The South Florida regional office market has continued to improve due to the impact of the global COVID-19 pandemic. In fact, all three counties recorded positive net absorption of more than 100,000 square feet (sf) in the third quarter of 2022, bringing year-to-date net absorption to more than 1 million square feet (msf). Overall vacancy declined as leasing activity remained solid and over 1.8 msf of total new leases were signed in the third quarter. The momentum allowed landlords to push asking rents to record highs, driven by increased tenant demand for Class A office space.
Miami-Dade County held the lead with more than 191,000 sf of positive net absorption recorded in the third quarter, for a total of more than 603,000 sf of absorbed area in 2022. Leasing activity improved sequentially by approximately 977,000 sf of new contracts signed during the quarter, bringing year-to-date activity to 2.8 msf. The Class A segment contributed 68 percent of new deals and helped push the overall vacancy rate to 16 percent. Asking prices rose to $48.69 per square foot (psf), with landlords confident office occupiers have continued demand for quality space in key submarkets, including Downtown and Brickell in the Central Business District. In downtown, Class A space in prime buildings like 830 Brickell had rents starting at $150 per PSF.
The Broward County office market also saw positive improvement in fundamentals with net absorption of 125,000 sf in the third quarter of 2022, driven by Chewy.com’s move from the DCOTA Office Center to Plantation Pointe. Otherwise, the office segment would have been more balanced between supply and demand for the quarter. Overall vacancy increased due to the completion of Onyx Tower, a 277,000 sf multi-tenant Grade A office building in Hallandale, which came online with over 93 percent space remaining. Year-to-date leasing activity totaled 1.7 msf, with 418,000 sf of new contracts signed in the third quarter. This was a 40 percent decrease from the previous quarter, which could indicate a trend toward lower demand for office rentals in Broward County.
Palm Beach County had another solid quarterly performance on lease demand with positive net absorption of 113,000 sf recorded in the quarter, bringing year-to-date absorption to 245,000 sf. The overall vacancy rate fell below 12 percent for the first time since 2007. Back then, vacancy rates in the county rose as the economic downturn resulting from the Great Recession dampened demand, coupled with a huge number of new Class A office towers being added in a truncated period over the following 18 months. Palm Beach County’s office segment was the tightest office market in South Florida this quarter, and the overall Class A vacancy rate was 11.5 percent. Total leasing activity was 474,000 sf of new contracts signed in the past three months, for a total activity of 1.5 msf in 2022. As a result, the overall demand average rose above $44 per PSF and the Class A average rose above the $52 per PSF mark.
Office market fundamentals are moving in the right direction with steady improvements. Many commercial real estate experts are reluctant to declare the office segment a fully recovered amid uncertainty that the work-from-home and hybrid office components will impact the market as companies continue to assess their office space needs while moving their employees into the shift location. back to the office. Another factor is the Fed’s recent rate hikes to control inflation, potentially affecting an economic recession, and the overall impact on the commercial real estate industry and how long it will last. The “Great Migration” trend to South Florida has also brought more new tenants to the market, including Citadel’s 95,000-sf deal at 830 Brickell, Goldman Sachs’ 35,000-sf lease in the Southeast Financial Center, and the 30,000-sf -Deal from Mindspace at Gateway @ Wynwood. Another New Market deal for 100,000 sf was about to be signed in the Brickell submarket. In South Florida, Miami-Dade was the primary beneficiary of companies opening and/or relocating to South Florida and led demand growth and rental activity, while Palm Beach County’s vacancy rate was the lowest in the region.
One thing is certain, the South Florida office segment is well positioned to weather the moderate impact of an economic downturn. The current development of the office market and strong pre-letting of new Class A products should ensure a softer landing compared to other major markets across the country.
Eric Messer is Senior Research Manager at Cushman & Wakefield.
