IRR-Miami Mid-Year Viewpoint 2015 Local Market Report - Office
The Miami office market has rebounded, with the CBD market now looking to be under-supplied within the coming 24 months at the current rate of absorption and rental growth. Top Trophy properties are in high demand, with cap rates dipping below 5% on rent growth expectations. These expectations of rent growth are being met as Class A trophy assets saw rental rate appreciation of 5% plus over the past 6 months. Significant new-to-market tenants continue to enter the market.
Tenant Improvement allowances (on new and renewal) remain high as competition to retain tenants is fierce, but new CBD office supply is dwindling fast. This bodes well for B-assets to reposition and capitalize on area rental growth. Suburban office markets are performing well, with some new construction evident in the stronger suburban markets. Class B office continues to struggle with higher vacancy, and slower rental rate growth. However, with the office market stabilizing, there will likely be some value-add Class B buildings that can reposition to capture some "move-down" tenants formerly in A-space that is now too expensive.
The recent sale of 777 Brickell set new highs for downtown office ($500+ per SF); but part of the anomaly in CBD space is the potential to reposition assets long-term as redevelopment/land plays. Nonetheless, the increasing land pricing downtown will make new office developmentunlikely in the coming 24-36 months. Rent spikes will likely follow, which will continue to press pricing upward on fundamental imbalance of supply and demand. Markets like Aventura, Coral Gables, and South Miami have burned off the excess office-condo inventory (or converted it back), and unless Miami re-converts back into office condos, the 5-7 year investment horizon for office properties is fundamentally strong. At current pricing, office condo converters may enter back into the market. When this becomes prevalent, it's time to exit. So far, converters are under the radar.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.