Perception: Economy is in the dumps nationwide and Miami can’t compete with wealthier cities.
Reality: Step outside, it’s beautiful here. The economy is so diverse, many good trends can go undetected before they register on a macro level.
A New York Times article provided some interesting facts about commercial office space in the downtown Miami and Brickell area — which the article alternately referred to as the “central business district:”
- In 2010, Miami’s growth in commercial office space was 2nd nationwide, to Washington DC — 1.3 million sf to their 2.5 million sf.
- A delayed 40-story office tower will now be completed by August 2011, adding 600,000 sf in office space.
- Downtown Miami’s vacancy rate is currently 22 percent, about twice that of Washington DC.
- Asking rents in the new buildings are considerably less than $40 a square foot, when concessions are taken into account.
The New York Times article is copied at end of post.
March 22, 2011
Despite Vacancies, Office Developers Bet on Miami
By TERRY PRISTIN
MIAMI — Bucking a trend that has curtailed development in other cities, the downtown Miami skyline has two shiny new office towers, its first since 2004, and will soon have a third. More office space was added in Miami last year — 1.3 million square feet — than in any other American city except Washington, which grew by 2.5 million square feet.
Yet the vacancy rate in Miami’s central business district is 22 percent, about twice that of the nation’s capital, according to the real estate services firm Jones Lang LaSalle.
Despite the empty space, the Foram Group of Miami recently announced that it would proceed with a 40-story office tower at 600 Brickell Avenue, a project that had stalled in January 2009 because of the economic downturn. Expected to be completed in August, the building will add 600,000 square feet to the downtown office market. No leases have been signed so far.
The Miami building spree has proved a bonanza for tenants, as landlords have competed feverishly by offering many months of free rent and generous financial help in creating new offices. Though annual asking rents in the new buildings are above $40 a square foot, brokers said tenants were actually paying considerably less than that when the concessions were taken into account.
Some tenants have even saved money by moving because they have been able to fit the same number of employees into less space. And they have been spared the challenges of trying to reconfigure existing space or the headaches associated with remodeling, said Diana L. Parker, a director at Cushman & Wakefield of Florida. “It’s hard to live through a renovation,” she said.
Though downtown Miami is rapidly becoming a lively residential neighborhood, office leasing is of course driven by jobs. The unemployment rate in Miami-Dade County has begun to decline, but it still stands at 12 percent. The two new completed buildings, 1450 Brickell Avenue, at the southern end of Miami’s business district, and Wells Fargo Center, at 333 Avenue of the Americas, near the northern end, have managed to lure tenants from other buildings. “The last generation of buildings are being left with big open spaces,” said Robert Kaplan, a principal of Asentus Real Estate, a real estate investment firm in Miami. “The question is how do these get backfilled?”
In October, a major Miami law firm, Bilzin Sumberg, moved into 80,000 square feet in 1450 Brickell, leaving a 90,000-square-foot hole at the Southeast Financial Center at 200 South Biscayne Boulevard. That building also lost the accounting firm Deloitte & Touche, which relocated to the new Wells Fargo Center.
Bilzin Sumberg originally had been slated to move to 600 Brickell, but it backed out of that deal in early 2009, citing the construction delay. Postponing the move enabled the firm to take advantage of lower rents and construction costs resulting from the downturn, said Carey A. Stiss, a Bilzin Sumberg partner. “Because of the timing, we had a savings in the seven figures,” he said.
Greenberg Traurig, a major law firm that lost many of its windows at 1221 Brickell Avenue in Hurricane Wilma in 2005, was able to pare its footprint to 125,000 square feet from 168,000 square feet by moving. By relocating to the Wells Fargo Center, the firm could dispense with its full kitchen and a series of dining rooms, said the new building’s broker, Jack Lowell, a vice president of Flagler Real Estate Services. The law firm now has access whenever it wants to a private dining room at the adjacent Marriott Marquis hotel, he said.
By the standards of Miami, which has few corporate or regional headquarters, Greenberg Traurig and Bilzin Sumberg are huge tenants. “This is a 5,000-foot market,” said Danet Linares, an executive vice president of Blanca Commercial Real Estate, the local firm representing 1450 Brickell.
Some landlords, anticipating the competition from the new towers, took steps early on to retain longtime tenants by lowering the rent and sprucing up their buildings. The owner of 701 Brickell Avenue, the financial services firm TIAA-CREF, was able to keep its major tenant, Bank of America, in the 1986 building, in part by moving the bank within the building. “Over all, they got a great deal,” said Scott Strickland, a senior vice president of Jones Lang LaSalle, the landlord’s broker.
Each new building has sought to differentiate itself from its rivals. After the Rilea Group, the Miami firm that developed 1450 Brickell, said that its building would be able to withstand hurricane winds of 327 miles per hour, Foram countered that its building could handle winds up to 334 m.p.h. Both 1450 Brickell and Wells Fargo Center meet gold LEED energy-efficiency standards, so Foram went for a much rarer platinum designation.
Wells Fargo Center emphasizes easy access from the downtown exit off Interstate 95 and its proximity to several restaurants. But Alan Ojeda, the chief executive of Rilea, contended that both Wells Fargo Center and 600 Brickell were too close to the Brickell Bridge, which spans the busy Miami River and backs up traffic when it opens. Last year, the drawbridge was raised 4,990 times, according to the Florida Department of Transportation.
Mr. Ojeda pointed out that his new office tower was in a less congested section than the others and offered unobstructed views in all directions. Responding to Hurricane Wilma, which littered Brickell Avenue with shattered glass and even cracked top-floor windows in one building, Mr. Ojeda decided to use high-impact glass throughout 1450 Brickell, exceeding local building standards. The additional protection, and an extra-large second generator, added about $25 a square foot to the building’s $240 million cost, he said.
The 35-story building, which was completed in March, is more than 60 percent leased. Aside from Bilzin, major tenants include several banks, the corporate recruiting company Korn/Ferry International and American Express. Ms. Linares said 12 of the 28 tenants were new to the Miami office market.
At the opposite end of the central business district, the 47-story Wells Fargo Center, which was developed by the insurance giant MetLife and the MDM Development Group of Miami, is 40 percent leased. Wells Fargo acquired naming rights by taking 90,000 square feet. The building has a bowling alley, a basketball court and the requisite gym. A Whole Foods Market will open in the base of a 10-level parking garage that MetLife and MDM are building across the street.
Though 600 Brickell has no tenants yet, Foram Group said its broker, CB Richard Ellis, began marketing the building only last month, after Canyon Capital Realty Advisors of Los Angeles made a $130 million construction loan.
Loretta H. Cockrum, the chief executive of Foram, said that when a decision was made two years ago to slow construction — she contended it did not stop entirely — Foram sought ways to make the building stand out. The tower will offer the most advanced fiber optic technology, a feature aimed at appealing to media companies and financial services firms seeking trading floors. Of the new buildings, 600 Brickell is the only one in an enterprise zone, which will allow tenants to qualify for tax incentives, Ms. Cockrum said.
Ms. Cockrum said she hoped to introduce new industries to Miami. “It doesn’t help the city to move a tenant from Building A to Building B,” she said. “We believe we are going to attract a lot of out-of-market businesses and tenants.”