Miami Offices Defy National Trends
Rents are rising and absorption is positive.
The sunny skies of South Florida appear to be benefiting not just beachgoers but office landlords as well. Rents are up, leasing activity is strong, and net absorption is positive. Nevertheless, clouds on the distant horizon could throw a shadow over the party.
Colliers’ report on the Miami-Dade County office market found rents rising 11% from $46.58 in Q1 2022 to $51.70 per square foot in Q1 2023, a figure 3.8% higher than Q4 2022. The region had 134,800 square feet in new office supply and net absorption of 204,000 square feet in Q1 2023. Vacancy was stable at 10.1%. The region also experienced heavy leasing activity of over 950,000 square feet during the quarter. High-quality Class A assets continued to do well, especially in Brickell and Wynwood.
Colliers attributed the rise in rents to “heavy demand combined with the influx of new construction entering the market with higher priced space options.”
The company also detected a trend of tenant movement from Central Business Districts to suburban submarkets. It noted that between 2020 and 2022, 80 tenants in South Florida with almost 250,000 square feet of space moved out to more affordable suburbs, with the number growing each year. The shift was driven, according to Colliers, by rising rents, work-from-home trends, and millennials with families preferring suburban locations. However, the trend was partially offset by new-to-market tenants moving into CBD offices.
“As economic pressures persist in the first quarter of 2023, bifurcation is expected to increase throughout South Florida as tenants seek quality, flexible space options and good terms,” Colliers cautioned. It predicted widening performance and demand differentials between building classes, markets and business sectors.
Furthermore, Colliers expects “a significant number” of companies to cut back on their space requirements, typically by 20% to 30% — or even 50% — for larger occupiers. It noted that Humana had already shrunk its footprint by 76% and ADT by 41%.
Also looming is the potential impact of the Fed’s interest rate hikes, which are not expected to be reversed until later this year. Nevertheless, Colliers stated, the persistent influx of new-to-market tenants should keep market fundamentals healthy for the rest of the year.
