'Slammed' With Showings And Deals: Miami Only Market In U.S. Expected To See Office Rents Grow
Miami broker Arden Karson announced two sales this week. One was an office condo on Biscayne Boulevard, the city's main artery. It had gone on the market and was under contract to a seafood company just a day later for $330 per SF.
The other deal wasn't as fast, but nearly three times as expensive: the commercial space on the ground floor of the 51-story Biscayne Beach residential condo, which sold for $976 per SF to a crypto finance firm, XBTO Group.
"Everybody now wants a piece of Miami," said Karson, who led CBRE in South Florida before launching her own firm, Karson & Co., last year. "It's irreplaceable real estate. There is not a lot of supply on residential and even commercial. My office leasing colleagues are slammed right now with showings, inquiries and deals."
Arden Karson worked with Douglas Elliman to market the commercial space at the Biscayne Beach property for seller Two Roads. American Dream Real Estate and Douglas Elliman represented the buyer.
Karson said that with South Florida land-constrained and currently experiencing an influx of high-profile people and businesses from other parts of the country, the seafood company knew it should pounce once it settled on a space it liked, and the crypto firm loved the 5.4K SF office space, which had been conceived as a restaurant space and has a 2.5K SF terrace.
According to JLL's most recent Office Insight Report for Miami, Q1 marked the fourth consecutive quarter of negative absorption, but "recent leasing activity suggests that occupancy gains will resume before the close of the year."
According to CBRE, Miami is the only market in the country that will see office rents grow in the next two years.
"I would venture to say that Miami's got the strongest commercial real estate market in the country right now. And I would say that new company growth is probably higher than any other major markets, including Boston, Chicago, New York and L.A.," said Donna Abood, principal and managing director at Avison Young.
Leases are running about $3 to $5 per SF higher than they were pre-pandemic, Abood said. According to Avison Young's Q1 market report for Miami, the average asking rate is $42 per SF.
At 830 Brickell, a high-end office tower under development from OKO Group and Cain International, "rates go as high as $84 per SF, which is unheard of in the city," Abood said.
She is working with a new-to-market fintech company that she can't yet disclose but which is seeking space for a U.S. headquarters. She said that according to the economic development agency The Beacon Council, there are 77 companies in the process of relocating to Miami.
"So it's not hype anymore," Abood said. "They're coming in, they're taking 20K, 30K, 40K, 50K SF."
"Miami's never been a market that's had really above 50K SF ... The Lennar deal [in 2019 for 156K SF] was the biggest deal that transacted in the last, like, nine years," said Ericka Witkowski, who runs boutique firm Witko Group. "Now we're seeing tenants that are new-to-market looking for 100K — even one that's looking for 300K SF — but there's also the hedge funds and private equity firms from Chicago and New York looking for 75K and one's looking for 80K."
Recent notable deals include Subway's moving of offices from Connecticut to Miami, where it signed for 64K SF. Microsoft is reportedly seeking 30K SF in the market, Citadel is seeking 80K SF, and law firm Baker & McKenzie is seeking an unspecified amount.
The activity is spread throughout the city. Downtown, a fund managed by Blackstone Group purchased 2 and 3 MiamiCentral, out of which its tech division will operate. The sale price — $230M — was 44% higher than when it traded in 2019, according to Avison Young.
In Wynwood, where asking rents are the highest of all the Miami submarkets, according to JLL ($59.65 per SF), the Wynwood Annex secured 22K SF of leases from venture capital firms including Founders Fund and Atomic. The Wynwood submarket has a 50% vacancy rate, but Karson said that's partly due to a new building, 545 Wyn, from Sterling Bay, coming online and awaiting a major tenant.
Witkowski said tech firms want to be in Wynwood near the venture capitalists, but startups are still happy to use co-working. "If you go into a WeWork in Wynwood or the WeWork downtown, it's packed."
Downtown Doral offers 1M SF of office space in five Class-A office buildings and announced four new tenants in March. Coconut Grove is another hot spot, said Witkowski, who has been showing space from South Miami up to Palm Beach County.
"The tech firms and hedge funds and venture capitalists, they're all signing seven-plus-year term leases," Witkowski said.
As for in-demand amenities, Witkowski has been giving tours at 400 Biscayne, where she represents the landlord, PMG. Clients have been prioritizing things like unobstructed bay views and high ceilings, she said.
Air filtration, germ-fighting surfaces and socially distanced floor plans? Not so much.
CORRECTION, APRIL 22, 1:30 P.M. ET: A previous version of this story did not identify Cain International as part of a joint venture development at 830 Brickell. The previous version of the story also misspelled Witko Group, and a photo caption misidentified the 400 Biscayne building. The story has been updated.
UPDATE, APRIL 23, 1:50 P.M. ET: Further information was added about the involvement of Douglas Elliman and American Dream in closing the sale at Biscayne Beach.