UPDATED, May 21, 11 a.m.: The downtown Miami office market took a beating in the first quarter, despite the opening of new state-of-the-art buildings like the office portion of the Virgin MiamiCentral train station.
According to a JLL report prepared for the Commercial Industrial Association of South Florida, downtown Miami experienced a negative absorption of nearly 18,000 square feet during the first quarter, mostly due to the departure of two law firms that occupied a total of 10,300 square feet at 19 West Flagler Street.
As a result, the vacancy rate jumped to 27.2 percent, a four point increase compared to the first quarter of 2018. Asking rents stagnated, hovering at $41.52 a square foot, a 0.3 percent increase over 2018 first quarter rates.
A trio of lease deals at one of the MiamiCentral office properties is softening the blow to the downtown office market, said JLL managing director Alan Kleber, a panelist during CIASF’s May 16 office report event. Viacom is taking 23,700 square feet at 2 MiamiCentral, which is 86 percent leased. The other new tenants are law firm Carlton Fields, which signed up for 50,000 square feet, and coworking firm Spaces, which is leasing 19,500 square feet.
The two office buildings at MiamiCentral, 2 MiamiCentral and 3 MiamiCentral, sold in May to San Francisco-based Shorenstein for $159.4 million.
While the downtown Miami office market is hurting, Kleber said major corporate tenants are gravitating to office buildings like 2 MiamiCentral because of the amenities packages and the close proximity to mass transit hubs. “The definition of Class A in this market used to be a handful of buildings where you have unobstructed ocean views,” Kleber said. “From a user perspective, the tier one market class is no longer defined by what you see out the windows.”
Viacom is relocating from a sixth floor space at the Herzog & De Meuron-designed 1111 Lincoln Road building in Miami Beach to a new Class A building that does not offer a similar view. “They are bringing 500 people and growing their space by 4,000 square feet,” he said. “That is mind-blowing.”
Carlton Fields shareholder Yolanda Strader said her law firm has been headquartered at the Miami Tower at 100 Southeast Second Street for two decades. “It’s all glass and offered unobstructed views,” Strader said. “We had to think long and hard on where we wanted to transition. This building stood out because of the amenities, the transit and the access to the highway.”
The CIASF report also shows the Miami office market is becoming heavily reliant on co-working firms. The largest tracked lease in the Brickell office market during Q1 was a 35,800-square-foot expansion by Regus at 801 Brickell. On the same block, WeWork signed a lease for 146,000 square feet at 830 Brickell, an 80-story building with 550,000 square feet of office expected to be completed in 2022. WeWork will account for 27 percent of the building.
In the first quarter of this year, the Brickell office market had a 12.5 percent vacancy rate and average asking rents increased 6.7 percent year-to-year to $48.10 per foot.
In other submarkets, Coconut Grove experienced a positive absorption of 7,660 square feet, the vacancy rate is at 6.5 percent and asking rents are averaging $46.51 a foot, an 18 percent year-over-year increase. The Gables submarket had a positive absorption of 92,460 square feet, but the vacancy rate inched up to 10.9 percent from 9.4 percent. Asking rents jumped from $39.64 in the first quarter of 2018 to $45.73 per square foot.
Correction: An earlier version of this story incorrectly identified the vacancy rate in the Brickell office market.