Former Office Depot CEO Steve Odland had a grand plan for a global headquarters in 2006.
Two years later, employees moved into a majestic building rising above Military Trail at Clint Moore Road in Boca Raton that overlooks a golf course.
Seven years and two CEOs later, Office Depot is getting ready to merge with Massachusetts-based Staples. Ron Sargent, Staples CEO, has said the combined office-supply retail company – if approved by antitrust regulators – would be based at its headquarters in Framingham, Mass.
As a result, the Boca Raton real estate market could suddenly have more than 625,000 square feet of prime office space in need of new tenants.
“That would dump a lot of office space into the Boca Raton market,” said Peter Reed, broker for Commercial Florida Realty Services in Boca Raton.
Finding a single company — or two or three — to fill all that space wouldn’t be easy, local real estate experts say.
Reed said the situation would be almost as bad as in 1996 when IBM relocated most of its Boca Raton employees to North Carolina and Texas.
Long-time South Florida developer Malcolm Butters said if Office Depot leaves, “psychologically it’s bad for the market and bad for Palm Beach County.”
Reed said the Office Depot’s building, completed in 2008, is “state of the art, a great location,” he said. “But that’s a lot of space to absorb.”
After Tyco International vacated One Town Center in Boca Raton, that put 200,000 square feet on the market. After four years, only 30 percent to 40 percent of that space is occupied, Reed said.
“Use that as a gauge,” he said, though adding that 2011 was a more challenging economic time.
While it could take as long as a year for the merger to be completed, the large office vacancy would come at a time when the commercial market has begun to recover.
The vacancy rate dropped to 6.7 percent from 7 percent a year ago, according to a report by Cushman & Wakefield South Florida. “The appetite remains strong for well-located Class A assets, with access to efficient transportation,” the report says.
Jonathan Kingsley, South Florida broker for commercial real estate firm Colliers International, agrees the loss of Office Depot “would be a big hit.” He said finding one or more tenants for the gargantuan building would be “an incredible task” that could take three or four years.
Another headquarters company would be ideal for the space, but he said it’s more likely the office would have to be divided — perhaps into three 200,000-square-foot offices. But finding tenants to fill those sizes is difficult as well, he said.
Butters said a 100,000- to 200,000-square-foot tenant could likely get a good deal on the property, after Office Depot’s lease expires. But the property doesn’t lend itself to be divided into smaller spaces, he said.
Staples CEO Ron Sargent has said while the combined company headquarters would be at its Framingham, Mass., campus, it may have a “presence” in Boca Raton.
If Office Depot kept even part of the building, that could make leasing remaining space even more challenging, Kingsley said. He said it would likely take three or four years to re-lease the building.
Meanwhile, local retailers and restaurants would suffer from the loss of nearly 2,000 employees currently working at the office, he said.
Still, brokers said the Boca Raton location also would be prime office space in a two-county area that has few large commercial spaces available.
The headquarters at 6600 N. Military Trail was custom built for Office Depot. It has three vertical, interconnected, five-story buildings that are linked by glass-enclosed atriums. It was designed to accommodate 2,500 Office Depot employees.
The building was sold in 2011 by teachers’ retirement fund TIAA-CREF to Hub Properties Trust, a real estate investment trust in Newton, Mass., for $171 million, according to Palm Beach County court records. That REIT has since evolved into Chicago-based Equity Commonwealth REIT led by billionaire investor Sam Zell, former owner of the Tribune Co. in Chicago, and then-parent to the Sun Sentinel Co.
Office Depot had a 15-year lease on the building at the time of its sale.
If government regulators allow the merger to proceed, Business Development Board president Kelly Smallridge still hopes to convince Staples that Boca Raton is the place to base the company headquarters. She said she would work with the owner to look for three 200,000-square-foot users that were compatible with each other, perhaps regional headquarters.
“We don’t even want to think about that being empty,” she said.
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