South Florida Office Rents Continue Torrid Rise Even As Leasing Slows

South Florida office rents continue to rise despite leasing activity failing to keep pace with last year across the region.

Asking rates in Miami were up 9.1% year-over-year at the end of March, with tenants leasing 468K SF of office space in the first quarter, according to preliminary data from Cushman & Wakefield. Leasing activity was up 3.2% from the same period last year in Miami, but Palm Beach and Broward Counties have seen a significant backslide in activity. 

“Miami used to be a boom and bust real estate economy,” said Steven Hurwitz, senior managing director at JLL.

But the pandemic saw the arrival of a diverse mix of tenants, including financial service firms, law firms and hedge funds that have helped buoy leasing, he said.

“With all of them present, we’re just a much more resilient, balanced market,” he added. 

The market posted a modest 51K SF of net absorption in Q1, with 88% of that absorption in Class-A buildings. 

The data reflects a continued flight to quality among office tenants looking to upgrade their amenities while downsizing their footprints. But Class-B deals have been a growing part of the market, accounting for 45% of transactions in Q1, a sign that some local tenants are prioritizing lower-cost space as their long-term leases come up for renewal. 

Class-A asking rents across Miami-Dade were at $60.28 per SF, a 26.9% increase year-over-year, while Class-B rents grew by 10.3% to $44.79 per SF. 

“Local cost-conscious tenants who are coming out of leases that are 30% or 40% below market, they're forced to consider alternate spaces and more Class-B, cost-sensitive spaces,” Hurwitz said. 

The dynamic is particularly evident in Miami’s financial epicenter of Brickell, which saw robust demand during the pandemic and has continued to see rents push higher. The $102.39 per SF asking rates for Class-A space is up 21.1% year-over-year, the fastest rate of Class-A rent growth of any market, although none of Miami’s neighborhoods have seen high-end rents slide. 

“While I don’t think you’ll necessarily see continued 20% increases year-over-year, I do think that the reality is that Brickell has achieved new floors,” Hurwitz said. “There aren't many Class-A buildings that are offering space significantly below $100.” 

The largest traditional office lease of the quarter came from Apple, which signed on for 42K SF at The Plaza Coral Gables. Key Point Academy signed a 62K SF deal at the former Omni Mall in the Biscayne market, but the private Christian school plans to relocate its Brickell operation serving pre-kindergarten through middle school and expand into high school at the property. 

The Morgan Group, a property management firm, signed the third-largest lease in Miami with an almost 20K SF deal at 220 Alhambra Circle in Coral Gables, where overall rents are up 5.7% year-over-year.  

In Broward County, asking rents were up 3.6% year-over-year to $39.85 per SF, despite a 24.2% decline in leasing activity compared to the same period last year. 

Just under two-thirds of the 300K SF of Q1 leasing activity was in Class-A space, where rents rose 5.3% to $44.97 per SF, while Class-B rents slipped 0.3% to $32.19 per SF. 

Broward’s suburbs captured 82% of Q1 leasing activity, or 246K SF, but experienced negative absorption with 75K SF of net space being vacated, while Fort Lauderdale’s central business district saw a moderate 14K SF of positive absorption. 

A similar dynamic is playing out in Palm Beach County, where overall asking rents have grown 3.6% year-over-year as leasing activity in Q1 fell by 40.7% compared to the same time last year. 

Just under 24%, or 52K SF, of the 221K SF of leasing activity was in West Palm Beach’s central business district, which accounts for just 15% of the county’s overall inventory. But the vast majority of that downtown activity was driven by Dycom Industries' 40K SF lease to move from Palm Beach Gardens to the under-construction 300 Banyan.

Boca Raton, where asking rates average $44.95 per SF compared to Downtown West Palm Beach’s $64.69 per SF, pulled in nearly half of all leasing with 103K SF of activity. 

Pebb Enterprises and BH Group landed several new tenants at the 650K SF former Office Depot campus that they are planning to partially redevelop after paying $104M for the property last year. 

The renewable energy firm MN8 Energy signed on for 20K SF at the development at the start of the year, followed by a 7K SF deal from I Heart Mac & Cheese for the fast food concept’s corporate headquarters and a 5,500 SF deal from real estate firm Atlantic Pacific at the end of the quarter.

Like its other South Florida counterparts, Palm Beach County’s Class-A space has helped prop up the market, accounting for 139K SF of leasing activity and 61K SF of quarterly absorption compared to 81K SF of Class-B leasing and 26K SF of negative net absorption.