Miami Office Market Report
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YEAR END 2018 MIAMI OFFICE MARKET REPORT Licensed Real Estate Broker EXECUTIVE SUMMARY MIAMI OFFICE MARKET HIGHLIGHTS s 2018 came to an end, the Miami office market experienced job growth include construction, manufacturing, professional increased tenant demand over the previous quarters. services, and financial services. Additionally, the county’s economic A Market fundamentals, however, remained consistent. Year- development agency, The Beacon Council, reported that major over-year, leasing momentum kept up pace, and new-to-market job growth is expected to continue in the technology, real estate, activity increased slightly. Leasing activity was driven by continued healthcare, and creative industries (most prominently, media and demand for walkable environments and quality office space in entertainment). buildings designed to deliver enhanced user experiences and to attract and retain talent. New development projects captured global co-working concepts and quality tenants seeking locations LEASING ACTIVITY that improved commute times, provided easy access to a broad amenity base, and offered varied residential housing options. We Year-over-year, there was 2.8 million square feet of leasing activity expect Miami’s appeal as a growing, global city to support leasing across the Miami office market. Most of the transactions were momentum and continued investment in office product through renewals, expansions, and moves within submarkets (71% of total 2019. activity) with financial services, professional services, real estate firms, and the expansion of co-working concepts representing 39% of the total lease transaction volume in 2018. ECONOMIC HIGHLIGHTS As we projected in mid-2018, new-to-market activity increased by 34%, driven by 200,000 SF leased by co-working companies Miami’s key economic indicators were strong in 2018 and drove entering the market and expansion of existing co-working concepts significant impact within the office market. Boasting one of the and 154,000 SF leased to companies in the financial services, largest economies in the U.S., the Miami-Metro area contributed healthcare, and technology sectors. more than 30% of the state’s total GDP ($120 billion) and ranked among the top five metro economies in the nation. With a business The four major office submarkets captured 75% of completed friendly environment, the availability of direct flights from Miami transactions. More than 40% of the completed transactions in Brickell International Airport to domestic and international destinations, were new-to-market deals (+/- 62,000 SF, excluding co-working), strong trade, and a diversified economy, Miami is noted as a gateway most of which were in the financial services and technology sectors. to the Americas making the city a magnet for entrepreneurs and Coral Gables led with expansion activity, recording 40% of total in- companies seeking to expand their globalMiami-Miami reach. Beach-Kendall We, therefore, market expansions. Miami Airport captured more than 30% of total Job Creation (in Year Dec thousands) Increase (%) expect to see increased new-to-market leasing2010 1,012 activity across- the- leasing activity, driven by renewals and extensions, but available 2011 1,033 21.4 2.1% 2012 1,060 26.8 2.6% 2013 1,085 25.3 2.4% Miami office market in 2019. 2014 1,128 42.5 3.9% inventory of space also increased due to major corporations right- 2015 1,163 35.3 3.1% 2016 1,186 23.1 2.0% 2017 1,201 15.3 1.3% sizing and additional M&A activity. 2018 Feb-17 Feb-18 Miami’s unemployment rate decreased 1,250 UNITED STATES 4.9 4.4 BROWARD COUNTY 4.5 3.5 MIAMI-DADE COUNTY 4.8 4.7 by 28% to 3.2% as compared to the 1,200 PALM BEACH COUNTY 4.7 3.7 1,150 UNEMPLOYMENT RATES 4.2% 6 national average of 3.9% in 2018. As 1,100 ANNUAL JOB GROWTH IN 5 a result, according to the Bureau of 1,050 MIAMI-DADE COUNTY 4 3 1,000 2 Labor Statistics, Miami ranked second 1 950 0 UNITED STATESNEW-TO-MARKETBROWARD COUNTY MIAMI-DADE COUNTY PALM BEACH COUNTY DEALS in the U.S. for highest year-over-year job 900growth (4.2% vs. national Feb-17 Feb-18 2010 2011 2012 2013 2014 2015 2016 2017 average of 1.7%) which contributed to the overall solid performance SIGNED IN 2018 INFORMATION 50.3 MANUFACTURING of the97.7 office market. Industries demonstrating the most significant CONSTRUCTION 144.6 FINANCIAL SERVICES 182.2 Industrious | 1111 Brickell (45,393 SF) LEISURE AND HOSPITALTITY 320 EDUCATION AND HEALTH SERVICES 392.6 PROFESSIONAL SERVICES 435.5 TRADE & UTILITIES 600 | 600 Brickell (23,620 SF) TOTAL NONFARM 2636 iSquared Capital 2018 MIAMI AREA EMPLOYMENT (NUMBER IN THOUSANDS) Roger’s Memorial Health | Waterford (11,688 SF) MIAMI AREA EMPLOYMENT (NUMBERS IN THOUSANDS) TRADE & UTILITIES PROFESSIONAL SERVICES Evolent Health | Downtown Doral (10,000 SF) EDUCATION AND HEALTH SERVICES LEISURE AND