Despite rising vacancy rates across the Miami-Dade County market, development continues on about 3 million square feet of office space in the county.
Factor in the 500,000 square feet delivered in the second quarter and the 1.8 million square feet coming online in early 2010 and it’s a fairly daunting picture. Asking rates are declining and concessions are getting more creative — and may have to become even more inventive.
“We are in the trough and I don’t know how long we’re going to be there,” said Alan Kleber, senior director at Cushman & Wakefield Miami. “Absorption is not going to improve because white collar job growth is not improving. I am not certain if it’s bottomed out yet.”
With a vast oversupply of space — Miami alone has seen nearly 200,000 square feet of negative absorption year to date, according to CB Richard Ellis — landlords have been doing just about anything to maintain a tenant base.
Developed by Miami’s CFH Group, the Bird Road Professional Office Center in west Miami, is a good example. CFH started leasing its latest office project in January 2009. The Class A office space is 75 percent leased, but it didn’t happen without aggressive concessions.
In a move to secure long-term leases, CFH Group typically offers tenants one month of free rent for each year leased. So a company that leases office space for five years gets five months free. That means Bird rents the space for $26 to $28 a square foot instead of $28 to $30 a square foot.
“The concessions will last until companies start hiring and expanding,” said Tomas Cabrerizo, CEO of CFH Group. “The new space coming online is going to take a while to absorb, but my feeling is we’re 12 to 24 months away from seeing any improvement in the office market. I’m hoping by the middle of next year we’ll begin to see the light at the end of the tunnel.”
Scott Frank, a partner in the real estate practice group in the West Palm/Boca Raton offices of the law firm of Arnstein & Lehr, reports seeing concessions as far down the leasing chain as Class B and C properties, from discounts to tenant improvements to lower security deposits. Frank sees only one remedy: time.
“There’s so much subleasing going on right now at below-market rates,” he said. “The landlords who don’t want to go belly up are going to continue to make concessions for as long as they have to. I imagine we’ll have to wait until the second or third quarter of 2010 to see any improvement. People are going to keep making deals.”
Kleber has a different take. A few Miami-Dade submarkets have seen positive absorption in 2009. Kendall is one of them, with more than 200,000 square feet of positive absorption, a welcome sign in a distressed market. Coral Gables is also faring well, and Kleber expects to see fewer concessions after the first quarter of 2010.
“In the landlords’ mind the perception is they’ve bought enough deals to keep tenants in place or bring new tenants into the building. They’ve weathered the storm and now they are going to sit tight and lay back on some of the concessions to see where they stand,” Kleber said. “Landlords might start to claw back and try to create a more stable environment in which they are doing deals early next year.”