As Miami’s Brickell became the epicenter of South Florida’s office leasing flurry during the past four years, developers jumped into the area with plans for three towers that would add 2.8 million square feet to the market.
But the influx of out-of-state companies signing major leases for big blocks of space in the tri-county region has ended, data shows. The dearth of leases from new-to-market firms puts the projects’ viability into question, including whether all three towers will lease up or be built at all. So far, none of the projects has inked a lease.
Experts say that 30 percent to 40 percent of office space has to be preleased before a lender will provide construction financing. To achieve strong preleasing, it requires a couple of firms signing for about 100,000 square feet, each.
“You can’t get that in today’s market,” said broker Robert Orban of Cresa. “I don’t think all of these would get built.”
Steve Ross’ Related Companies and Swire Properties were first to jump on the Brickell office development wave. In 2022, they revealed plans for the nearly 1,000-foot tall One Brickell City Centre with 1.4 million square feet of offices at 700 Brickell Avenue and 799 Brickell Plaza.
In more recently filed proposals, the Ardid family’s Key International and Banco Santander each want to replace their existing office buildings with taller towers. The Ardids propose the 51-story 848 Brickell with more than 750,000 square feet of offices, and Banco Santander wants to build the 40-story Santander Tower with 613,000 square feet of offices at 1401 Brickell Avenue.
Yet another project, Ken Griffin’s planned tower at 1201 Brickell Bay Drive, will be largely a headquarters for his Citadel and Citadel Securities, though it’s expected to have some offices for lease.
Construction hasn’t started on any of the projects, except for demolition of existing buildings on the One Brickell City Centre site.
As a whole, Brickell is healthier compared to other U.S. markets and “some” tenant demand for new, top-quality space will remain, Orban said. “But it’s a question of will there be enough demand?” he added.
Market pulse
Over the past year, only Apple signed a major new lease, for 42,000 square feet in Coral Gables, according to CompStak, which crowdsources its data from deals reported to its database.
Most of the rest of the leases for big blocks of space were either renewals without expansions, or companies moving their offices, leading their former spaces to be vacated, according to CompStak’s data and an analysis by The Real Deal. The few exceptions are Miami-based IT and security software management firm Kaseya leasing 101,000 square feet in downtown Miami early last year. Also, MSC Group took 130,000 square feet at Miami’s Overtown neighborhood, though the cruise and cargo shipping company bought the space and is consolidating its Broward County and other regional offices there. Assurant and Digital Bridge moved within South Florida.
Miami-Dade County’s leasing activity is increasingly for smaller offices, while deals for large spaces have been on the decline. Leases for less than 20,000 square feet represented 81 percent of the overall activity in the county last year, up from 70 percent in 2022, according to Avison Young. Leases for more than 50,000 square feet represented 3 percent of all Miami-Dade leases last year, down from 9 percent in 2022.
“The smaller tenant makeup is a little bit more confident in their decision making, whereas corporate America is still trying to figure out how they are going to deal with a hybrid work from home environment,” said Greg Martin, an Avison broker for office landlords.
This doesn’t bode well for the Brickell office projects. They “really would need an influx of major out-of-market users coming in and saying, ‘I want 60,000 square feet … and I’d be happy to take it in ‘27,’” Orban said.
Complicating matters is that Miami traditionally hasn’t been a preleasing town. Tenants tend to take space once it’s completed, he added.
Developers’ hefty bet on Brickell offices is partly due to one tower: 830 Brickell.
The nearly finished 55-story tower benefitted from the pandemic influx of businesses to Brickell and was fully preleased during construction, scoring record high rents in South Florida.
“We saw the success they had at 830 Brickell. We followed that very closely. Initially, it looked like it was a crazy project, right? But then the rates [crept] up at over 100 bucks a [square] foot … now they are creeping up closer to $200 [per square foot],” Diego Ardid, co-president of Key International, said, adding that it encouraged the firm to pursue 848 Brickell.
Yet, 830 Brickell’s success was largely due to fortuitous timing. It was built as the first standalone tower in Brickell in a decade, during the influx of businesses in 2021 and 2022.
“The moon and the stars aligned on the timing of that project, with regard to the influx of Citadel and the law firms,” Orban said. “You couldn’t have gotten any luckier.”
The planned office projects really depend on a similar influx of companies, he added. Whether they will strike such luck remains to be seen.
New chapter or history repeating?
It’s not the first time developers are rushing into Miami’s office market.
In 2010, the 34-story 1450 Brickell and the 47-story Wells Fargo Center at 333 Southeast Second Avenue in downtown Miami had just been completed, while construction on the 40-story 600 Brickell was about to resume after stopping during the Great Recession. At the time, 1450 Brickell was 60 percent leased and the Wells Fargo Center was 40 percent leased, while 600 Brickell had scored no leases, according to a report in The New York Times. The competition led landlords to give concessions, which lowered rent collections.
Though macroeconomic conditions are now different, with the office vacancy rate in Miami’s urban core now much lower than in 2011 and employment much higher, history could repeat itself. Leaseups of the currently planned towers could again take several years, while the onslaught of new space could lead Brickell rents to drop, Orban said.
The Ardids say they are confident in their project. Already, they are getting calls from Miami tenants that have small offices spread across the city and want to consolidate in a Class A building, such as 848 Brickell, Diego Ardid said. Kevin Probel, one of the JLL brokers leasing the tower, said he expects leasing to be a mix of Miami and out-of-state firms in the financial, legal and tech industries.
“New-to-market [leasing] has slowed a little bit just because of macroeconomic issues on a national level, but I think it’s still very much a trend for South Florida and Miami specifically,” he said.
A spokesperson for One Brickell City Centre said the developers will provide a project update once demolition is completed by year’s end.
It’s unclear how much office space at Santander Tower and Citadel’s headquarters would be for lease to outside firms. Citadel didn’t provide a comment.
In a statement, Banco Santander said “no final decision has been made about the project,” though the company “continues to explore its options.”
Real estate attorney Evan Rosenberg said he is confident all planned towers would get built, saying businesses will continue moving to South Florida from New York.
“A lot of these [projects] are looking for their anchor tenant, and everything will follow from there,” said Rosenberg, of Berger Singerman, who moved from New York to South Florida four years ago.
He said Brickell’s walkability and the amenities the new towers promise to offer will attract office tenants, and the influx of businesses during the pandemic wasn’t just a “fad.”
Said Rosenberg: “I think this is a permanent shift in the reality of where people are living and working in this country.”