Miami Beach Office Market Showing Signs Of Life
By Marilyn Bowden
Brokers report signs of a turnaround in Miami Beach’s long-depressed office market, where the vacancy rate at the end of the first quarter was a whopping 24.9%, according to Cushman & Wakefield researchers.
More than 40,000 square feet has been leased in the city this year, said Diana Parker, a director at Cushman & Wakefield.
"While the market typically attracts a 3,000- to 4,000-square-foot user," she said, "Hugo Boss recently signed a lease for 10,000 square feet, and there are three prospects seriously looking for about 5,000 square feet on Miami Beach only. So that is encouraging."
"Medium- to larger-size tenants are coming back," said Steve Hurwitz, a senior associate with Continental Real Estate Cos. who represents landlord LNR Corp. at the Lincoln and Lincoln Place. He said he recently completed about 20,000 square feet of transactions at the two properties, accounting for half of the submarket’s activity this year.
Many of the Beach’s new tenants are in the entertainment business or provide financial services to people buying high-end condos in the area, according to Pam Smith of Abood-Wood Fay Smith.
In addition to an expansion of 25,000 square feet by landlord LNR, the commercial arm of Lennar, Merrill Lynch took 8,000 square feet, SR. Teleperformance took 6,000 and Lendco Mortgage took 3,300 at Lincoln Place.
"We also have a letter of intent for 12,000 square feet for an executive space firm," Mr. Hurwitz said.
The building – one of several completed just after the 2001 crash of the dot.coms who favored the Beach and a recession made entertainment giants more cautious about expansion – is now 96% leased, Mr. Hurwitz said.
There’s also "a nice amount of activity" at the Lincoln, he said, where Kimley Horn & Associates took 7,500 square feet, Diego & Heymann & Associates 2,500 square feet and Date.com 2,000 square feet.
An interesting note to this year’s leasing activity, Ms. Parker said, is that 12 of the 13 deals in the Beach are for Class B space.
According to Jones Lang LaSalle’s Miami Office Market Report, vacancies in Class A buildings on Miami Beach stood at 48.2% at the end of the first quarter.
"What I am seeing," Ms. Parker said, "is that tenants coming to the Beach are not afforded the luxury of time in order to build out first-generation space, for which the delivery schedule is generally six months."
Ms. Smith, leasing agent for a new Class A building at 555 Washington, said the demand for ready-to-go space is so strong that the landlord will build out a full floor on spec to accommodate users in a hurry.
"We’re getting lots of calls and visitors," she said. "If I had any ready-to-go space, I would have pulled in substantial square footage. We get a lot of potential tenants who come down during the season and decide they want an office here, and they want to have everything squared away before they leave. But we are talking with some bigger users who can wait a little bit."
Brokers say leasing rates are holding steady but landlords have had to offer steep concessions.
"Class A landlords are still doing deep concessions inclusive of lease-rate reductions, rental abatements and inflated tenant improvement allowances," Ms. Parker said, "but in Class B, the value of the concessions packages is being reduced."
By keeping rates up, Mr. Hurwitz said, landlords have kept property values stable. "We’re still doing what we can to incentivize tenants," he said, "but the incentives are not as big as they were in the last two quarters."
Ms. Smith said she expects Miami Beach landlords to be in a stronger position by the fourth quarter.
"The good news," Ms. Parker said, "is that slowly but surely, the Beach is coming back."