Corporate Migrants Drive Miami Office Rents To New Record As Demand Outpaces Supply
Competition for office space in the most desirable neighborhoods in Miami has pushed rents to levels that experts say would have been unbelievable nearly two years ago.
Direct asking rates for Class-A office space in Miami-Dade County rose 13% year-over-year in the third quarter, increasing more than $7 per SF, according to Colliers. JLL's third-quarter figures showed Miami's central business district hit another new record for asking rents at an average of $64 per SF.
In Brickell, asking rents have reached nearly $82 per SF, while Wynwood rents aren't far behind at an average of $78 per SF, according to Colliers.
“The run-up in rent growth has been exponential and beyond anybody's expectations,” Colliers Executive Managing Director Jonathan Kingsley told Bisnow. "If anyone told you, 'Yeah, we saw it coming,' they're absolutely lying.
"Even for second-generation office buildings in the Brickell corridor that were leasing at $55 to $60 a SF two years ago or less — and that was considered very significant rent growth — those buildings have almost doubled now."
Vacancy dipped below 10% in Miami-Dade for the first time in two years, even though developers have added more than 1.4M SF of office inventory over that time, according to Colliers.
Much of the activity has been driven by out-of-market companies opening or expanding their South Florida offices, which has driven rents “exponentially” higher and created a substantial supply-demand imbalance, Kingsley said. In the most sought-after markets like Brickell, Wynwood, Miami Beach and West Palm Beach, landlords are quickly replacing departing tenants with new ones paying far higher rents.
“In a third-generation office building that we handle — which is a true Class-A building, but by vintage third generation or fourth — we are doing close to $100 SF deals there, and those are events that no one saw coming,” Kingsley said.
Miami’s office hot streak is running counter to the national market, which is seeing widespread pullbacks among tenants and warnings of deep distress for owners.
In the third quarter, more than 1.3M SF of office space was vacated nationally, according to the National Association of Realtors. By contrast, tenants in Miami were occupying nearly 600K SF more space at the end of the third quarter than they were at the beginning of the year, according to JLL.
Experts expect the growth to continue. Colliers Executive Managing Director Stephen Rutchik said that more large companies are continuing to sniff around for space in Magic City.
"Many of the global companies — the Fortune 100, the Fortune 50 — are in the market for meaningful requirements," Rutchik said. "What I mean by that is 50K SF, 100K SF, 150K SF, 200K SF of office space, which historically would have been an anchor tenant. Few tenants would have asked for that size in our market."
The most expensive building in the market, 830 Brickell, signed three major expansions in the third quarter with Chicago-based companies: Law firms Winstown & Strawn and Sidley Austin combined leased roughly 90K SF, while Citadel leased a 90K SF temporary space in the building while waiting for Sterling Bay to build it a new headquarters nearby.
Like in Miami-Dade, rents continued to rise in Broward and Palm Beach counties while vacancy dropped for the sixth year in a row, although Kingsley and Rutchik said numbers are growing more slowly and organically.
Across the board, the continued migration of companies to the region has led to a supply-demand imbalance. Just over 212K SF of new office buildings have delivered so far this year, according to JLL, with 1.4M SF under construction.
“Developers right now and the projects that are planned or under construction do not satisfy the current demand that is in the marketplace because there are many requirements for the tenants that are unmet in the marketplace today," Rutchik said. "Space is just not available to them.”
JLL Senior Research Manager Michelle McMurray told Bisnow that what stands out most to her about Miami's office market is how it has bucked a major bugaboo for other cities: sublease space.
"We are not seeing tenants en masse [list spaces] like we are seeing in Tampa or Orlando," McMurray said.
She said companies in those cities have put hundreds of thousands of square feet on the market as they look to save on real estate costs.
“We are not seeing anything like that down there, which I think it’s really good," she said. "Because when sublease space turns direct, you are going to see a huge difference in vacancy, in absorption.”