vacancy in class A space on Brickell was 8.3% at the beginning of the year, according to Jones Lang LaSalle, pushing rates higher. But with the anticipated completion in the first half of 2010 of two new office buildings on Brickell, one just across the river downtown and a fourth smaller building in West Brickell, tenants who can wait out the shortage may find better rates later.
"Some tenants new to the market whose business models dictate they must be either downtown or in Brickell are looking for a sublease," Mr. Prevé said, "or temporary space where they can be housed close to but not necessarily right in the market."
There is an increase in sublet opportunities, said Tom Capocefalo, managing broker at Studley, but there's no one solution to rising rates.
While companies are not deciding across the board to move, he said, "the question is coming up more frequently.
"It's a case-by-case scenario. With the new buildings going up with rates proposed to be upwards of $45 a foot, the obvious question becomes whether less-costly alternatives exist.
"But while clients we are talking with who don't have to be downtown or on Brickell may start investigating outside the central business district, this is not necessarily something they end up executing at the end of the day."
Market dynamics are responding to larger concerns, Mr. Capocefalo said, such as the general economic slowdown and uncertainty surrounding the upcoming national election.
"Our corporate clients are not in an expansionary mode," Mr. Prevé said.
But while the country is facing cloudier economic times, said Don Cartwright, senior vice president at DTZ Rockwood, in the long term Miami's future looks bright.
"Brickell and downtown office vacancies are at the lowest level in memory," he said, "and the sheer quality of housing available now and new amenities coming in certainly is making downtown and Brickell more attractive.
"Over the next 24 months, traditional tenants that feel they need to be in the central business district — law firms, financial services, securities firms, international business —will pay the freight and stay here.
"While rents have spiked up as a reflection of high occupancy, still office rent growth over the past 20 years is moderate compared with other types of realty."
The most likely candidates to opt for a more moderate rate in another area, Mr. Cartwright said, are smaller tenants who must balance lease and occupancy costs against employee costs and revenues.
"But in the end," he said, "the movement of tenants out of downtown or Brickell because of rents will not be any more than the natural progressions we would normally see."