MIAMI OFFICE MARKET YEAR-END WRAP UP WHAT TO KNOW ABOUT REAL ESTATE GOING INTO 2016 CBD SURGE RATES CONTINUE TO RISE CORAL GABLES – THE COMEBACK ELEVATED OCCUPANCIES, RATES AND ACQUISITIONS MIAMI AIRPORT READIES FOR NEW SUPPLY EXTREMELY LOW CLASS A VACANCY REAL ESTATE OUTLOOK 4Q -2015 2015 REAL ESTATE OUTLOOK 4Q MIAMI OFFICE MARKET FOURTH QUARTER 2015 Encouraging market fundamentals boost investor and landlord confidence with elevated acquisitions and persistent rental rate hikes Near term for-lease office construction remains relatively restrained – with pre-leasing reported in most buildings ECONOMY Miami’s office using industry sectors ended 2015 with positive gains OFFICE TRENDS - OVERALL MARKET On the national front, 2015’s underlying data remained generally strong – despite 8.0 YEARS CURRENT QUARTER long term wage stagnation, both lower and higher paying jobs are coming back. VACANCY U.S. jobs data showed good pick up in hiring - Professional/Business Services, Healthcare, Construction and Restaurant/Bar industries – essential South Florida 12.5% sectors. Overall labor force participation in the nation was just over 60%+, up from 8-year low in supply previous decades due in large part to demographics i.e. aging population. levels ABSORPTION Both the state and the region continue to attract residents with population growth in the three-county South Florida market among the fastest-growing in Florida. 804,862 SF Unemployment in the Miami metro was back to early 2015’s 5.5% and down from YTD 2015 most of the monthly 6.0+% rates posted during the year - still among the lowest Six consecutive years of since midyear 2008. Lower rates were posted among the two other South Florida positive occupancy gains counties, Broward (4.5%) and Palm Beach (4.6%). A 5.0% unemployment rate was RENTAL RATE recorded for both Florida and the U.S. – marking the first time since January 2015 that Florida’s unemployment rate has not been higher than the nation. $34.54 PSF 6-year high – up 8.4% Leading the Miami metro was the Leisure and Hospitality segment registering the since 2011 highest growth rate at 5.0%. This coincides with Miami garnering a record-breaking year in its travel, tourism and hotel occupancy numbers. Trade, Transportation, and UNDER CONSTRUCTION Utilities is the single largest employment sector comprising 26.0% of the area’s SF total. Going forward from 2015 through 2023, the highest growth rates for Miami 541,228 are projected to be in the Construction (22.6%), Education/Healthcare (17.0%) and CBD No new CBD deliveries the prime office using sector of Professional/Business Services (15.2%). A tally of all since 2011 industries during the projected timeframe point to office using jobs accounting for one-quarter of this total. 56,000 SF SUBURBS OFFICE USING INDUSTRY SECTORS INBOUND: PROJECTED EMPLOYMENT GROWTH (2015 – 2023) RESIDENTS/EMPLOYEES TO INCREASE PROJECTED POPULATION GROWTH (2015 – 2025) 10.4% PROFESSIONAL FINANCIAL INFORMATION & BUSINESS ACTIVITIES 15.2% 6.1% 2.2% Additional sources: FREIDA, Florida DEO, Bureau of Labor Statistics, Miami Herald MIAMI OFFICE MARKET FOURTH QUARTER 2015 SUPPLY AND DEVELOPMENT HALLANDALE BEACH BLVD FLORIDA’S New occupancy gains of 4.0 MSF since 2010 have more TURNPIKE than offset 2008-2009’s 1.4 MSF of negative absorption. BROWARD EXTENSION FLORIDA’S 441 The year ended with an overall vacancy rate of 12.5% - marking MIAMI-DADE TURNPIKE AVENTURA a near 70% drop since the decade high peak of almost 21% posted in late 2010. Consistent positive absorption reduced 826 826 supply levels as 2015 closed with over 800,000 SF in new MIAMI LAKES occupancy gains; on average, the market has absorbed 680,000+ SF annually since 2010. Sublet vacancies, while 27 FLORIDA’S remaining under 100,000 SF consistently during the year and TURNPIKE A1A EXTENSION among the decade’s lowest, are anticipated to increase going 95 into 2016 due to several large consolidations and out of market 1 MIAMI BEACH relocations. Overall leasing volumes have kept a near identical MIAMI AIRPORT 112 pace during the last three years, averaging 3.5 MSF. 826 DOWNTOWNMIAMI 836 Office construction market-wide now stands at just under 600,000 SF. These are refreshing statistics compared to the 41 beginning of the 2007 recession when 2.7 MSF were underway. CORAL GABLES BRICKELL The current construction activity is largely confined to the CBD. KEY However, 2016 will see new Suburban development in the BISCAYNE 1 Airport where two buildings totaling just under 400,000 SF will COCONUT GROVE be built. The good news is that almost 40% will be pre-leased for Burger King’s 150,000 SF build-to-suit headquarters while the other asset is scheduled to break ground in 1Q 2016 and KENDAL/DADELAND will be a 246,000 SF spec building. These developments are FLORIDA’S part of the highly successful