Miami Vacancy Hits 2-Year Low While Coral Gables Expects Increase
Cushman & Wakefield released midyear stats for the Miami-Dade County office market, which show office vacancies have hit a two-year low.
The overall vacancy rate for the Miami-Dade office market fell to 16.8 percent at midyear 2011, down from 18.6 percent reported at the end of the previous quarter, and the lowest level since the second quarter of 2009, when vacancy measured 16.1 percent.
Year-to-date, 1.3 million square feet in new leases have been signed, up 4.6 percent from the 1.2 million square feet in leasing activity at this time last year. While 888,633 square feet in leases were signed in the first quarter of 2011, activity slowed considerably in the second quarter, with 450,988 square feet of leases completed.
Absorption totaled positive 90,498 square feet for the first half of the year. The negative 33,004 square feet in absorption during the second quarter detracted from the positive 123,502 square feet absorbed in the first quarter of the year, as the market continued to struggle to absorb the 1.5 million square feet of new office space inventory added in 2010. An additional 787,184 square feet of space is currently under construction, and expected to be completed in the second half of this year.
Overall asking rents remained virtually unchanged, ending the second quarter at $30.10 per square foot, up from $29.99 per square foot at the end of the first quarter. Asking rents for class-A space averaged $36.37 per square foot at the end of the quarter, on par with $36.40 per square foot at the end of the first quarter.
Meanwhile, second-quarter statistics for the Coral Gables office market show that while class A vacancy has fallen slightly from the market high in 2009, opening of the 173,000-square-foot north tower at 396 Alhambra at year’s end will drive vacancy up to around 25%. A recent survey of the 29 existing class A buildings prepared by Studley showed a total vacancy of 21.22%. Overall vacancy in the Coral Gables office market reached a low of 14% in mid 2009.
“Assuming no positive absorption in the Coral Gables class A market in 2011, the addition of the north tower building will increase class A vacancy in the Gables to approximately 24%,” said Chris Lovell, Studley’s senior managing director.
Blanca Commercial Real Estate, which includes the north tower in its calculations because the building is available for lease, sets class A vacancy at 25.32%.
“In the face of rising vacancy rates,” Mr. Lovell said, “some Coral Gables owners have increased asking rental rates in the past 90 days, but free rent periods continue to reduce actual averages, and the average asking rate in class A buildings has fallen below $35 per square foot for the first time in five years.” Blanca Commercial’s researchers cite an average class A rate of $35.61.
Mr. Lovell said that with the exception of BAC Florida Bank’s early lease renewal of 40,857 square feet at 2333 Ponce De Leon Blvd., “the market is relatively flat, with only approximately 42,000 square feet of leases signed in the last 90 days, at an average lease size of 3,033 square feet.”
However, brokers active in the area report a fair amount of browsing by prospective tenants. “We’ve seen a lot of users from downtown and also from Airport West who want to come closer to executive housing and the amenities that Coral Gables offers,” said Grant Killingsworth, a vice president and director of leasing at Jones Lang LaSalle.
“Some tenants that were historically in the Kendall and South Dade market are touring the Gables as well. The rents are now within their budget, and they can afford the quality and cachet of being a Coral Gables tenant.” Interest is also coming from large multinationals looking to consolidate their offices in Coral Gables, Mr. Killingsworth said. “There are some larger tenants in play in south Gables,” said Steven Hurwitz, a senior vice president at Continental Real Estate Cos. who represents landlords at several properties in the market. “We don’t have a lot of vacancy to entertain those larger blocks, but we have seen an increase among smaller tenants.
David M. Valdez, an executive vice president at Blanca Commercial Real Estate who is leasing 396 Alhambra, said the high class A vacancy in the Gables presents “a very good opportunity for tenants to fully evaluate their total occupancy expenses and negotiate the best rates for themselves. We are in a tenants’ market.”
Owner Agave Florida Investments LLC, an affiliate of José Cuervo Group, has undertaken a complete remodeling of 396 Alhambra’s south tower, once known as the Exxon Building, he said; The new north tower is on track to get a temporary certificate of occupancy at the end of this year. The project was designed by local architect John Fullerton. “We have seen strong interest in the buildings, which represent more than 50% of available space,” Mr. Valdez said. That includes a 31,000-square-foot option spanning both towers, he said — the largest contiguous space on the market.
Developer Allen Morris, president of Allen Morris Co., said he is in the process of lining up a co-anchor tenant to join an executive search firm affiliated with Rockefeller Group and his own company at Ponce de Leon Towers, a 16-story, 203,000 square foot office project planned for 2801 Ponce de Leon Blvd. The construction start, he said, will be timed to effect completion by the time the co-anchor needs to move in. He estimated construction should take about two years.
Sources: Cushman & Wakefield and Miami Today
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