Projected additions to payrolls will trigger a further decline in the vacancy rate in Palm Beach County this year and enable more office property operators to pass along slightly higher rents.
This according to the Marcus & Millichap Office Research Market Overview for Palm Beach County, which is available in its entirety by clicking here.
Several positive trends are maintaining the market on a recovery path.
Limited office construction magnifies the effects of even minor demand growth on the vacancy rate, and the pace of mass layoffs has slowed considerably since the low point of the recession.
Also, despite a sluggish first half, more than 6,000 jobs have been added since the recession’s end three years ago, including 5,000 posts in education and health services, an employment sector with a sizable office-using component.
Existing home sales, a key driver of economic activity in Palm Beach County, also picked up recently. Still, the accumulation of these positive trends has yet to translate to a meaningful and robust recovery and vacancy will stay above 20 percent this year.
More substantial space demand awaits in about one year, after newly hired workers have backfilled underutilized desks and cubicles, and tenants begin to expand again.
Lower prices continue to fuel a surge in investment activity, especially among private investors seeking assets pricing at less than $10 million. Many purchases are made with cash, but bank fi nancing remains available for many investors at LTVs of up to 65 percent.
Cap rates on stabilized properties start at around 8 percent, though little stabilized product has sold recently. Replacement cost remains a primary pricing metric instead, and purchases of assets at signifi cantly less than $100 per square foot enables investors to reset rents and ride up the asset’s value as operations improve.
Investments in medical office properties also surged over the past year, and the county’s generally older population will sustain high demand for medical services and produce new practices.
Development opportunities near new subdivisions may also be uncovered. Over the past year, housing starts in the county jumped about 43 percent to 2,000 units. While homebuilding remains well below the levels recorded prior to the recession, new demand for medical services is nonetheless being generated by the spread of rooftops.
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