HOSPITALTITY Conway McKenzie | 600 Brickell (5,700 SF) FINANCIAL SERVICES CONSTRUCTION MANUFACTURING INFORMATION 0 100 200 300 400 500 600 700 BLANCA COMMERCIAL REAL ESTATE | 4th QUARTER 2018 MARKET REPORT | PAGE 2 EXECUTIVE SUMMARY MIAMI OFFICE MARKET HIGHLIGHTS RENTS SUPPLY At year-end, overall direct weighted average asking rents remained As projected last quarter, quarter-over-quarter leasing velocity stable across the board for Class A and B space; currently at increased towards the end of the year and drove positive net $40.24 PSF. Year-over-year, rents experienced modest increases absorption in the urban core and growing office submarkets compared to previous years. Miami rents continue to outperform including Wynwood and the Design District submarkets (239,000+ and grow at a faster than average pace versus other major U.S. SF). office markets (5.0% vs. 1.6% rent growth). The upward pressure on rents is driven by In 2018, there was just over 600,000 SF of new new deliveries in emerging office submarkets, office space added to the Miami market. Of this, 5.0% vs. 1.6% building trades, and newly repositioned office 483,000 SF were under lease to quality tenants Miami Office Rent Growth within a year of delivery. Prior to TCO, the buildings. vs. leasing success of newly delivered buildings US Office Rent Growth The four major office submarkets have further evidences the flight-to-quality that historically driven rent growth within the Miami prevails in Miami, a trend that will remain evident market, but held steady as the year ended (-0.3%). Coral Gables as new projects currently under construction deliver through 2020. Class A recorded a substantial rent growth of 5.5% and Brickell During 2019, more than 300,000 SF of new supply is expected to Class B office space led with a 5.9% spike in rents. Those spikes, in deliver by the end of the fourth quarter; of which more than 100,000 great part resulted from owners seeking to unlock the full potential SF has been pre-leased. Limited new supply and consistent deal of their assets through thoughtful renovations that were completed activity will drive positive net absorption across various submarkets in 2018. the first half of 2019. New office deliveries in Wynwood, Design District, Coconut Grove, and other evolving submarkets are being offered for lease at $55.00 SELECT NEW OFFICE DELIVERIES PSF to $65.00 PSF, significantly placing upward pressure on overall 2018 NEW OFFICE DELIVERIES 2019 NEW OFFICE DELIVERIES market rents. We expect this dynamic will continue through 2020 as LEASING PERCENTAGE PRE-LEASING PERCENTAGE (Within 12 Months of TCO) new office product delivers in submarkets such as Coconut Grove, Aventura, Wynwood, and Coral Gables. 100% LEASED 100% LEASED Given the existing market dynamics and key drivers of rent growth, we expect rent increases in submarkets outside of Downtown and Brickell, while submarkets with limited premium space will maintain current rents. GIRALDA PLAZA OPTIMUM BUILDINGS WITH THE HIGHEST YEAR-OVER-YEAR INCREASE IN ASKING RENT (FOUR MAJOR SUBMARKETS CLASS A) 95% LEASED 100% LEASED 2018 2017 11.8% INCREASE 11.7% INCREASE 9.3% 3 MIAMICENTRAL TERRA BUILDING INCREASE $51.71 8.9% INCREASE 8.1% INCREASE $46.28 $42.21 $41.01 95% LEASED 0% LEASED $40.00 $37.11 $37.76 $37.00 $37.52 $34.07 CANAL PARK OFFICE WYNWOOD 25 ANNEX 100 BISCAYNE THE LANDING ONE PARK 1111 BRICKELL 800 WATERFORD AT MIA SQUARE BLANCA COMMERCIAL REAL ESTATE | 4th QUARTER 2018 MARKET REPORT | PAGE 3 YEAR IN REVIEW 2018 MIAMI OFFICE MARKET HIGHLIGHTS RENTS: Miami-Dade rents increased by 5% year-over- year vs. the national average of 2% HISTORICAL COMPARISON OF CLASS A & B RENTAL RATES IN MIAMI OFFICE MARKET (Direct, Full Service, PSF) ECONOMIC HIGHLIGHTS: Miami LEASING ACTIVITY: 2.8 million currently boasts one the largest square feet of leasing activity $45.84 $45.81 economies in the U.S. across the Miami office market. CLASS A $44.66 $41.78 $39.31 37% spread +30% #2 43% 46% OF TOTAL LEASING OF TOTAL NEW TO OF STATE GDP IS MIAMI RANKED #2 $33.22 ACTIVITY WAS MARKET ACTIVITY $32.51 CONTRIBUTED BY METRO RENEWALS/ WAS LEASED BY CLASS B $31.56 MIAMI METRO AREA ECONOMIES $29.72 EXTENSIONS CO-WORKING NATIONALLY $27.17 COMPANIES 2014 2015 2016 2017 2018 EVOLVING OFFICE MARKETS TOP PERFORMERS 600K 1. WYNWOOD BRICKELL DOWNTOWN MIAMI AIRPORT square feet 2. DESIGN DISTRICT HIGHEST RENT GROWTH HIGHEST POSITIVE NET HIGHEST LEASING K 300 3. COCONUT GROVE IN THE FOUR MAJOR ABSORPTION CLASS ACTIVITY square feet SUBMARKETS A & B 2018 NEW OFFICE 4. AVENTURA (27% OF DEALS NEW TO DELIVERIES MARKET AND NEW TO (80% LEASED) SUBMARKET) NEW OFFICE 3.1% 67,052 SF 640,000 SF EXPECTED TO DELIVER IN 2019 (33% PRE-LEASED) 2018 TOP BUILDING SALES (RANKED BY PRICE PSF IN MILLIONS) $ INVESTED AND COMMITTED TO ASSET RENOVATION 500M $475 PSF Courthouse Tower $5M $404 PSF 400M Brickell City Tower $6.4M $341 PSF Sabadell Financial Ctr.