- South Florida’s office market has seen new interest from over 1 million square feet worth of tenants.
- The interest has made the area an outlier amid an otherwise moribund office market nationally.
- Here are five of the developers poised to profit from the influx of interest.
- Visit the Business section of Insider for more stories.
It’s Wall Street of the (far) south.
In just a few months, that moniker has been attached to South Florida, an outlier market with warmer climes where major financial firms have migrated to. Goldman Sachs, Citadel, and Blackstone are either opening offices or rumored to be close to leasing space.
Meanwhile, much of the nation’s office market has remained moribund for the past year, as the pandemic spurred tenants to work remotely and even reevaluate the office’s role as the bedrock for culture, productivity, and collaboration in the workplace.
But South Florida has appeared to buck that slowdown: Office-leasing experts, landlords, and developers report that over 1 million square feet worth of inbound tenants have been exploring the market in recent months to either relocate or set up satellite spaces.
That’s not to say that the pandemic hasn’t been felt. Office vacancy across Miami’s central business district, for instance, rose to 16.1% in the fourth quarter of 2020 from 13.7% at the end of 2019, according to CBRE data. There were 530,000 square feet of leasing deals in the fourth quarter compared with 880,000 square feet in the same period the year prior, CBRE said. Average asking rents remained essentially flat year over year at $44.45 per square foot, according to CBRE.
Leasing experts say that developers who either are underway with new office projects or planning to break ground have seen an outsize share of the demand as a wave of inbound tenants have focused in on gleaming new spaces.
“There really is a flight to quality,” said Alan Kleber, a managing director at JLL who has helped arrange some of the area’s headline leasing transactions in recent months, including Blackstone’s recent decision to open a roughly 40,000-square-foot outpost in downtown Miami.
“Tenants today are attracted to the better-quality spaces with natural light and newer ventilation that make them safer post-COVID,” Kleber added. “This is the segment of the market that is especially in demand.”
Here are some of the developers and builders best positioned to capitalize on the interest in the Sunshine State.
Justin Oates, vice president at Cain International
Before the pandemic started in December 2019, the real-estate developer Cain International tapped Justin Oates to help oversee the construction and leasing of a new office tower it was raising in downtown Miami in partnership with OKO Group.
Oates would move from New York City for the job, exactly the kind of migration that has become increasingly commonplace amid the pandemic, as companies and executives seek Florida sunshine as a balm for months of lockdowns and social distancing, along with the state’s low taxes and business-friendly climate.
The project, a 57-story 640,000-square-foot office tower at 830 Brickell Plaza, has drawn activity. WeWork leased about 140,000 square feet to anchor the building, which is scheduled for completion in 2022. A spokeswoman from the coworking giant, which scaled back its footprint nationally after a failed initial public offering in 2019 and as its business dipped during the pandemic, told Insider other Miami locations it operated had performed well and that it planned to keep its commitment to open at the building.
Other tenants, including Microsoft, Citadel, and the law firm Baker McKenzie, are said to either be in lease negotiations or considering space in the tower. Oates said he couldn’t comment on specific parties seeking space at the tower but that there had been enough interest from prospective takers to fill all of its available space.
“We have enough inquiries to fill the entire building,” Oates said. “Places like Austin, Denver, and Nashville have gotten a lot of attention, but it’s Miami’s turn to be the focus of domestic migration.”
Though vacancy in Miami’s central business district is in the high teens, the activity at 830 Brickell shows how tenants have prioritized top-tier offices.
“We see the Brickell neighborhood as Miami’s version of Park Avenue,” Oates said. “The vacancy there is much closer to 5%, and rents are reaching an all-time high.”
Oates said 830 Brickell’s asking rates are among the most expensive ever in Miami, in the $80 range per square foot. The developers plan to seek more for spaces high in the tower.
To make the building more compelling to prospective takers amid the pandemic, Oates said Cain decided to upgrade much of the building for a post-pandemic world, installing touchless elevators and more robust air filtration in the tower’s ventilation system.
David Martin, CEO of Terra Group
The Miami real-estate investment and development firm Terra Group, along with a partner, finished building and leasing a seven-story office property in the Coconut Grove neighborhood along Miami’s waterfront last year.
It wasn’t long before they filled the almost 80,000-square-foot building at 3310 Mary St. with tenants, including the accounting firm Kaufman Rossin, which took nearly 65,000 square feet.
“We leased the building so quickly, I wish I had more office product,” said David Martin, Terra’s 43-year-old CEO, a prolific builder of both commercial and residential space in Miami. “Every day that goes by, we have new people with space requirements that we’re not able to fill at the moment.”
Martin is planning a solution. Terra will soon break ground on another similarly sized office project also in Coconut Grove on Commodore Avenue, and it is in the process of going through a public approval process to raise a 150,000-square-foot office building in Miami Beach’s nearby South of Fifth neighborhood.