TIAA-CREF/Allianz Real Estate of TURNPIKE EXTENSION America portfolio of Class A buildings at the Waterford office park. OLD CUTTLER RD © 2016 1 2 mi TRANSWESTERN DEMAND Going into 2016, 65% of the 1.0 MSF of tenants touring CBD NEW CLASS A are comprised of large (20,000+ SF) requirements – OFFICE DELIVERIES half of which are occupiers in the Banking/Financing Chart Title industries 1999 - 2017 1,600,000 Year-to-date lasing volumes were nearly evenly divided between the CBD and Suburbs. Within the CBD, the usual 1,400,000 industry sectors of Banking/Finance and Law Firms dominated 1,200,000 transactional activity, accounting for 42% of the total. Increasingly, Real Estate and Tech firms are following suit as 1,000,000 they were the next largest group of users to execute leases this year. 800,000 600,000 Suburban activity was led by Healthcare, where well over 400,000 SF were executed. Similar to the CBD, tenants in the 400,000 PROJECTED SUPPLY Real Estate and the Banking/Financial Services employment sectors followed in volumes of square feet leased. 200,000 0 MIAMI OFFICE MARKET FOURTH QUARTER 2015 RENTAL RATES INVESTMENT SALES ACTIVITY The last few years have seen landlords bump rates, Reduced supply levels and upward trending rental oftentimes several times a year rates continue to lure the extremely high levels of 2015 followed suit with year-end seeing incremental hikes institutional and foreign capital available and eager still being implemented for both Class A and Class B space. to invest in Miami office product Direct rates for Class A product have increased by 6.0% since Of the 22 competitive buildings traded during 2015, the 2010 and have averaged above $40.00 PSF for the last two great majority (over 75%) were Class B product. The year quarters. Fourth quarter posted the highest quote since produced three sales well above the $500 PSF mark – two in 2Q 2009. Several high floor prime spaces in Brickell (CBD) the CBD Brickell market, including a Class B building, and raised quotes by 6.0% - 8,0% just this quarter. Higher pricing another Class B asset in Suburban Miami Beach. increases have occurred in the Class B segment, where asking rates have grown by 13% since 2010. Most of the year’s sales occurred in the Suburban markets. Going into 2016, five new Suburban (Class B) assets were Some of the more substantial pricing surges have occurred put on the market. in the Suburbs, where one Class A Coral Gables asset hiked quotes by 12% this quarter while two Suburban Airport Class B buildings increased their pricing at year-end by 14% and 29%, respectively. Within this heightened pricing environment, Class B buildings are being renovated, repositioned and increasingly, traded. Fourth quarter 2015 did end with some of the 2015 ends with lower vacancies while 2016 largest – 90,000+ SF – leases signed by office begins with construction announcements occupiers MIAMI - DIRECT VACANCY TRENDS, 2010 - 2015 MIAMI - DIRECT QUOTED RENTAL RATE TRENDS, 2010 - 2015 MIAMI - Direct Vacancy Trends, 2010 - 2015 MIAMI - Direct Rental Rate Trends, 2010 - 2015 25.0% $45.00 $40.00 20.0% $35.00 $30.00 15.0% $25.00 $20.00 10.0% $15.00 $10.00 5.0% $5.00 $0.00 0.0% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Class A Class B Class A Class B TOP 2015 LEASE TRANSACTIONS SUBMARKET OFFICE BUILDING TENANT SF EXECUTED LEASE TYPE INDUSTRY SECTOR Airport Waterford Burger King 150,000 (4Q 2015) Relocation Retail Trade Build to Suit Downtown Miami Center Citi 125,000 (2Q 2015 Renewal Banking Downtown Security Building WeWork 97,000 (4Q 2015) New Real Estate Downtown UM Life Science & Tech Park Cambridge Innovation Center 90,000 (4Q 2015) New Tech Airport Flagler Corporate Center Simply Healthcare 85,000 (2Q 2015) Relocation Healthcare Downtown The Omni Offices Crystal Cruises 75,000 (3Q 2015) New Leisure & Hospitality MIAMI SUBMARKET SPOTLIGHT 2015 DOWNTOWN OFFICE MARKET - CBD 4Q FOURTH QUARTER 2015 SUPPLY AND COMPETITIVE ENVIRONMENT DOWNTOWN Downtown continues to carry the largest amount of available space of any single Direct Vacancy Trends, 2010 - 2015 submarket, accounting for nearly one-third of Miami’s overall vacancy. This Direct Vacancy Trends, 2010 - 2015 30.0% includes three of the largest contiguous availabilities on a Class A basis with three buildings marketing three blocks of space in excess of 100,000 SF each, 25.0% due mostly to several large law firms in the process of relocating to other CBD 20.0% buildings. Nonetheless, on a statistical basis, Class A vacancy has dropped 2010 Delivery considerably - by 6.0 percentage points since 2010. 15.0% of new Class A supply 753,000 SF 10.0% DEMAND– LEASING AND TENANT TOUR ACTIVITY Office users executed almost 1.0 MSF in total 2015 Downtown transactions, 5.0% accounting for the majority (nearly two-thirds) of all CBD leasing during the 0.0% year.