South Florida office supply outpaced demand for the first time since 2018, study says
Office supply outpaced demand in South Florida for the first time since the fourth quarter 2018, according to the Newmark Knight Frank South Florida Office Market first quarter 2020 report. And conditions may worsen until late 2020.
The total inventory from January through late March was 108.2 million square feet in Miami-Dade County, Broward and Palm Beach, an increase of 107.5 million square feet from the first quarter in 2019, according to the report published in late April. The vacancy during the first quarter 2020 was 11.2% versus 10.9% in 2019. Negative net absorption totaled 81,848 square feet, a drop from the 141,378 square feet of quarterly net absorption during the first quarter 2019.
The activity was due to a correction in the market with companies right sizing, said Patrick Duffy, vice chairman of Newmark Knight Frank.
“The increase in vacancies was a function of some companies giving back to the market due to consolidation,” Duffy said.
Conditions are expected to worsen as new leases and sales diminish due to the coronavirus pandemic. But Duffy predicts as increase late in the year as companies bring employees back into the office in an age of social distancing.
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Still, the average asking rent inched upward for the Tri-County area. South Florida saw an average of $33.27 per square foot during the first quarter 2019, and then $34.32 per square foot during the first quarter 2020, as companies seek updated spaces in a market with few new office towers.
Miami-Dade fared worse than Broward. Miami-Dade had 48.4 million square feet of total inventory during the first quarter of 2020, up from 48.2 million square feet from the first quarter 2019. The county experienced a first-quarter vacancy rate of 11.7%, slightly higher than the 11.4% from the prior year — even though no new construction was delivered. Net absorption was lower: 76,049 square feet in 2020, down from 88,930 square feet in 2019.
Still, rent in Miami-Dade rose from $36.22 in the first quarter of 2019 to $37.32 in 2020.
In Broward, inventory stayed relatively flat, growing from 33.9 million square feet of total inventory in early 2019 to 34.2 million square feet in 2020. That increase included 97,700 square feet of new office space. The vacancy rate grew from 9.9% in 2019 to 10.3% in 2020. The quarterly net absorption dropped from 132,650 square feet to 41,213 square feet.
Broward’s average asking rent inched up from $28.68 per square foot in 2019 to $29.91 per square foot in 2020.
The coronavirus slowed leasing and sales activity towards the end of March, Duffy said. Transactions that have closed in the last seven weeks were near closing. New deals and those in the middle of the process have paused entirely.
“It has had a significant influence,” he said.
Leasing and sales activity will likely resume, he said, late in the third quarter or early fourth quarter. Duffy said, “Companies are not seeing employees as working as productively from home. They will want to go back to an office, but give more space between employees and have shifts so as to not have too many people there.”
This story was originally published April 28, 2020 at 7:00 AM.