Martin has focused his commercial development in the same areas where Terra has raised over $1.5 billion worth of condo projects in the past decade, including a recently built pair of Bjarke Ingels-designed towers known as Grove at Grand Bay in Coconut Grove and the Renzo Piano-designed Miami Beach tower Eighty Seven Park.
“A lot of the migration to South Florida are people who want to live close to where they work,” Martin said. “A gentleman recently bought a penthouse from me, and now he has a 25,000-square-foot office requirement we’re talking about.”
Gopal Rajegowda, partner at Related Southeast
While several office projects have risen in and around Miami, the major developer Related Cos. has focused its attention on West Palm Beach, a city about 80 miles north of downtown Miami.
The company is finishing 360 Rosemary Ave., a roughly 300,000-square-foot office building, where the hedge fund Elliott Management and the mortgage brokerage New Day USA are both finalizing leasing deals that together total about one-third of the building’s space, according to several people with knowledge of the transactions.
Gopal Rajegowda, who helps oversee Related’s South Florida commercial development pipeline, said the West Palm market had attracted corporate executives who flocked to its well-known and exclusive neighboring residential enclaves.
“Many CEOs and employees of top companies feel more comfortable here because of the lifestyle versus being in a more dense city such as Miami,” Rajegowda said. “We felt the market was ready for a best-in-class office building.”
Like the developers of 830 Brickell, Related is equipping 360 Rosemary in the middle of its development with post-pandemic wellness features.
Rajegowda said Related had secured leasing commitments for roughly 80% of the property. Now it’s readying to break ground on its next project, a 277,000-square-foot office building at nearby One Flagler Drive.
“We’re trying to calibrate when to get in the ground,” Rajegowda said. “We could go on spec, without a tenant, but there’s been a tremendous amount of inquiries.”
Asking rents at 360 Rosemary are in the mid-$70 range per square foot, and Rajegowda said that asking rents for One Flagler would be “significantly higher.”
Barry Sternlicht, chairman and CEO of Starwood Capital
The developer and real-estate-debt player Barry Sternlicht is diving into the Miami office craze.
His firm Starwood Capital is underway with a roughly seven-story 144,000-square-foot office project at 2340 Collins Ave. in Miami Beach that it plans to finish by the end of the year.
Starwood is taking over half that space for its headquarters, relocating from another office it occupies about 1 mile away. That has left it with about 50,000 square feet to fill, Sternlicht said. It’s space he has been shopping to friends in the financial world.
“We’ve been leasing it ourselves, and it’s been more word of mouth,” said Sternlicht, who relocated his residence from Connecticut to Florida in 2016. “When I left in 2016, I would call it a trickle of people who were similarly relocating. Now I would call it a torrent.”
South Florida’s office market has traditionally been dominated by smaller office users who sign on for spaces close to when they are ready to begin occupying them, rather than the months or years in advance that developers building projects from the ground up often seek.
Sternlicht said that dynamic had shifted and tenants crowded to 2340 Collins well in advance of its completion.
“It’s been a bit of a conundrum for us,” Sternlicht said. “Do we lease it now or wait until it’s done? Because the market here is only going to get better.”
Sternlicht said he has “capitulated” in recent weeks to the demand.
“We have leased almost the entire building,” he said.
Michael Harrison, senior managing director at Hines
Amid the surge in interest in the Miami office market, the development firm Hines is ramping up efforts to get off the ground with the area’s largest prospective office tower, an up to 750,000-square-foot spire in downtown Miami called One Worldcenter.
“We’re about to begin meeting with potential tenants in New York, Chicago, and California,” Michael Harrison, a senior managing director at Hines, said, discussing the active steps the company is taking to seize on the uptick in interest.
“Miami has never had this kind of migration potential in the past,” Harrison said. “We think there’s probably a million and a half square feet of legitimate tenant prospects. We would love to turn that demand into an anchor for this project.”
Harrison estimated that Hines would begin construction on the project if it could secure an office user wanting 100,000 square feet or more.
Among the building’s features are two massive terraces, a roof deck, and private terraces within tenant spaces that will provide an unusual amount of outdoor space, which he said tenants had latched onto as a key amenity in a post-COVID-19 workplace.
“We are currently studying increasing the number of tenant terraces due to increased demand for outdoor space,” a Hines spokesman said.
Missing from the Miami office market so far has been a multi-hundred-thousand-square-foot tenant relocation or satellite office. Harrison believes it’s coming, he said.
“When you heard about firms like Blackstone, Citadel, Goldman Sachs, JP Morgan, and other major corporate and financial-services companies looking here or expanding here, those are the dominoes that will lead to bigger moves,” Harrison said.