Elevated interest rates and an overall economic slowdown caught up to South Florida’s office market.
Landlords in Broward and Palm Beach counties pushed down average asking rents in the fourth quarter, albeit slightly. Miami-Dade County, however, remained on a high note. Its average asking rents ticked up, according to a recently released report from Colliers.
Still, the drop in Broward and Palm Beach counties marks a turnaround from the third quarter, when all three counties recorded increases in asking rents.
South Florida office real estate remained largely resilient to the woes plaguing markets elsewhere in the U.S., thanks to a business in-migration during the pandemic. But the Fed’s aggressive interest rate hikes since the spring of 2022, which only eased in December, have caught up to the tri-county region.
The higher cost of capital has led tenants to pause office expansion plans or flat out put space back on the market.
“As tenants still consider workforce policies and real estate needs, leasing will reflect this, with most leases comprising less square footage,” the report says. “Office spaces under 10,000 square feet are expected to dominate leasing activity.”
On the investment sales sides, deal activity was muted in the fourth quarter, with one notable exception. Miami’s Brickell neighborhood, a prime target for new-to-market companies, scored the biggest deal of 2023.
Miami-Dade County
The average asking rent in Miami-Dade hit $53.18 per square foot in the fourth quarter, up from $50.05 a square foot, year-over-year, and $52.26 a square foot in the third quarter, according to Colliers’ report.
Following a positive net absorption of 146,600 square feet, the vacancy rate continued to drop, hitting 9.5 percent. That’s down from 9.6 percent in the previous quarter and 9.7 percent in the fourth quarter of 2022.
Insurer Simply Healthcare Plans signed the biggest lease, taking 56,000 square feet at 11430 Northwest 20th Street within the Dolphin Corporate Park in Sweetwater, according to Colliers.
This was followed by MasTec’s 38,800-square-foot lease renewal at Douglas Entrance North Tower at 800 South Douglas Road in Coral Gables. In third place is AerSale’s 35,700-square-foot lease at Doral Costa at 9850 Northwest 41st Street in Doral.
Miami-Dade’s investment sales market scored South Florida’s biggest office deal of last year. Monarch Alternative Capital and Tourmaline Capital Partners dropped $250 million for 801 Brickell. Nuveen Real Estate sold the 28-story building at 801 Brickell Avenue in Miami.
Investors also rushed to close deals before year-end. Lennar paid $68 million for its headquarters at 5505 Blue Lagoon Drive in the Blue Lagoon business district. The district is in an unincorporated county area, near Miami International Airport. Tricera Capital dropped $28.5 million for The Offices at Doral Square at 8600 Northwest 36th Street in Doral.
Broward County
Broward’s average asking rent hit $36.90 per square foot, down from $37.27 a square foot in the third quarter and $37.22 in the fourth quarter of 2022, according to the report.
The county was plagued with slow leasing and negative quarterly net absorption last year, making the fourth quarter’s negative net absorption of just 1,000 square feet a welcome reprieve, the report says. The 11.2 percent vacancy rate was flat, quarter-over-quarter, and up from 11 percent in the fourth quarter of 2022.
More than 34,000 square feet of new office space was completed in the fourth quarter, the report shows.
The city of Fort Lauderdale signed the two biggest leases. After a flood rendered City Hall at 100 North Andrews Avenue unusable last year, the city expanded its lease at Tower 101 to nearly 46,800 square feet. The deal included a renewal of the 19,300-square-foot lease and a new lease for 27,400 square feet.
The city also leased 47,600 square feet at Fort Lauderdale Landings. The complex is at 1515 and 1525 W Cypress Creek Road in Fort Lauderdale.
Addiction treatment center Legacy Healing Center Margate renewed its 25,500-square-foot lease at Crown Center at 2950 North State Road 7 in Margate, according to the report.
Investment sales activity remained low-key. Hammes Partners’ $15.3 million purchase of the Central Medical Plaza at 9750 Northwest 33rd Street in Coral Springs marked the biggest deal of the fourth quarter.
Palm Beach County
The average asking rent in Palm Beach County hit $39.71 per square foot, slightly down from $40.26 a square foot in the third quarter and $40.38 a square foot in the fourth quarter of 2022, according to the report. Still, the average asking rent for top properties hit $44.61 a square foot.
Following positive net absorption of nearly 140,000 square feet, the vacancy rate dropped to 8.7 percent. That’s less than the 8.9 percent in the previous quarter, and more than the 7.8 percent in the fourth quarter of 2022.
“Although the office market experienced an undeniable slowdown in leasing and sales activity in 2023, year-over-year market indicators in Palm Beach County remained stable,” the report says.
Boca Raton scored both the largest lease and investment sale. Security services company ADT expanded its space at The Park at Broken Sound to nearly 68,000 square feet. ADT’s office is at 1501 Yamato Road.
Bluegreen Vacations renewed its 50,800-square-foot lease at 4960 Conference Way North at Boca Raton Innovation Campus.
In the biggest purchase, Meyers Accesso paid $25 million for The Atrium at Broken Sound at 6111 Northwest Broken Sound Parkway.
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