Despite a slowing economy, companies looking for office space now will likely still have trouble finding deals on rent and high-end digs, especially in downtown Miami and the Brickell area.
Expect that to change in 2010, however, when three massive new towers add about 20 percent more offices to Miami's central business district. That could mean lower rents or more incentives from landlords, such as free rent or money for improvements.
THE MARKET NOW
Miami-Dade County remains strong, analysts say. The 8 percent vacancy rate in Miami-Dade is actually 2.5 percentage points better than last year, CB Richard Ellis reports.
''One of our challenges . . . has been identifying and securing Class A office space for our clients,'' said Scott K. Sime, CBRE's managing director in Miami-Dade.
But the downturn has had some effects. More companies are subleasing space as they shed workers and cut back on expansions. Tenants are signing fewer leases, and deals are taking longer.
That's especially true in Broward County, where the vacancy rate across all classes of office space was 12.3 percent for the first quarter of this year, up 5.4 percentage points from a year ago, reports CBRE.
That means more concessions from landlords in Broward, especially downtown Fort Lauderdale, said Tere Blanca, senior managing director for Cushman & Wakefield of Florida.
HOUSING TIES
Why the difference between Miami-Dade and Broward? More Broward firms are tied to the housing market, such as mortgage brokers and architects, Blanca said. Miami-
Dade's inter-
national firms aren't as affected by the U.S. slowdown, and no major buildings have come online recently.
The county still is seeing demand from insurers, wealth management firms, law firms and the like, said Scott Strickland, senior vice president in Jones Lang LaSalle's Miami office.
The law firm of Kirkpatrick & Lockhart Preston Gates Ellis can confirm the difficulties. The 35,000 square feet of Class A space it needed wasn't available until eight months after its lease expired. So Kirkpatrick & Lockhart spent the eight months in temporary space and finally moved into its offices in Wachovia Center in Miami in April.
''There isn't a wide variety of Class A buildings to choose from in South Florida,'' said the office's administrative partner, Daniel A. Casey.
CLASS A RATES
Rents in both counties reflect the scarce options: Net rental rates in Miami-Dade averaged $30.88 per square foot across all classes of office space in the first quarter of this year, from $27.40 a year ago (these figures do not include expenses passed through to tenants).
For Classes A and B, rates have jumped by more than 10 percent, says CBRE's Sime. In Broward, average asking rents hit $18.43 per square foot, up from $17.36 a year ago.
Forecast: Most think rents in Miami-Dade will continue rising, albeit more slowly. Broward rents will likely stabilize or even drop.
''We have experienced one of the greatest rent growth time periods in history,'' said Steven Hurwitz, an executive with Coral Gables' Continental Real Estate Cos. ``So by definition, we will definitely see the flip side of that.''
THE MARKET IN 2010
Fast forward two years, and the landscape will look quite different, especially in Miami-Dade. ''It's not a great time to be a tenant right now, but a wonderful time if you've got a lease expiring in two years,'' Hurwitz said.
That is when the three big buildings already under construction -- Brickell Financial Centre, 1450 Brickell and Met 2 -- bring 1.8 million square feet of new office space to downtown Miami and Brickell.
There aren't enough new tenants to fill all that space, Jones Lang's Strickland said.
''We've experienced the credit crisis and the [negative] turn of the overall economy, now you've got this lagging supply of 1.8 million square feet there, plus a bunch of buildings in the Gables and other places,'' Hurwitz added.
Miami law firm Bilzin Sumberg Baena Price & Axelrod's lease expires in 2010, and unlike Kirkpatrick & Lockhart, it had plenty of choices. All three Miami towers reportedly courted the firm. In April, the firm signed a 10-year deal with Brickell Financial Centre for 115,000 square feet, making that building the first of the three to announce a signed lease.
The lease is worth $58 million. Sources put rent, including expenses, in the low- to mid-$40s, rising annually. Developer Foram Group would not release specifics.
''You always get aggressive with your deals, and you do what you can,'' said Danet Linares, Foram's director of real estate services. ``Tenants know that when they are one of the first few big tenants it always helps them.''
Tim Weller, vice president of Met 2 developer MDM Development Group, believes the competition is healthy.
The 47-story Met 2 hopes to announce leases shortly, and a weakening economy has had little impact, he said. ``The national economic situation really isn't that much of a factor in companies making decisions for their long-term growth.''
Other significant developments opening in 2010 include The Allen Morris Co.'s 215,000square-foot Ponce de Leon Towers. CEO W. Allen Morris said he is finalizing a full-floor lease right now for a company out of New York and is negotiating with other tenants, some of whom would take multiple floors.
''A third are coming in from outside [the U.S.]; a third may be multinational companies or international companies; and a third will be people relocating from Brickell and downtown,'' he said.
