Strickland: South Florida co-working spaces suffering due to coronavirus pandemic
Measures to contain the spread of coronavirus are still shifting by the day — and so are responses by investors, developers, builders, banks and buyers. To track the impact in real-time, RE|source Miami is asking real estate professionals in various sectors for on-the-ground reports.
Today we hear from Scott Strickland, principal at the Doral-based commercial real estate brokerage firm Lee & Associates South Florida. Strickland has more than 20 years experience leasing office space and formerly held leadership roles at JLL and AFA Rel Estate Services.
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Q: How has the coronavirus influenced office activity?
It has had a crushing affect on co-working companies, which was one of the most active sectors of office transactions locally and nationally in 2019. The nature of their business has been negatively influenced more so than any other category of office users. As for the balance of tenants, most — or those that can afford to — are taking a wait-and-see approach. That includes those that were in the final stages of negotiations prior to the shelter-in-place lockdown. Other tenants that have truly seen a severe reduction in their income are taking drastic cost-cutting measures, including requesting immediate rent relief from their landlords.
Q: What has happened in terms of sales and leases?
With all the uncertainty regarding the end of this pandemic, most lease transactions are on pause. Prior to the pandemic, we were experiencing a strong market in the landlord’s favor, with rental rates reaching record levels throughout South Florida. Tenants are expecting a correction, the likes of which is hard to determine at this point. Nonetheless, the anticipation is that tenants will have more leverage in negotiating the business terms and concessions in lease negotiations.
With regards to office sales activity, a similar situation is unfolding with buyers and lenders questioning valuations and underwriting expectations.
Q: Who is actively looking for space? What was the last acquisition you helped to close in South Florida? Where was it and why did the buyer want the office space?
Prior to the pandemic, law firms, financial services firms, co-working operators, business services firms and technology corporations were the most active companies seeking office space. Currently those requirements are paused.
Regarding previous acquisition experience, it involved a value-add opportunity in the Brickell market. However, that was some time ago and the market conditions and forecasts have changed significantly.
Q: What are the opportunities?
Tenants are realizing their ability to operate remotely using technology. I anticipate a further reduction in square footage per personnel as companies allow for more employees to work from home. This allows tenants to negotiate downsizing or expanding their business without expanding their offices.
For investors, many are anticipating distressed properties in strong markets such as South Florida to become available.
Q: What are the challenges?
Uncertainty is the biggest challenge. Determining when the economy will normalize is difficult to determine in these unprecedented times.
This story was originally published April 27, 2020 at 7:00 AM.
