Daniella Aragon-Andre
Levy Public Relations

Full Article

January 16, 2024

Total availability at the end of the year was 20.5%, down 170 basis points from last year and 130 basis points below 2019 levels, before the pandemic spurred a wave of activity in Miami, according to CBRE. Rent growth was flat in the fourth quarter, but the $52.37 per SF asking rate was still up 6.4% year-over-year.

The figures indicate a shift in the market away from large new leases by new-to-market tenants and toward expansions by established tenants and recent arrivals to the city.

“Companies that have moved here post-Covid are continuing to double down and reaffirm their commitment to Miami, they continue to bring executives and employees here and recruit more employees,” said Tere Blanca, the founder and CEO of Blanca Commercial Real Estate. “What we don’t have currently are very large, significant relocations.”

The shift in tenant dynamics is reflected in average lease size, with deals below 20K SF accounting for 81% of activity in 2023, 11 percentage points higher than the previous year, according to Avison Young. Deals below 10K SF accounted for 55% of activity, while only 3% of transactions exceeded 50K SF.

Tenants looking for space are widening their search beyond Miami’s traditional business hubs of downtown and the financial district of Brickell, where the $83.90 per SF average asking rate eclipses most other parts of the city, Blanca said.

While top-flight spaces continue to attract interest from companies seeking to upgrade space, Brickell saw 56K SF of negative absorption in Q4 and nearly 100K SF in net move-outs for the year, according to CBRE, as tenants took advantage of opportunities in other neighborhoods.

That’s contrasted by Downtown Miami, where rents are around $30 cheaper per SF and which saw 72K SF of positive absorption in Q4 and 129K SF for the year, according to CBRE. Doral and the area surrounding Miami International Airport, where average asking rents are among the lowest in Miami, followed close behind with a combined 125K SF of net move-ins for the year.

“The negative absorption in Brickell is driven by some move-outs, a little bit of downsizing and then also from tenants that are seeking lower occupancy costs,” Blanca said. “Not every tenant wants to have a total occupancy cost that starts with a rate of $120 or $110.”

A 56K SF lease from Simply Healthcare at Dolphin Corporate Park was Miami’s largest new lease in the fourth quarter.

Suburban office parks captured the three largest new leases in Q4, according to Avison Young.

Doral saw the two largest new deals: a 56K SF lease from Simply Healthcare at 11410 NW 20th St. in Doral’s Dolphin Corporate Park and a 36K SF lease from AerSale, a Nasdaq-traded aircraft parts supplier that will move into 9850 NW 41st St. Vida Integrated Health signed on for 30K SF at 14901 NW 79th Court in Miami Lakes in the quarter’s third-largest new lease.

Smaller footprints dominate the pipeline of tenants in the market being tracked by Blanca. Her firm counts more than 300 tenants actively looking for space in Miami, she said, with around 230 of them looking for less than 10K SF and more than half eyeing space below 5K SF. Just over 50 tenants are looking for 20K SF or more.

While 20% of firms being tracked by Blanca are new to market, most are looking to establish smaller offices as opposed to the wave of large leases from national tenants that helped bring the under-construction 830 Brickell to nearly full occupancy during the pandemic when it acted as a magnet for corporate deals.

Even as tenants explore space in markets outside of Miami’s core business districts, top-quality space in Brickell continues to drive rent growth. Class-A rents in the neighborhood were up 12.7% year-over-year to $96.25 per SF compared to 7.1% over the year for Class-A rents citywide, according to CBRE. 830 Brickell is garnering rents approaching $200 per SF.

“Tenants are certainly exploring opportunities across the market, they’re not limiting themselves to one set market,” Blanca said. “But if you’re a financial services firm, a hedge fund or a private equity firm, it’s typically east of I-95 where you’re finding activity,” she said, in reference to the city’s urban core.

Asking rates in Downtown Miami are up 7% year-over-year.

Outside of Brickell, rent growth was strongest in Wynwood, where asking rates grew by 9% year-over-year, and in Downtown Miami, where they rose 7%, according to Blanca. Projects under construction in those neighborhoods and other highly sought-after markets like Miami Beach are expected to continue to boost rents, but increases across much of the existing inventory are expected to taper off.

“I think that the overall market will continue to hold rent,” Blanca said. “I don’t know that we’ll have another 7% or 10% rent growth, but I don’t see us retreating.”

Rent growth and leasing activity are also pulling back from pandemic highs in Broward and Palm Beach Counties.

Leasing activity in Broward slipped for each of the last three quarters, totaling 491K SF in Q4 with 76% of all leases falling below 10K SF, according to Avison Young. Rent growth has also tempered, rising 1.9% through 2023 to $38.34 per SF, after a significant run-up that saw five-year rent growth at 18%. Rents at top assets fueled that growth, spiking 25% over the same five-year period to $66.96 per SF.

GQG Partners, a boutique investment firm, signed Broward’s largest new deal of the quarter with a 23K SF lease at downtown’s 350 E. Las Olas Blvd. The second-largest was a 16K SF deal from healthcare firm Sentry Data Systems at 800 Fairway Drive in Deerfield Beach.

In Palm Beach County, vacancy ticked up 1.6 percentage points through 2023 to 12.5% despite 2.5M SF in annual leasing activity, according to Avison Young. Still, the market saw strong activity from the banking, finance, insurance and real estate sectors, which together leased more than half a million SF, up 11.5% from the prior year.

The largest new deals of the quarter in Boca Raton were both expansions. ADT signed a 68K SF expansion lease at 1501 Yamato Road, the largest nonrenewal lease to be signed in South Florida in Q4. MPLT Healthcare signed the second-largest deal in Palm Beach County, a 30K SF expansion at 3701 FAU Blvd.

Even as footprints shrink, Blanca said the strong stable of tenants looking to lease space in South Florida was a sign that the region will continue to see similar levels of activity through 2024.

“Some of the deals that will get announced this first quarter I think will make headlines,” she said. “It’ll be a very solid year for Miami real estate as well as the entire region.”