News Update: Florida’s Office Market Is Doing Just Fine

Office markets nationwide are struggling with remote work. But in Florida, where office markets just notched another quarter of record-high rents, those struggles look remote indeed.

The mainstream media continues to report the narrative of a national office crisis. In January, the CBS News program “60 Minutes aired a piece about the rising vacancies in New York City as workers are slow to return to offices. The story used the phrase “doom loop” to describe the combination of rising vacancies and still-high interest rates.

In Florida, the story is much different. The Sunshine State isn’t experiencing the turbulence facing office markets elsewhere in the country.

Florida’s economy remains a bright spot nationally. The labor market is creating new jobs and the state is attracting new residents and new employers. Job creation and population growth are crucial ingredients for a robust office market, and Florida has continued to outperform the rest of the country on all counts. With the fourth-quarter results in, here’s a tour of some of the state’s key markets.

Tampa: Another record for rents

Rental rates keep rising in the Tampa Bay region. In the fourth quarter, they hit a new all-time high of $28.53 a square foot, up 4.1% from a year earlier, according to Newmark. And vacancy rates dipped to 14.7%, down from 15% a year earlier. With less than 450,000 square feet of new office space in the construction pipeline, the pace of development is slow. In one of the largest deals of the year, beverage maker Cirkul took 90,000 square feet in the I-75 corridor, while Mitsubishi Financial Group subleased 80,000 square feet in Westshore.

Meanwhile, there’s a distinct gap between amenitized downtown assets and cookie-cutter suburban buildings. In the urban core, vacancy rates have been low. For instance, the St. Petersburg central business district had a 7.6% vacancy rate in the fourth quarter, while Downtown Tampa was at 13.2%, Cushman & Wakefield reports. By contrast, some of the Tampa Bay area’s suburban submarkets had vacancy rates north of 30%.

Miami: Class A rents near $57

In Miami-Dade County, office rents rose in the fourth quarter to another all-time high. The average asking rate increased for the sixth consecutive quarter, increasing $3.51 per square foot to $51.20, a 7.4% increase, Cushman & Wakefield reported. The Class A direct average asking rate rose by $3.93 per square foot to $56.87 from a year ago. Class B space showed an 11% annual increase to $44.19.

Asking rents are much higher in the urban core. Average asking rents for Class A offices in the Brickell Avenue district were a steep $102.59. Across the Miami River, Class A space in Downtown Miami averaged $65.40 a foot.

Despite the steep rates, tenants are signing deals. For instance, JP Morgan signed a 132,600-square-foot renewal/expansion at 1450 Brickell Ave. And in January, maritime company MSC Group took 130,000 square feet at a new development in Miami’s Overtown area.

Miami’s office vacancy stood at 15% in the fourth quarter of 2023. On Brickell, the vacancy rate was just 7.7%.

Palm Beach County: Record-high rents

Palm Beach County’s overall asking rents rose to $46.21 per square foot, up 5.9% from a year earlier, Cushman & Wakefield said. Class A rents rose 4.2% to $52.43. Class B product recorded a 5% annual increase, closing out the year at an average asking rent of $41.12 per foot.

Downtown rents jumped 11.5% in the past 12 months, to $64.90 per square foot. Class A space in the submarket recorded a 14% increase during the same timeframe, up to $77.27.

On the bright side, Palm Beach County’s unemployment rate was below 3%. But a headwind comes from downsizings by Office Depot and Newell Brands, two large users that created a combined 280,000 square feet of vacancy.

Orlando: Vacancies jump

Overall vacancy increased 230 basis points to 15.5% — but there’s a caveat. The culprit was the newly constructed 278,900-square-foot Lake Nona Headquarters – Building B, a speculative project that was fully unoccupied on completion, Cushman & Wakefield reported.

However, the average asking rent climbed to $26.89 per square foot, up 2.8% for the year. Rents in Class A buildings averaged $29.12, up 1.9% annually.

The Florida success story

Population inflows and job growth are important drivers of office demand. Even if you missed the recent “60 Minutes” segment, you’ve no doubt seen the downbeat coverage of office defaults and rising vacancies in many U.S. cities, where vacancy rates of 30% aren’t uncommon. But that’s not the case in Tampa, where the office market is still going strong, at least in downtown submarkets.

As employers and employees gravitate toward amenitized buildings in bustling downtowns, Feldman Equities remains hyper-focused on our strategic sweet spot. We reposition struggling office space with a focus on dramatically increasing amenities and the quality of the work environment for tenants.

Florida’s attractive mix of warm weather, reasonable regulations and a modest tax burden is luring employers south. Financial firms from New York and Chicago and tech companies from California continue to flock to Florida.

The trend is clear: Employers and workers are gravitating toward Florida’s combination of warm weather, low taxes and common-sense regulation. And once they’re here, they want to work in vibrant downtowns, with plenty of access to restaurants and entertainment.

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