May 18th, 2017
By Catherine Lackner
Miami Beach, a small, boutique office market, is “phenomenal as an asset class and arguable in the very best of health right now,” said Stephen Rutchik, Colliers International executive Vice President.
With no new office product introduced since 2002 and exploding values that make residential and mixed-used projects the highest and best use for raw land, tenants are shopping around in existing spaces and landlords are re-investing in older buildings, he said.
“There’s been a very significant appreciation in rents,” he said. “We’re still at a discount to the central business district, but not as much as before.” Class A rents in downtown Miami are about $45-$50 per square foot gross, while that space can be had on Miami Beach in the mid-$40s, he said.
“Many employers are looking for a submarket that has all the amenities their employees want as well as places to entertain clients. Miami Beach provides that and it’s not horribly congested like the CBD. It also has that cool factor, like Wynwood,” which doesn’t have much in the way of pure office space, observers say.
On Miami Beach, a higher proportion of people get around on bikes, skateboard and scooters than on the mainland, which is appealing to the millennial who work for or own tech companies, Mr. Rutchik said. “Tech firms are the drivers of net absorption. Being on Miami Beach checks their boxes.”
“We are seeing that the Miami Beach office market is currently performing quite well, with several similarities to other South Florida boutique office markets, such as Aventura and South Miami,” said Steven Hurwitz, a partner at CREC who leads the firm’s office leasing practice, via email.
“They provide a wide range of high-end, close-to-home opportunities for professionals wanting to avoid the ever-growing traffic congestion in South Florida. In Miami Beach, calls A vacancy remains in the single digits, and rental rates continue to climb, with supply constraints and limited, to no new deliveries on the drawing board.
“Land values and the return on other asset classes – like residential, retail and hospitality – have made Miami Beach’s office supply flat for many years. It is highly unlikely you will see an institutional-quality office building being delivered in South Beach anytime in the near future,” he said.
Miami Beach tenants are typically middle- to high-net-worth decision-makers, the fund and investment managers, principals in music and talent agencies and others who don’t typically need to be downtown, he said.
“Compass (a new tenant to Miami Beach) took the top two floors at the old Sony Building at 605 Lincoln Road in the past year and Warner extended its lease last year and is staying on Miami Beach, so that’s also good news for the market,” Mr. Hurwitz said. “Miami Beach tenants are those that want great quality in a location outside the more congested downtown and Brickell markets. Many of them live on Miami Beach, as do their employees.”
“Miami-Dade County’s pace of total office leasing activity bounced back from a tepid showing in 2016 with little adjustment to near-record high asking rate,” said JLL’s first quarter 2017 office report.
“Countywide total leasing activity registered 40% year-on-year growth (representing the largest single-quarter square-footage leased since the fourth quarter of 2015), led by the long-awaited return of suburban submarkets to long-term historical average activity.”
Miami Beach is a relatively small market with 1.9 million square feet of office space, the report continued. Throughout the Beach, rents average $41 per square foot, and the vacancy rate is 9%. Miami Beach class A space fetches $45 per square foot (with an 8% vacancy), while rates for class B are $39 per square foot with a 9% vacancy.