The ever-present regiment of construction cranes in downtown Miami indicates a busy construction industry, but the share of that work going into creating Miami office space is smaller than in previous years. In fact, the largest segment of growth in Miami’s construction contracts for 2014 (62%) was in residential properties
According to a recent article by NAI Miami, there’s a lot of demand for residential properties, much of it from foreign buyers, and they’re generating high returns, particularly in the luxury market. Developers see more opportunity in this market, and have been hesitant to invest in new office projects.
Despite increases in available residential properties, rents overall continue to rise and vacancies fall. This holds true for office space as well, and this has some wondering if Miami’s downtown office space is becoming a little scarce.
The recently released 2015 Q1 Miami Office report by JLL offers some interesting statistics for us to digest:
- In the first quarter of 2015, construction of office space in Miami/Dade County totaled just over 300,000 square feet, with the vast majority of that work going on in the Central Business District (over 260,000 square feet).
- Office vacancies in the CBD stood at 16%, up slightly from 4Q 2014, and higher than the metro area average.
- Office space inventory in the CBD is 13,459,152 square feet, and absorption so far this year is at .4%
- Average office rents in the CBD are the highest in the area, at $36.93 for 1Q 2015.
Rents in the area have been rising slowly but steadily, and this seems to be a continuing trend. The vacancy rate for Miami office space seems a bit high in the CBD for a “tight market”, but it can be understood when you consider that several larger companies have recently relocated. Recent examples are the moves by the law firm Shutts and Bowen and Ackerman’s exit from the Suntrust International Tower on Southeast 3rd Avenue.
While development of new office space downtown is slow, some innovative projects are underway in outlying areas, where warehouse space is being rehabbed for workplace use. This sort of adaptive reuse is an environmentally sound and potentially profitable approach to easing the Miami office space squeeze.
Current inventories of Miami office space seem adequate, but with little new space under construction it’s likely that the market will become increasingly competitive in the next few years. The overall economy is slowly recovering, and there’s been a surge of international interest in US commercial real estate that will keep the Miami market interesting. The growth of office employment in Miami is expected to slow slightly over the next 5 years, but will continue to grow. The projected annual rate is 1.9%, compared with a rate of 3.1% experienced in 2013.
The county’s Chief Economist is optimistic about commercial real estate in Miami. He sees “strong demand” for all types of commercial properties, but reminds us that real estate growth always occurs in cycles. He continues, “Industrial development is the first to move forward. Last is office space.” With steady job growth and increased international participation in the market, the demand for downtown office space is likely to drive an increase in new construction for that segment of the market in the coming years.