South Florida's office market this year is "off to a quiet start," JLL research shows. Tenants are moving to high-quality offices, but the pace has slowed, and older, vacated spaces are becoming more challenging to lease up.
"Most net absorption gains in Class A assets were largely mirrored by losses in the Class B segment of the market, especially in suburban markets," the JLL report said.
Specifically, in Coral Gables, Class-A vacancy declined 100 basis points — but Class-B vacancy increased by 130. In the airport submarket, Class-A vacancy declined 130 basis points, but Class-B vacancy increased by 70 points.
Also, more sublet space was vacated than occupied throughout the first quarter — except in Brickell, where a Class-B sublease can be had for a full $20 per SF cheaper than the going rate of $52.33 per SF for Class-A space.
These trends could be exacerbated as more Class-A office product comes online throughout Miami by the end of the year: Two MiamiCentral in downtown, Sunset Office Center in Coral Gables, Giralda Place in the Gables, Mary Street in Coconut Grove and the CUBE Wynwd in Wynwood.
In Broward County, vacancy has declined to 11.7%, but the pace of growth has slowed, so landlords are offering concessions like covering the cost of tenant improvements. Formerly top-of-the-line spaces, such as the now-empty top floor of 450 East Las Olas, will need to be updated.
"Construction costs have increased and the changing look of office space is making old space obsolete," JLL researchers wrote in the report. "Tenants are favoring more open space with glass walls and smaller interior offices."
New supply could further disrupt the market in Broward. Projects underway include 201 East Las Olas, the 550 building in Downtown Fort Lauderdale, and The Edison and Miramar Tech Center, both in Southwest Broward. If Broward-based companies move into these new offices, the older offices they vacate would be difficult to fill, according to JLL.
Further north in Palm Beach County, vacancy has declined to 14.7%. Trophy buildings in downtown West Palm Beach are now 95.1% occupied. Boca Raton North was especially hot as Shoes for Crews and IDA moved into the Boca Raton Innovation Campus and Geo Group expanded on Technology Way.
JLL predicts that growth will continue in the Palm Beach County suburbs.
"Currently, there are 30 large blocks in the suburbs, compared with just six in downtown," the report states. "And, for tenants touring the market for 20K SF or more, many of those blocks downtown are not ideal. All but two are on multiple floors. Growth is expected to remain positive as no major new construction or move-outs are in the pipeline to disrupt current trends."
